Plus: why Q3 was weirdly good October 7, 2024 Sign Up | View Online IN THIS ISSUE 8 min read Congratulations! We made it to the end of Q3 2024. How did it go? We explain below. We also explore how different generations are faring in this economy — and, more specifically, whether millennials are still way behind the rest of us. We’ll be back next Monday with our regular programming (and the FOMO Index). Enjoy this special edition in the meantime. —The Editors Q3 IN NUMBERS July 1 – Sept. 30 TSX: +9.7% (+14.5% YTD) S&P 500: +5.5% (+20.8% YTD) Nasdaq: +2.6% (+21.2% YTD) Bitcoin: +6% (+52% YTD) Magnificent 7: +4.78% (+30.3% YTD) Bloomberg Commodity Index: +0.7% (+5.9% YTD) Biggest Canadian Gainer*: CIBC, +28.9% Biggest Canadian Loser*: Cenovus, -15.2% *Universe: TSX 60. Total returns shown. Bloomberg data. THE QUARTER IN MARKETS It has been a season of ugliness and instability around the world — metastasizing violence in the Middle East; a chaotic U.S. presidential election; labour strikes galore; discomfiting questions around China. Yet stocks and bonds finished the third quarter up big, turning a great year to an incredible one. How is that possible given all the bad/disruptive stuff in the world? Basically, it comes down to a seismic shift in global monetary policy. After three years of rampant inflation, all the major central banks — including the U.S. Fed, the longtime holdout — have now started cutting interest rates; in fact, Q3 was the first quarter in four years that no global central bank hiked rates. Rates are expected to fall fast, perhaps by as much as 1.5% by the end of 2025. For investors, this is a stars-aligning scenario, because falling rates plus a resilient economy equals a perfect recipe for corporate profits and (as we’ve already seen) booming stock prices. Rate cuts tend to benefit bond prices, too. Of course, who knows what lies ahead. If it’s scary, remember that weathering risky times is why you get paid to invest — and creates opportunities for big returns, as this quarter just reminded us. THE BIG IMPORTANT STORY Generational Wealth Showdown: Who’s Really on Top in 2024? Four or five years ago, all the big newspapers and media outlets seemed to be constantly running stories about how millennials were totally doomed, finance-wise. And, to be honest, it was hard to argue otherwise. The typical millennial (born between 1980 and 1996) entered the workforce during or immediately after the Great Recession. Then once they’d gotten on their feet and the economy started gaining steam, boom: a pandemic, mass layoffs, inflation, a housing crisis — a turducken of economic woes. So it made perfect sense that millennials would be less well-off than their (typically) boomer parents (born 1946–1964). As for Gen X (born 1965–1979), they were generally thought to fall somewhere between the two: not as doomed as millennials, not as effortlessly prosperous as boomers. But, after some pandemic-era wage gains, are millennials, who compose the largest portion of Canada’s population, still woefully behind older generations? Or are they actually doing OK relative to Gen Xers and boomers? And how are those older generations doing, anyway? We decided to dig into the data to see how everyone stacks up. Read on. Round 1: Income! OK, so when you’re comparing generations’ finances, income is a decent place to start, since it ends up being a big factor in wealth (which we’ll get to in a moment). Workers’ income follows a predictable pattern. A typical 20-year-old doesn’t make — to use a technical term — diddly, while the average worker in their 40s or 50s tends to earn vastly more. So, for an accurate picture of how the generations stack up, you want to look not at their current incomes but their incomes when they were the same age. The age of 30, or thereabouts, is particularly good to examine because the money you make then tends to have an outsized effect on your savings, thanks to the power of compound interest, aka the eighth wonder of the world. So how do the generations compare? After a slow start, millennials, who are now between the ages of 28 and 44, are pulling in a bit more money than either Gen Xers or boomers did at the same age when adjusted for inflation. This is actually not totally shocking since Canada’s economy has grown more prosperous over the past three decades. So will this trend continue forever? No one knows. Income growth, after expanding rapidly during the pandemic, is stalling (which could be even worse for Gen Z, whom we’re excluding from this analysis because there’s not tons of great data about them yet). We’ll have to wait and see whether wages keep up with living costs. Winner: Millennials (by a hair) Round 2: Net worth! Income is one thing; wealth is another. Above, you can see the median inflation-adjusted wealth by generation and age for Americans. Unfortunately, there’s no fresh data available for Canadians’ net wealth, but the (pretty stale) StatCan data we do have reflects similar trends. And, since Canadian and American millennials have almost