The Era In Which You Started Saving Affects How You Invest

In 1997 William Strauss and Neil Howe published The Fourth Turning: An American Prophecy. The premise of this fascinating book is that American history has gone through a cycle of recurring “seasons,” brought about by a repeating sequence of four generation types.1

For example, they posit that the generation that came of age after the Civil War and were responsible for Reconstruction and the great industrial expansion, shared a similar mindset with the Baby Boomer generation born 80 years later. In both cases they were characterized by idealists looking for ways to move forward after a societal crisis marked by the assassination of an admired President.

The Fourth Turning has been highly influential, especially among business and political leaders, and like any sweeping theory has also had its critics. But there’s no denying that people born around the same time will have their attitudes shaped in similar ways by their environment. For example, those who lived through the senseless carnage of WWI were extremely reluctant to enter WWII.

In the same way, your attitudes and expectations about investing are heavily influenced by the financial environment in which you first started putting money away. And those, in turn, affect your investing behavior.

A recent study by Vanguard found that the year investors first started saving could be correlated with how much stock they owned. “The median investor who started in 1999, as the dotcom bubble swelled, still had 86% of their portfolio in stocks in 2022. For those who began in 2004, when memories of the bubble bursting were still fresh, the equivalent figure was just 72%.”2

In other words, investors who opened accounts during a boom are likely to retain a significantly higher allocation of equities decades later.

The prudent investor will point out that your equity allocations should be determined by your current risk tolerance, investing time horizon, and retirement goals—not your feelings about how the market treated you 20 years ago. This holds true whether you’re prone to being overly optimistic or pessimistic.

One of the most valuable roles your trusted advisor plays is that of a neutral party who can develop your plan based on proven principles and your unique financial circumstances, leaving investing beliefs and emotions out of the equation. Run ups and corrections will always mark the day-to-day behavior of the market. But your best chance for retirement success is a strategy of steady discipline and long-term consistency.