Millenials and the Stock Market

The generation named Millenials appears to have different attitudes toward investing and the stock market than previous generations. This article technically is about “robo-advisors” or computer-assisted investing, but it contains a lot of information about how cautious Millennials are about the stock market and how they don’t trust traditional financial advisors. As a result, they have a lot of money sitting in cash and aren’t putting as much in 401(k) plans.

A survey conducted by UBS, the Swiss bank that manages $158 billion of client money in the U.S. alone, found that people between 21 and 36, with two recessions fresh in their memories, are remarkably conservative financially. Seventy percent of people in that demographic in the UBS survey described their risk tolerance as moderate, conservative, or somewhat conservative. The survey also said that young people “now define risk as permanent portfolio losses” (as opposed to transitory losses or missing out on potential gains), and this is reflected in very conservative decisions about saving and investing that run “directly counter to traditional long-term investment allocation advice.”

it’s not just young people in the U.S. who are shifting away from stocks — globally, stocks have gone from 51.6% of the overall market portfolio in 1990 to only 36.3% in 2012, according to a paper published in the Financial Analysts Journal.

“This generation now that we’re claiming is underinvested, when they hear ‘stock market,’ they only think risk,” said Josh Brown, the CEO of Ritholz Wealth Management. “Their formative experience is seeing the S&P 500 cut in half twice in the past 15 years, you’d have to go back to the 1930s to see that much pain was compressed in that much time.”