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Will Generation X Finally Cash in On Stocks?

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It has stunk being Generation X.

Born between 1964 and 1980, we have the unfortunate luck of being born between the two largest generations in American history, the Baby Boomers, born between 1946-1963, and the Millennials, born between 1980 and 1997.

So we are often overshadowed and are considered an after thought.

In stock investing, we also have had unfortunate luck of being the only generation to experience 2 major stock market bear markets within the same decade. Good times.

We also had bad timing with housing, with many of us buying high during the housing boom and then enduring the housing bust. We're lucky if our properties are back to prior highs a decade later.

But fear not fellow GenXers. The tide is turning in our favor. Now may finally be the time when we can cash in big on the stock market.

The History of Secular Bull and Bear Markets

GenXers and Millennials are in agreement about one thing: the Baby Boomers had it made financially.

They only had to buy a house, virtually anywhere in the United States, in the 1980s and hold onto it. And if they bought a diverse basket of stocks at the same time, they would have gotten rich, even with the dot-com bust of 2001-2003.

In investing, the Baby Boomers had the luck of perfect timing.

The US stock market has had two big secular bull market runs in the last 100 years.

1. 1942-1968

This was the post-war rebuilding years when technology boomed with the invention and mass marketization of televisions, refrigerators and washing machines.

Not surprisingly, this bull coincided with the birth of the massive Baby Boom generation.

This 26 year bull market returned 15.1% nominally and 11.7% in a real return.

2. 1982-2000

After a secular bear market, punctuated by the Super Bear market sell off of 1972-1974 and the now infamous Businessweek "death of equities" cover published on Aug 13, 1979, stocks staged another secular bull run.

This was just in time for the Baby Boomers to come of age.

While it was shorter than the previous bull, at 18 years, it was more powerful with the S&P 500 gaining an average of 19.1% in nominal terms and 15.4% in real terms over that period. The Dow Jones Industrials averaged 16.8%.

You didn't have to have any skill to cash in. All you had to do was be invested at some point.

It was easy. Buy and hold.

This came during the height of the Baby Boomer's working years

Additionally, the bond market entered into its biggest bull run in a hundred years at that same time, giving the Baby Boomers yet another source of wealth with, it turns out, little downside up until 2016.

Are We in Another Secular Bull Market?

From 2000 until 2013, the US stock market went nowhere. Despite hitting new highs in 2007, there were two big sell-offs during those years including the dot-com bust of 2001-2003 and the Great Recession market crash of 2008-2009.

When a market goes nowhere for years, that's a classic sign of a secular bear market.

From 2000 to 2013, the S&P 500 returned an average of just 1.4% in nominal terms and lost 1% in real terms.

Can you blame anyone for hating stocks?

Generation X Has Had the Worst Investing Luck

Poor Generation X. When many of us graduated from college, we faced the recession of 1992 and a bad job market. We didn't have the money to invest in stocks in the 1990s, when the last secular bull market was going on. We were too young.

We came of age as investors during the dot-com boom though. Many GenXers were the first generation to "day trade" and trade from online accounts with low fees.

Suddenly, everyone could be their own stock broker.

But the dot-com bust wiped out a lot of GenXers stock accounts. We only had a few years reprieve before the Great Recession downturn hit, further wiping out any prior gains.

Generation X was demoralized. Here we were in our 30s and 40s, nearing our "peak" earnings years with little show for it in our 401ks or other investment accounts. Money that we had built up in those accounts prior to 2008 just evaporated away in that big market sell off.

Many turned away from stocks. Can you blame us?

Perfect Timing Coming Soon?

While the returns from 2000 to 2013 look dismal thanks to two big stock market sell offs, something key happened in 2013.

Stocks passed the October 2007 highs, but this time, never looked back. The S&P 500 hasn't tested those levels again.

From a technical perspective, many believe that's a sign that we've entered into a new secular bull market.

