On December 31, 1999, most people in first world countries were all wondering what was going to happen once midnight struck and we were in the new century – year 2000 A.D. “Y2K” was a watchword of the year. The Year 2000 problem or computer bug they called it. “Would all the computers crash?” was the big question. “Would internet and electronic based banking and investing shut down?” I remember discussing these issues with people. There were people instructing us on best practices for saving food and water in our homes and protecting our businesses by having backup systems in case “the worst” happened and we couldn’t access our computers and online information. Of course we had no idea what “the worst” might look like. There was only conjecture. No one knew if and who this would affect. We just knew it had the potential to jam up shipping and trucking and supplies getting to retailers and who knows what else!
Now almost 20 years have gone by, and the Millennial generation is in their 20’s and 30’s.
Most research supports that Millennials as a group (about 71 million) are saving well; however, according to a Fidelity survey, 42% of them are investing conservatively. This is a higher percentage of “conservative” investors than Gen X or Baby Boomer investors. (Forbes)
Millennials also tend to hold more of their portfolio “in cash” – as much as 25% – according to a study of client data by Charles Schwab & Co. (Forbes)
Another survey performed by Ally Financial reported that 66% of people aged 18 to 29 and 65% of those 30 to 39 say that investing in the stock market is either scary or intimidating. This number decreased to the 50th percentile for those aged 40 and older. (Forbes)
Bank of America’s Money Habits Millennial Report revealed the following top take-aways:
- 1 in 4 millennials worry often about their finances, citing not having enough money saved as the top stressor.
- 73% of millennials say their generation overspends.
- 64% believe their generation is bad at managing money.
- 63% of millennials do save. (BofA)
One reason previous generations may be more comfortable with stock market risk is that many millennials were young adults when the stock market crash of 2007-8 happened which may have been a factor in their discomfort with investing whereas previous generations have seen the economy dip, crash and bounce back.
A professor of finance at Santa Clara University and author of “Finance for Normal People”, Meir Statman, has great advice for millennials nervous about investing and that is – to put stock-market risk in perspective with other risks in life. When you think about it, stock market risk is not the biggest risk in life compared to choosing who you will marry and share your life with, where you will live, city or rural, your education, your profession, choosing to change your profession when your first one becomes obsolete.
These choices – decisions – carry with them enormous risk!
(If you don’t believe me, think about all the 16-20 year olds that pick a boyfriend or girlfriend that everyone knows isn’t “good” for them) How this decision shapes their future is instrumental. Stock market risk is a lot lower on the “impact” scale, especially if you’re under 40 years old. (As you get into your 50s, the time value of compounding interest doesn’t have as many years to accrue, hence increasing your vulnerability to higher risk investments.)
So, put risk in perspective to feel more at ease about investing.
It’s great that millennials know they need to save for their future, yet they tend to be hesitant to invest due to feeling scarred by various financial crises.
Statman reminds us, “taking risk is not a luxury; it’s a necessity. If you look at risk in the overall context of life, you see that we take risk not because we like risk, but because we have aspirations. Aspirations are the engine, the driver of the train, and risk is really one of the cars of the train.”
Having an advising partner to help build your financial future helps fuel these aspirations and provide funding for them. Begin to lay the financial bricks of your net worth building plan. It will create peace of mind and lift that weight of anxiety off your shoulders.