Millennial Investing Habits – All You Need to Know


Millennial Investing Habits – All You Need to Know


Who is a millennial? What is a millennial? Well, the answer to those questions is very simple. Essentially, any person who was born between the early 1980s and the mid 1990s is a millennial. This particular group of people has been given the name, “millennials” because it was the first graduating class of 2000, the first year of the new millennium. Similar to other cultural generations, Millennials are people who belong to the same age group. As a result of growing up in the same span of time, they share some common ideas, problems and attitudes. Millennial investing habits are also quite similar. The generation that came just before the millennials, is known as the Generation X (shortened version of Generation Next). So instead of calling themselves Gen Y, millennials chose the catchier, more unique title. If you are wondering how many years span a generation, there is no fixed answer to that but roughly it’s about 30 years.

Millennials are also known as Echo Boomers because of the birth rate surge during the 80s and 90s. Millennials also tend to be very savvy with communications, media and digital technology.

Millennials get a bad rap. They get blamed for everything from the death of cable TV to the decline in sales of mayonnaise. This generation—generally people born anytime from the early 1980s to the late 1990s—represents a large group of people with a significant impact on the economy. Millennial saving and investment habits are quite different from other generations. 

Millennial Saving and Investment Habits 

Here are some of the most prevalent saving and investment habits of millennials:

Millennials don’t give top priority to retirement savings 

Perhaps quite unsurprisingly, the ‘instant gratification’ generation doesn’t treat putting cash aside for retirement as a top priority. They are too busy battling with debt. The 18th Annual Transamerica Retirement survey revealed that 45% of millennials marked saving for retirement as a financial priority. Meanwhile, 67% of millennials named paying off debt as a priority.

Millennials have a low risk appetite 

Many millennials may recall the major stock market decline in 2001 and the financial crisis in 2008. The memories of many millennials are still fresh with the doom and gloom of 2008’s recession. They still remember many of their loved ones losing their jobs, houses and cars during that time. The market has been quite bullish in the recent years, however, those awful memories are probably causing them to be extremely cautious and risk averse when it comes to investing their hard earned cash.  

A survey from Bankrate revealed that 30% of millennials see cash as their favorite investment. All other generations said they preferred stocks.

Millennials expect timely or early returns

A recent research has discovered that most millennials don’t intend to work during their old age. While 69% of baby boomers said they expect to work past age 65, 58% of millennials said they plan to be retired by that age, according to the Transamerica Retirement Survey. A lot of millennials questioned in the survey wanted to retire even sooner. Some wanted to retire as early as 50.

Millennials need to catch up

So Millennials hope to retire early, and they expect to live a long time. This means they have some work to do to get their retirement savings on course. A report from The Center for Retirement Research at Boston College says that millennials have a wealth-to-income ratio of 40%

That puts an average millennial’s total net worth at just 40% of the annual income. That’s lower than the 53 percent reported by Gen Xers and 47% by Baby Boomers when they were the same age. Boston College notes that millennials are weighed down by student loan debt, stagnant wages and a high cost of housing.

Millennials care a lot of socially responsible investing

There has been a rising interest in so-called “socially responsible investing”, which takes into account social and environmental good as well as overall return. This is driven by an increasing number of millennials starting to invest. According to a Morgan Stanley report released last year, over 86 percent of millennial investors were interested in investing sustainably. This is much higher than only 75 percent for the entire population in general. What that means that other age based groups are not as socially conscious as the millennials (or at least don’t perceive themselves to be). 

The Morgan Stanley report also stated that when it came to companies targeting social and environmental goals, millennials were twice as likely as the general public to invest in them. Over 90 percent of the millennials want sustainable options within their 401(k) plans as well. 

Millennials prefer simple investments

When it comes to investing their hard earned money (at times through vlogging, instagram modelling etc.), millennials prefer the less complicated options.  Millennials are a significant driver of the push toward index mutual funds, which have low expense ratios and are merely designed to track the movements of individual indices or the overall stock market. (Passive funds now make up about 30 percent of the market, according to Moody’s.)

They’ve also taken advantage of new exchange-traded funds and target-date mutual funds.  Target-date mutual funds such as the Vanguard Target Retirement 2055 shift people’s asset allocation from stock-based funds to bond-based funds as the investor advances in age.

Most millennials don’t have retirement plans provided by their employers

The growth of the gig economy may be impacting the number of Millenials who have 401(k) and other company-sponsored retirement plans. The report from the Center for Retirement Research at Boston College notes that fewer than 40 percent of millennials are taking part in employer plans. Meanwhile, baby boomers and Gen X-ers take part at a clip of more than 50 percent.

Here is an excerpt from the Boston College report: “This lack of a savings vehicle is a particular concern given that individuals who do not have a workplace retirement plan rarely save for retirement on their own.” 

Millennials tend to not build an emergency fund corpus

When it comes to saving and investment advice, building an emergency fund is highly recommended. Such a fund is extremely helpful in unfavourable situations such as losing a job, accruing huge medical bills, losing your house or your car in a natural disaster etc. Most finance experts recommend having at least a few months of living expenses saved in an account which should only be accessed during emergency situations. According to Transamerica, about a quarter of the Millennial population has less than $1,000 saved. As a matter of fact, the median level for the millennial population is only $2,000. 

The good news, however, is that they are starting to save earlier than other generations did. Baby Boomers waited until the age of 35 to start saving while the Gen-Xers waited till 30. Millennials have started saving as early as the age of 24.

Final piece of advice for millennials

So what’s the upshot for the millennial generation? Millennials aren’t doing poorly. They face challenges that are not necessarily their fault. Clearly, they need to boost their rating of saving and can do so by working to reduce their debt load and becoming slightly less risk-averse.

Those that have 401(k) plans available to them should take advantage and contribute at least to the level needed to get the maximum in matching funds from their company. To gain some tax-free growth on their investments, millennials should also try to use a Roth IRA. Millennials should also focus on putting a strong emergency fund together. 

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