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.