Millennials err on the side of caution when it comes to investing

Millennials err on the side of caution when it comes to investing
The generation that has decades till retirement is most enthusiastic about cash instruments.
JUL 25, 2018
By  Bloomberg

Millennials think cash is the best long-term investment. Unsurprisingly, they're not seeing good returns. Almost 1 in 3 millennials said cash instruments, such as savings accounts and certificates of deposit, are the best place to invest money they won't need for the next 10 years. That compares with only 21% of older generations — most of whom prefer the stock market — according to research released Wednesday. The study was conducted for Bankrate.com by market-research firm GfK SE, which gathered data this month from 1,000 Americans age 18 and older. Millennials were defined as those between the ages of 18 and 37. So are millennials trying to take advantage of rising interest rates to earn a competitive return? Not quite. The generation has the lowest propensity to earn interest on their savings. More than 1 in 5 millennials said they're earning less than 1% interest on their savings, while roughly 19% of millennials said they're not earning any interest whatsoever, according to the study. Millennials were also found to be the demographic most likely to not know how much interest they're earning on their savings. http://www.investmentnews.com/wp-content/uploads/assets/graphics src="/wp-content/uploads2018/07/CI116456725.PNG"

"The Federal Reserve inflation target is 2%, so earning less than the rate of inflation is losing buying power," said Greg McBride, chief financial analyst at Bankrate.com. Only 18% of all American adults are earning more than 1.5% on their savings, at a time when top-yielding national available savings and money-market accounts are yielding interest rates of more than 2%. Baby boomers are the generation most likely to earn more than 1.5% on their cash. "Cash is entirely appropriate for your emergency fund," Mr. McBride said. "But when saving for a decade or more, you can afford some short-term risk in exchange for the power of compounding the higher rates of return that come with investments like the stock market." Why are millennials so hesitant to invest in equities? It's simple, according to Mr. McBride. "This generation was scared out of the stock market during the financial crisis," he said. Despite recent job gains and falling unemployment, millennials' financial outlook is bleak. These young Americans are overburdened by student debt, have put little into savings and retirement plans, and are struggling to find affordable homes. "Millennials need to be invested in stocks, particularly for their retirement account," Mr. McBride said. "Every thousand dollars you put away today could be $15,000 by the time you retire. But that doesn't happen if you're hunkering down in a safe-haven investment." (More: To serve millennials, advisers must adjust not only fees but their mindset)

Latest News

Maryland bars advisor over charging excessive fees to clients
Maryland bars advisor over charging excessive fees to clients

Blue Anchor Capital Management and Pickett also purchased “highly aggressive and volatile” securities, according to the order.

Wave of SEC appointments signals regulatory shift with implications for financial advisors
Wave of SEC appointments signals regulatory shift with implications for financial advisors

Reshuffle provides strong indication of where the regulator's priorities now lie.

US insurers want to take a larger slice of the retirement market through the RIA channel
US insurers want to take a larger slice of the retirement market through the RIA channel

Goldman Sachs Asset Management report reveals sharpened focus on annuities.

Why DA Davidson's wealth vice chairman still follows his dad's investment advice
Why DA Davidson's wealth vice chairman still follows his dad's investment advice

Ahead of Father's Day, InvestmentNews speaks with Andrew Crowell.

401(k) participants seek advice, but few turn to financial advisors
401(k) participants seek advice, but few turn to financial advisors

Cerulli research finds nearly two-thirds of active retirement plan participants are unadvised, opening a potential engagement opportunity.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today’s choppy market waters, says Myles Lambert, Brighthouse Financial.

SPONSORED Beyond the dashboard: Making wealth tech human

How intelliflo aims to solve advisors' top tech headaches—without sacrificing the personal touch clients crave