Helping Millennials find the courage to invest – and stay invested

Millennial Investors

“Dad! S&P 500 @ all-time high! Time to get out of mkt?”

I got that text from my 31 year-old daughter the other day, and it really hit right in the center of my work and personal lives. She is a Millennial, aka Gen Y, a generation spanning 1982 to 2000.

My daughter has been invested in the markets since she was in college. Still, her comments caught me off-guard for a moment. I recall teaching her how to ride a bicycle, and later a car. And now we are going to talk about market timing! Who knew?

In that instant, my mind drifted back to the dot.com boom (and eventual bust) and I thought how interesting this present scenario is. It was precisely 180 degrees away from the conversation we could have had 15 or so years ago, when she might have called to ask if she should go all-in on a high-flying tech stock (a conversation I can recall having with my ex-stock broker, by the way).

I would imagine a lot of advisors have fielded questions similar to my daughter’s, so let’s see what may be motivating this well-educated and seemingly risk-averse group.

A risk/return reality check

It turns out that Millennials as a group are surprisingly conservative investors. We might point to a lot of reasons but coming of age in an era of 9/11, a decade of war in the Mideast, and the Global Financial Crisis seem to explain some of it. A recent Russell paper addresses this observation and is supported by 2014 research from UBS that found, on average, Millennials held 52% of their investable assets in cash. It’s an alarming number, given how much they will need to save to secure their financial future.

Given that, the finding that only 28% of Millennials see long-term investing as a critical element of achieving financial success seems troubling. For such a well-educated generation, Millennials have more to learn when it comes to investment basics. As a group, they will likely need to overcome any reliance on short-termism to achieve lasting investment success.

And that may help explain another troubling observation from our paper. Over 40% of Millennials think bank CDs and savings accounts are worthwhile places to invest. Obviously this is something we as an industry need to address and every advisor with Millennial clients must be aware of.

Weave their optimism into their long-term investment outlook

My daughter and I had certainly talked over the past few years about basic investment concepts like asset allocation, diversification, and the value of staying invested. I’d given her books on investing and even written her a missive or two on my own beliefs on the subject. But that was long before I’d read this recent research. So I explained to her that taking too conservative an approach at her age created another risk altogether. I presented my views on shortfall risk, but was I really getting through to her? We had to find a happier medium between risk and return based on her age.

She understood that. And she also understood that it would be a good idea to pay less attention to those media headlines about the highs, lows or in-betweens of the equity markets. I told her we’d have more conversations about this. And she’d probably experience all kinds of emotions over the decades to come. But she has me to call to talk her through those ups and downs.

Commit to ongoing conversations

Like all clients, Millennials need investment guidance and encouragement. While they tend to favor mobile communication and social networks, sometimes you have to pick up the phone or – heaven forbid – have a face-to-face meeting (although Skpye or Face Time could do in a pinch). As was the case with my daughter, our communication required more than 140 characters.

Whatever generation you’re connecting with, Russell has the tools to get you started. Our Asset Class Dashboard and Economics Indicator Dashboard are great resources to help you help your clients keep the movements of the markets and the economy in perspective.

The bottom line

I don’t know for sure how much cash my daughter keeps but I know it’s a fair bit: like the rest of her generation, she is nervous about big market swings. In that way, she is more like my grandparents, whom she didn’t know, than she is like her parents. I’m not her financial advisor (and don’t want to be), but I felt the need to provide her with a little tutorial on the concept of risk and return (and perhaps market timing).

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  1. January 22nd, 2016 at 18:51 | #1

    Couldn’t agree more that we need to ignore the news headlines. When investors panic they get hurt. Having a long term investment outlook allows you to stop gambling and speculating your money and let’s you sleep at night. Great article. What books have you suggested for your daughter?

  2. avatar
    Kevin Hoffberg
    January 25th, 2016 at 13:21 | #2

    @Millennial Investing

    What a great question.

    A couple of answers. The first actually isn’t a book, but a long letter I wrote to both of my children a few years ago where I laid out the basic ideas behind risk/return, the value of diversification, a general description of what asset classes were and what they represented, and the general differences between the different product formats.

    The second is that both of my children send me things they read and we discuss them via email, text, or some other agreeable form. As to the specifics of your question, I suggested they both read anything by William J Bernstein, and in particular his recent little tome called “If You Can.”

    That work?

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