identical rates of homeownership — about 52% for both us and them — and since homes have traditionally been one of the largest drivers of wealth in Canada, it’s reasonable to assume that U.S. and Canadian millennials are probably faring about the same. Anyway, the data suggests that millennials not only caught up to Gen Xers and boomers over the past few years but might have even pulled ahead. That’s largely because, despite the housing crisis, millennials have continued to buy homes at the same rate as earlier generations — likely thanks to the bank of mom and dad. And house prices, as you can see below, have soared, drastically increasing millennials’ net wealth. What’s remarkable is that millennials have more debt than past generations do and are more cash-poor as a result. Even so, they appear on track to build more wealth. Winner: Millennials Round 3: Affordability! But wait!, you might be thinking. Hasn’t the high cost of living really hurt millennials relative to past generations? Yes, the cost of living has risen over the past two decades, but wages have mostly kept up with rising prices — except when it comes to housing, as the chart above shows. And that’s understandably upsetting for a great number of people, since most folks aspire to own a place. Soaring home prices have also exacerbated wealth inequality, since renters have entirely missed out on the real-estate boom. Ditto stocks: those who own them have benefitted hugely from rising equity prices, while those who can’t afford to invest have been left out. No surprise, the wealth gap is now the widest on record, with both the middle class and the poor losing ground. In other words, the rise in wealth broadly is almost certainly clouding growing disparities. One potential saving grace for at least some millennials and Gen Xers is that we’re currently in the middle of the greatest wealth transfer in history. Canadian boomers will pass on something like $1 trillion to their next of kin in the coming decades as they sail off to the great Margaritaville in the sky. Which means some members of younger generations will likely benefit from the recent asset boom even if they don’t currently hold said assets. And those assets could at least somewhat make up for the high cost of living in terms of wealth-building — or make inequality worse. Winner: Boomers and Gen X. And the millennials who own assets. The Upshot: Life is long. Things change. The most obvious takeaway from all this data is that just because media outlets declare that you and your generation are 1,000% screwed, you shouldn’t throw up your hands in despair and stop saving and investing. Because things can change fast, as they have for millennials, and not investing would have been a mistake these past few years. The path to wealth has never really changed: work hard, try to earn a decent income, save, and invest. Boring but true! That said, bear in mind that markets aren’t static. Housing has been a huge driver of wealth since about 2000. But home prices were basically flat from the mid-1970s to the mid-1980s; then, after a surge in the late ’80s, prices were flat again for much of the 1990s. This is important to remember since the federal government and many municipalities are currently trying to make housing more affordable, and who knows how effective they will be or what will happen when boomers finally downsize or move out of their longtime homes. Maybe real estate won’t keep rising forever? Such unknowns will make diversification as important as ever, no matter your age or stage. Again, boring but true! Last, there are all sorts of valid reasons for youngish people to feel glum about the future: climate change, war and unrest, inequality, economic uncertainty, etc. But it’s also true that some important things in Canada — wages and wealth, for starters — have incrementally improved, and there’s no reason why Canadians across generations can’t continue to make strides. So try to keep that in mind if your personal financial situation feels fraught. Doom-spiralling is not a wealth-building strategy. —Sarah Rieger Illustration by Ilya Milstein THOUGHTS ON TODAY’S ISSUE? Love it Good So so This week’s newsletter contributors: Ben Mathis-Lilley (writer), Devin Gordon (writer), Stacey Woods (writer), Sarah Rieger (news writer), Ambrose Martos (fact checker), Ciara Rickard (copy editor), Clare Douglas (copy editor), Sara Black McCulloch (fact checker), Mohini Tailor (lifecycle marketing manager), Matthew Karasz (markets editor) Jared Sullivan (senior editor), Peter Martin (senior editor), Kat Angus (managing editor), and Devin Friedman (editor-in-chief). Wealthsimple Media Inc. 80 Spadina Ave Suite 400 Toronto, ON, M5V 2J4 VIEW IN BROWSER PRIVACY POLICY UNSUBSCRIBE TLDR is offered by Wealthsimple Media Inc. and is for informational purposes only. Any views expressed are those of the individual author and/or of Wealthsimple Media Inc., not of Wealthsimple Financial Corp or any of its other subsidiaries or affiliates. 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