Millennials invest more conservatively than retirees

InvestDespite the technological gap and years between them, young people today have something in common with their grandparents that may surprise you: They invest like them. In fact, numerous surveys this year support the notion that young people are in some cases even more risk-averse than your average retiree. This aversion to risk has led millennials (those born between 1980 and 1995) to invest less of their money in stocks and more in cash. According to a UBS survey earlier this year, affluent millennials invested about 52 percent of their money in cash and just 28 percent in stocks. In contrast, older investors have nearly 23 percent allocated to cash with 46 percent in stocks. If millennials have so much time on their side, why are they investing like they are already retired?

Living through the market declines of the “Great Recession” elevated levels of unemployment, and witnessing student loan debt balloon to over $1 trillion has certainly contributed to a lack of confidence in the stock market. According to a first-quarter survey by MFS Investments, nearly 46 percent of millennials stated they will never be comfortable investing in the stock market. There is a concern that the avoidance of equities is not a temporary theme, but rather a long-term investment philosophy that may hold back the achievement of their future financial goals. While all investing contains risk and returns are never guaranteed, being too conservative can make achieving long-term financial goals extremely difficult.

Interestingly, risk aversion seems to be spreading into other areas. Not only are millennials avoiding stocks, they are also investing less in real estate. In fact, recent Census Bureau numbers point out that homeownership for Americans 35 and younger is down to 36.2 percent — the lowest on record. For most Americans, their home is one of the largest investments they will make during their lifetime. However, millennials are missing out on this opportunity by choosing to rent for prolonged periods of time.

Millennials arguably face more of an uphill battle than most generations before them. Concerns over the future state of Social Security and limited access to defined benefit pension plans mean the onus to save and prepare for retirement falls squarely on the shoulders of young people. Unfortunately, they are ill-prepared to take on this responsibility.

So what should millennials be doing? First, they need to give their financial IQ a boost. From taking personal finance classes and reading a good book on the topic to working with a professional, it is critical for young people to embrace financial planning. Developing good financial habits early on can help jump start the achievement of financial goals.

Next, millennials shouldn’t be afraid to take risk. Time is one of the greatest resources a young investor has and there is no need to invest in long term investment/retirement accounts like a cash reserve – you simply may not be able to reach your goal. Failing to outpace inflation over the long term can lead to major financial challenges so be careful being too conservative. Remember, inflation loves to feed on cash.

While the market can fluctuate greatly and the financial crisis of 2008 is not likely to be the last recession we live through, there is no need to panic over volatility if you have 30 years until retirement.

While it may not be advisable to be too conservative with long-term investments, cash reserves or funds for a down payment on a first time home purchase have no business being invested aggressively, either. Remember, if you don’t have at least 5+ years to invest, caution must be used. Properly earmarking and investing your funds according to their purpose can help ensure that your risk levels match your time horizon.

Finally, young people need to think about retirement early on in their career and be sure to take full advantage of the only free money out there: a 401(k) match. While few workers will have access to a pension, many do have 401(k)s at their disposal. For those fortunate enough to have a plan with a match, it is important that they save enough to earn the full match, regardless of how young they may be. For example, to earn the full safe harbor match of 4 percent, a worker must save 5 percent. Too often, young workers overlook this opportunity and leave thousands of dollars on the table each year.

Millennials do face an uphill battle when it comes to their finances and success may be predicated on the development and implementation of financial planning early on in their life. Improving financial literacy, investing strategically and taking advantage of retirement resources that are available may help. Since everyone’s situation is unique, consider speaking to your financial adviser to determine the most appropriate financial plan for you.


Kurt J. Rossi, MBA, CFP®, CRPC®, AIF® is a CERTIFIED FINANCIAL PLANNERtm Practitioner & Wealth Advisor.  He can be reached for questions at 732-280-7550,, & LPL Financial Member FINRA/SIPC.