Money and the Millennials

A new investor class faces new challenges, with a new outlook on goals



Asset values are surging into record territories at an interesting time in American demographics:


"Millennials are much more susceptible to earning money and saving it than previous generations.” — Vince Morris, Bukaty Companies


The heart of the Millennial generation, the youngest group working today, has seen a stock-market boom that’s going into its 10th year. At the older end of the spectrum, investors now in their mid-30s have enjoyed returns not dissimilar from those witnessed by Baby Boomers back in the ’80s and ’90s. And yet their experience has been tempered by lessons they learned from a distance, watching their parents’ life savings get crushed a decade ago.
At the younger end of the spectrum, investors just starting their careers have seen nothing but up, up, up.

Overall, there are early signs of an investor class that is both risk-averse and lacking investor sophistication, potentially foreshadowing the loss of trillions of dollars in portfolio earnings over the next 40 years. Adding some urgency to things  is the looming transfer of an estimated  $30 trillion in wealth from Baby Boomers to their children, many of whom fall in the Millennials’ age ranges.

So where do the Millennials stand as an investor class?

“We’re finding Millennials are much more susceptible to earning money and saving it than previous generations,” says Vince Morris of Bukaty Companies. On the older end, he said, “They have seen two major downturns, in 2000 and 2008. They’ve seen family members dislocated, suffer job losses—that surety hasn’t always been there, unlike the Boomers.”

The Millennial investor class, said Mariner Wealth Advisors’ Brian Leitner, is one with a greater college-debt burden, “and that influences the way they see world. Their risk tolerance, by and large, is quite low.” And yet, he said, those investors have the longest time horizon among working Americans.  

The interesting thing about being a Millennial investor, says Jay Hummel of American Century Investments, is that “they have more choices than any generation before. But what concerns me most was this generation watched their parents or grandparents lose a significant amount of money in the last downturn. They have a large allocation of cash as a generation, but a much greater fear of investing than any other generation.”

A further irony, Hummel noted, was that they’re the generation starting to invest at a time when robo-advisory services have blossomed, “but a larger percentage want to work with an adviser, because of that fear of investing, and they believe a face-to-face relationship will help overcome that.”

Even though the reference points for this generation have been heavily shaped by the aftermath of the dot.com bust, Sept. 11 and the 2008 financial crisis, the  experiences of this cohort differ significantly from those of the previous two gener-ations, said Jim Williams of Creative Planning. 

In addition to college-debt concerns, he said, many are “unable to consider home ownership due to the stricter lending requirements after the 2008-2009 financial crisis. Many may have graduated during the height of that and struggled to find employment in the field they had just studied, much less in a position that paid enough to support their student-loan payment obligations.”

  In general, he said, those conditions have imbued Millennials with a fear and skepticism regarding investing. “This skepticism translates into an interest in investments that will have a positive impact on the future, focusing on socially conscious or environmentally conscious investments,” Williams said.  

Philip Sarnecki of Northwestern Mutual/RPS Financial Services sees trends at work that are both troubling and promising. “I have seen that Millennials prove to be less sophisticated in their investments, while also being way more risk-averse,” he said, a combination that could have devastating consequence for long-term portfolio growth. On the plus side, tho-ugh, “I have also seen through my business that Millennials are much more focused on using wealth for philanthropic purposes.”

Fortunately for this group as a class, said Emily West of FCI Advisors, “they’re still in the early days of investing. They’ve had some headwinds from a wealth-accumulation standpoint, so it will be interesting to see how they evolve as they become more established. How much of the attitudes and preferences we see ascribed to them are really generational vs. being symptomatic of their phase of life? 

“So much is still changing with this age group, it’s really too soon to say.”