Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
Young workers across the UK are among the most vulnerable to job losses or a reduction in working hours due to the financial strain of the coronavirus outbreak.
The effect of furlough, reduced overtime and hiring pauses all have the capacity to stymie income, and therefore long-term savings pots, among the youngest workers.
And while some sectors are tentatively opening back up, a wider economic recovery will take time, meaning we might have to contend with reduced earnings and saving power for some time yet.
Financial implications for young people
While those entering retirement now face their own battle with virus-induced volatility affecting the value of their investments, young people face a different challenge.
Generation Z and millennials are more likely to see a gap in their savings now, due to the outbreak. This means greater attention will have to be paid to bolstering accounts when normality resumes, to make up for lost time.
And while young people often adopt a higher-risk approach to investing because of the timeframe they have in front of them, the savings dearth could prompt even the most risk-averse savers to climb the risk scale. Many will be wondering if this also means they will have to extend their working lives to make up the shortfall currently being created.
What can young people do now?
The important aspect in all of this, in terms of savings, is that money is not being put away to build up interest and investment gains over time. And while there is no substitute for time, if people can keep even a portion of their current savings pots ticking over it could help dramatically over the long haul.
Topping up monthly savings as soon as possible when normality resumes should also be high on the priority list. The longer gaps in savings plans last, the more effort it will take to bring them back in line with their previous trajectories - this may entail higher contributions in the future for longer than we think.
Are there any positives from the sell-off?
Dips in the stock market can be fairly meaningless over the long term, as graphs smooth out over time. What they do provide is a chance to invest in good companies currently experiencing a tough period.
Investors can benefit from low share prices in firms used to exhibiting sustainable growth characteristics in more normal circumstances. Taking advantage of these prices now, with a view to holding the shares for 30 to 40 years could be useful come retirement time.
Young people should also be careful not to let current events prompt rash decisions based on emotion. Withdrawing money from investments now through fear all but ensures it can’t benefit from any subsequent market recovery.
Prepare for a different type of retirement
Millennials are getting more and more used to the idea of working through retirement. This could be by gradually reducing hours, retraining or monetising a hobby as we near traditional retirement age, or just taking on the projects and jobs you want to supplement your income.
But these secondary income strategies are just that - auxiliary sources that support the main stream. The more we can save now, the less we will have to worry about plugging the gaps later on.
Setting up a portfolio with enough income streams from uncorrelated assets and the ability to pay out regularly, while maintaining the opportunity for further growth is key.
Even with episodes like this one, long-term savings enjoy the value of compounding over time and the snowball effect it brings to savings. The true exponential growth is only really seen as we enter retirement, so keeping the pot ticking over now is all the more important for growth later down the line.
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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