Aren't Millennials afraid of the market?

No, but they have other things to spend money on – check back in 5 years

Feb 6, 2014 @ 12:46 pm

By Mary Beth Storjohann

Yes, I work with Gen Y. And no, they don't come to me risk-averse and afraid of the stock market.

Lately, it seems that every few weeks a report comes out addressing how conservative Millennials and Gen Yers are and listing a range of reasons as to the “likely” causes of their larger cash holdings or their focus on saving instead of investing.

As a Gen Y planner working with Gen Y clients, I thought I'd comment on a few of these findings and note some of my own observations.

Risk tolerance. While more Gen Yers may check the box next to conservative in response to the question “How would you classify your risk tolerance?” my question is whether they truly understand the difference in the options ranging from conservative to moderate to aggressive. Are they being asked a general question or are they given a visual aid that refers to a comfort level with volatility and monetary losses?

These things matter in terms of an education standpoint with Millennials, many of whom are just getting into the investing world. Some may think choosing a target date mutual fund in their 401(k) is conservative. What is their benchmark as to what constitutes “conservative” and how are they being educated on what their risk tolerance means and how it translates into their financial lives (before answering these questions)?

Cash holdings. I've seen a variety of reports that the large cash holdings of Millennials indicate their conservatism and fear of markets due to dramatic economic volatility. Where are the comments about the actual life stage that many Millennials are in right now?

They're getting married, having kids, buying homes, cars and making cross country moves to obtain new jobs. Having a larger allocation to cash may be the exact thing they need if they're working toward a large goal where the funds will be needed in a short period of time. When starting out, emergency funds need to be built and short-term transition goals need to be saved for. Cash makes sense in these instances.

Check in on this same group in five to 10 years, after they're settled in, and you'll likely see a different story.

In addition, if a client has come to me with cash holdings that need to be invested, it hasn't been due to fear of the market, but simply a lack of understanding as to where the money should be placed. They are sometimes frozen due to the plethora of options available, not fear of market volatility.

I'm not saying there aren't conservative Millennials — as there definitely are. What I do think is that these types of reports and surveys make bulk assumptions and overgeneralizations about this age group, when the focus should be on the education they need — whether it's about investing or another topic of financial planning.

Each of your clients may come to you at a similar stage in life, but they likely all have different money experiences and goals.

Millennials are no different. They come in a variety of risk tolerances, incomes, transition stages, and financial and personal goals. It's our job to help and educate them one at a time.

Mary Beth Storjohann is founder of Workable Wealth, a financial planning firm for Gen Y, by Gen Y. Follow her on Twitter: @marybstorj

0
Comments

What do you think?

View comments

Recommended for you

Advisers on the Move

Featured video

Events

3 Questions to ask yourself when making your succession plan

Michael Futterman from Janus Henderson Investors has sage advice for advisers as they approach retirement.

Latest news & opinion

Genstar Capital buys majority stake in Cetera Financial Group

The private-equity firm has previously invested in such companies as Mercer Advisors and AssetMark.

Cetera Financial Group close to announcing its acquisition by private equity

Details of sale to one or more P-E firms could be announced as early as today.

10 best states for retirement

When it comes to places to retire, here are the 10 best states for enjoying your golden years.

Focus Financial raises goal for IPO to $600 million

Company's revised goal from $100 million could be a sign RIA valuations are rising.

CFA Institute adding crypto, blockchain to curriculum

Subjects will be added to its Level I and II coursework for the first time next year.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print