Here's a chart from Humble Student of the Markets Blog of all the secular bull and bear markets using the Dow Jones Industrial Average through 2013.

If you look at just the last 8 years, it's starting not to look so bad.

Returns of the S&P 500 under the following Presidents during secular bull markets:

1. Bill Clinton: 1992-2000: 211.3%
2. Barack Obama: 2008-2016: 175.7%
3. Ronald Reagan: 1980-1988: 129.6%

For those GenXers who have been investing monthly into a 401k or IRA since the Great Recession, the timing has been perfect.

If you were able to continue or start investing in 2009 near the market bottom, hard to do, of course, it would have been even more spectacular.

But if we had invested at any time during the last 8 years, and kept dollar cost averaging every month during that time, we would have seen great results.

This Bull is Only 4 Years Old

But GenX has been burned too many times before.

We've been told in the past that now was the time to invest, only to see yet another bear market sell off.

We are gun shy.

But if we're truly in a secular bull, then we are only in the first innings of it. Most secular bull markets have lasted over 10 years. This is just the fourth year.

That means the oldest GenXers, who are about 53, and the youngest, who are around 37 or 38 years old, could see quite a run in the stock market over the next decade.

Could it finally be the time when GenXers will cash in on stocks?

What GenXers Are Invested In

TD Ameritrade shared investing data in 2015 with Benzinga showing which stocks were most popular with each generation of investors.

There were some interesting surprises including that Generation X was the only generation out of the 3 recent generations, the Baby Boomers, GenX and the Millennials, to have Amazon (AMZN - Free Report) as a top 10 holding.

But Amazon is a GenX company. Founded and still led by GenXer Jeff Bezos (born in January 1964- so he's right on the edge of GenX), Amazon was one of the first e-commerce websites most GenXers ever used. It's not surprising we remain loyal to the retailing giant.

But GenX was also the only generation that did NOT have an energy company in its top 10 holdings. Both Baby Boomers and Millennials had Exxon (XOM - Free Report) in their portfolios.

Why Wouldn't GenX Be in Exxon?

Few remember the oil price plunge of 1998, which sent crude down to $10 a barrel. But GenXers do. At the same time, the dot-com bubble was raging and that's where the real money was being made.

Many of us have vivid memories of Qualcomm (QCOM - Free Report) jumping 100% in a single trading day. Look at the 20 year chart. You can see the craziness of the late 1990s pretty clearly.

GenXers were mostly new investors at that time.

Why would GenX want to invest in a sector that they remember as dead and boring? Exxon shares didn't do anything during the dot-com years.

Even in the last 10 years Exxon has returned just 23%, without dividends.

Buy the Indexes

If this is truly a secular bull market, it will lift all boats. That means the indexes will see healthy gains.

Indexes are not a bad way to play a bull market. After all, who wouldn't want the average returns of the 1982-2000 bull? That would have made you rich.

If you want a little more risk than just buying the S&P 500 (SPY - Free Report) index, then consider the Russell 2000 small cap ETF (IWM - Free Report) .

The small caps have under performed the large caps for several years which could indicate that their time may be coming around again.

How'd they do during the last secular bull market?

According to MacroTrends, under Reagan, the small caps rose 107% and under Clinton they gained 122.9%. Both under performed the S&P 500 during those periods however (see those returns above.)

The Key Is to Invest

Many Baby Boomers somehow managed to miss out on cashing in on the last secular bull market in stocks.

Even small amounts can add up to big numbers in a secular bull market. Even if you don't have a single dollar in the stock market, it's not too late to start.

The investing stars are finally aligning for Generation X. Don't end up like many of the Baby Boomers, who failed to cash in on the biggest investing opportunity of their lives. Now's our time.

Are you ready?

[The author of this article, who is a GenXer, owns shares of AMZN (of course!) but also is a secret fan of energy stocks and, unlike her peers, owns XOM too.]

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