7/25/2013 4:30 PM ET|
Why Generation Y fears the stock market
For Millennials, financial security is a fragile hope amid high educational debts, stagnant upward mobility and poor employment prospects.
One of the largest transfers of wealth between generations is starting to occur in the U.S. As baby boomers enter the retirement phase, the next generation of workers, Gen Y or the Millennials (those born in the 1980s and 1990s), are now entering the workforce and beginning their prime earnings phase.
According to research firm Iconoculture, Gen Y comprises over 76 million people with almost $900 billion in spending power. In contrast the baby boomers, also numbering 76 million, have $2.5 trillion in spending power.
However, for this new generation, it's a very different world than the one seen by their parents. The baby boomers saw the rise of the U.S. into the world's only superpower and all the accompanying economic growth and rewards that came with it.
They reaped the rewards of the chemical revolution, the golden age of manufacturing, the computer revolution, the information age, energy abundance and globalization. They also juiced growth via the use of debt which turned the U.S. into today's debtor nation.
In contrast, the future outlook for Gen Y is that of a nearly bankrupt nation, rising global competition from emerging countries, crumbling infrastructure and insolvent retirement and welfare programs, among other ills. For this generation, financial security is a fragile hope due to high educational debts, stagnant upward social mobility and poor employment prospects.
For Gen Y, it becomes even more important to start retirement planning early as government Social Security guarantees, employment security and wage-growth prospects will not be what their parents experienced.
Post-traumatic stock syndrome
However, this generation has also suffered through several financially traumatic experiences that have and are continuing to shape its investing views.
Baby boomers saw a relatively stable and strong growth period during the '50-'70s which influenced their long-term belief in market returns. In contrast, Gen Y adults experienced two major bubbles and recessions and high volatility, which have led to one lost decade already.
Indeed, the early vanguard of the Gen Y'ers joined the real world only to experience the dot-com crash. They subsequently started investing in their mid 20s only to find the housing bubble and the subsequent great recession. The first impression is the most important and so far it doesn't look promising.
This lack of tangible gains, roller-coaster volatility and recent scandals such as the bank bailouts, mortgage shenanigans, Ponzi schemes and scandals like Goldman's designed-to-fail securities have all made them cynical and distrusting of the stock market and investing in general.
This isn't hypothetical. In a recent MFS Survey, 40% of Gen Y agreed with the statement "I will never feel comfortable investing in the stock market." Among Gen Y investors, 54% feel overwhelmed by available choices and 47% tended to put off investment decisions.
Due to fear of risk, 30% said their primary investing objective is protecting principal and have allocated an average of 30% to cash, more than other age groups, and nearly equal to the 33% allocated to stocks. T. Rowe Price noted in 2010 that almost one in five self-directed participants age 25-35 had over 80% of plan assets in cash.
While protecting principal is no doubt important, excessive risk aversion does not lend well to long-term investing: after all, no pain, no gain. With 54% of Gen Y concerned about when they would be able to retire and 44% lowering their retirement expectations, they need to put aside their fears and tiptoe back into the markets.
What can Gen Y'ers do?
Though these psychological traumas have already influenced Gen Y actions, luckily time and youth is on their side. With the first wave still in their early 30s, there's still plenty of time to start and let compound investing work for them.
The important first step is learning to let go of their fear of the market, or at least reduce it to a healthy level. Yes, the stock market can be a scary place sometimes, but there are precious few ways to generate returns significantly above inflation -- a necessity in a Social Security-less future.
Notably, high volatility and risk averseness have caused Gen Y to make more use of financial advisers and other experts. Especially for those concerned about market volatility and risk, seeking a financial adviser to help them tiptoe into investing is a good idea.
However, it's particularly important that one find a good and trustworthy adviser -- those with fiduciary duty is a must. While advisers do charge fees that can undermine returns, in this case it's still a net positive over the high cash many Gen Y'ers are holding.
And keep in mind; advisers are not a lifetime commitment. There's nothing wrong with learning from them and then striking out for yourself.
One trait of Millennials is their considerable sophistication in finding information and learning for themselves. The widespread availability of financial products and services such as ETFs, online discount brokerages, instant financial info like real time quotes and new tools such as computer-aided rebalancing have given then all the help needed to create a well-rounded and diversified portfolio ready for the long term.
It may be we'll look back from the future and call this the Generation DIY.
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Maybe it's because i don't trust it. Maybe it's because my brokerages lost so much of my retirement in early 2000's and 2008 while at the same time raising their fees. Could be because my financial adviser was obsessed with reits throughout the mid 2000's while everyone i knew buying houses were wondering how they were going to pay their mortgage in a few years. Because like a casino the odds are fixed and the house wins. So why would i want to gamble the money i worked so hard to save. As a fulltime worker i don't have instant access to the market floor. I don't have inside information. And i don't have the power or money to make large profitable trades. My experience with investment firms has been horrible.
I watch as companies cut dividends to share holders but keep doling shares out to corporate employees. I see government (ex. the EPA) Influencing the stock market. I've seen large firms crash a stocks price in the time it would take me to get to a phone. Everyone sees how companies operate nowadays, so why would i want to invest in them? Products and services are getting crappier everyday and the costs keep skyrocketing. When top tier employees put their wallets first and the companies well being second, it doesn't make me feel that it's a good investment. Analyst are constantly getting it wrong.
I have been invested in the market over the past 12 years of my working career and don't have much more than my contributions and cash savings. I fear the market because of my experience with it. Money doesn't grow on trees. There is only so much wealth on the planet that just gets shifted around. I don't have the power to shift it my way so i'll just save what little i earn.
you piss away 2-300 a month on your smart phone
you have a student loan that's higher than my mortgage
you have ZERO people skills
you have no clue as to what drives the economy
you wonder why the real world doesn't coddle you like your mommy did
you haven't figured out to make on your own 2 feet and still live with your parents
you don't know how to balance your checkbook
you think the world OWES you something
YOU SHOULD SLAP YOUR PARENTS FOR GIVING YOU A TROPHY FOR COMING IN LAST
Baby boomers saw a relatively stable and strong growth period during the '50-'70s which influenced their long-term belief in market returns???????
No Baby Boomers would have been investors in the 1950's. Most Baby Boomers would have been in grade school during the 1950's and 1960's. Few may have been investors during the late 1960's and early 1970's. Most would have begun any significant investing in the late 1970's, just in time to later get hit by the twin recessions of 1980 and 1981 and then later the crash of 1987.
Understandable they don't trust the Market.
Instead, being young and idealistic, they trust pandering politicians who get their vote, but ultimately steal the freedom and incentive that would have given them the best shot at financial security.
Get skeptical about them, Gen Yer's, change your demographics voting patterns, and it can get better.
Each generation gets their own opportunity to figure this out.
The trouble is, is that the markets are NOT working as they should. Take away Benny's fiat funny paper money, and the market would CRASH! Don't believe me? Look what happened to the market last month, when Benny just HINTED about SLOWING DOWN THE GROWTH OF PAPER GOING INTO WALL STREET. The market PANICKED
Bad decisions by any generation bring there own results.
I have and still do my darndest but my kids, grand kids and many friends make the same mistakes but blame it on the economy.
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