Chart of The Week: Why Do Millenials Fear Stocks?

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Nov 21, 2014
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Behavioral Finance, Question of the Day, Investing, Stocks, Chart of the Week

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Fascinating chart from WSJ shows one reason that Millenials may not be so enthused about stocks.  For a millenial born in Jan. 1980, the stock market return (S&P500) adjusted for dividends and inflation was basically flat for the 12-year period from their 18th to their 30th birthday.  Contrast that with those born in 1970 (dating myself here, but I am just a few years from that date) who saw $1 turn into $5 during that 12 year period (1988-2000 was a heck of a bull market!).

From WSJ article that accompanies this chart:

But when left to our own devices, many of us are terrified of investing in stocks.  Last year, a Wells Fargo survey showed 52% of millennials are “not very confident” or “not confident at all” in the stock market.  When we invest on our own, we put 59% of our assets in cash and bonds, and 28% in stocks, a recent survey by UBS Wealth Management found.

“This is directly counter to traditional long-term investment allocation advice,” which is that younger investors can afford to take greater stock risk when investing for retirement because they won’t need the money soon, UBS notes.

As for why millenials fear the market…

“Millennials are skeptical of the stock market,” says Patrick O’Shaughnessy, portfolio manager at O’Shaughnessy Asset Management in Stamford, Conn., who has written about millennials’ attitude toward money. “We’ve witnessed a lot of loss.” [Editor’s note:  See internet bust and Great Recession].

While the analysis might be true about not showing much over 12 years of investing between their 18th and 30th birthday, most young investors are putting new money in the market over time (such as through a 401k) so I would expect their returns using a dollar-cost averaging strategy to be quite a bit better.  The point is well taken however that your 20s are an impressionable time when you might be tiptoeing into the stock market for the first time.  If the early experiences aren’t positive ones, it might take awhile for you to invest in the stock market again.

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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