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3 Insights into the Millennial Investor

Generation Y—also known as the Millennial Generation—refers to the population segment born between the early 1980s and late 1990s. Like most generational cadres, this demographic tends to have a different set of values and preferences than its predecessors, and research[1] indicates that these differences become especially clear when it comes to investing. Already, several themes are emerging.

Risk Aversion

People born in the 1980s and 1990s tend to be more risk averse than the generations immediately preceding it. This approach actually runs counter to common financial planning advice, which suggests that younger investors with longer time horizons should often be on the more aggressive end of the risk spectrum. But a recent UBS report suggests that Generation Y harbors a persistent skepticism, having grown up at a time when markets have been unusually volatile and many scary events have taken place. The bursting of the technology bubble, the attacks of September 11, 2001, and the subprime mortgage crisis were unforgettable events, all of which sent shockwaves through the markets. As a result, new investors entering the markets over the past 5-10 years may demonstrate a higher level of distrust, leading to an initial preference for lower risk asset classes and higher cash balances.

This risk aversion makes more sense when we look at how the stock market behavior of the 1980s and 1990s differs from the market behavior of the early 2000s. Between 1980 and 1999, for example, the S&P 500 index only experienced two calendar year declines (1981 and 1990)—and those declines were minimal at -4.9% and -3.1%.[2] The gains during those years were plentiful, including 10 separate years with calendar year returns of over 20%, also assuming reinvested dividends. Contrast that with the following fifteen years between 2000 and today in which the S&P 500 has experienced four calendar year declines, including a 37% drop in 2008 and a 22% drop in 2002. These performance numbers may have created a certain level of comfort and trust for investors building a portfolio in the 1980s and 1990s—a trust that may not exist for younger investors who watched many of those market gains disappear between 2000-2002 and then again in 2008.


Many younger investors may delay or minimize their use of defined contribution plans such as the 401(k) and 403(b) and utilize online brokerage platforms instead. A study from research group Hearts & Wallets polled 5,000 households with at least $100,000 in investable assets, and determined that Gen Y investors prioritize financial independence and shorter term goals over traditional retirement. Those priorities can lead to reduced usage of traditional retirement savings vehicles. The article does suggest that there may be insufficient education on the benefits of defined contribution plans, including tax deferral and employer matching. If those benefits were better understood by younger investors, perhaps the utilization rates of these plans might improve.

The desire for increased liquidity may also reflect the theme of risk aversion.  Today's young adults have a cash position that averages 52%, substantially greater than the 23% average cash position of their parents’ generation.[3] These workers may compensate for a potentially reduced investment return through longer hours, increased savings, frugality, and improved education. But there is an irony here in that younger workers with longer time horizons and a desire to avoid risk may be undermining themselves by keeping half of their assets in cash. Those funds may not only miss out on potential investment gains, but they could also gradually lose purchasing power due to inflation.

Social Consciousness

Generation Y also pays much closer attention to corporate social responsibility than their parents and grandparents did. According to a 2011 study by ad agency TBWA/Worldwide, 7 in 10 young adults consider themselves social activists. As such, corporations must be keenly aware of their public image to attract and appeal to a young and discerning group of investors.

Part of this increasing awareness may have to do with how the younger generation receives information, which is generally through the internet and social media. Researching companies and investments is easier than ever and that accessibility of information allows younger investors to make investment choices that align with their values.

While some younger investors might still choose to follow in the footsteps of their parents, an increasing number are more skeptical about market behavior and are therefore straying from traditional investment behavior. The catalyst for the changing preferences of this younger generation may be the result of recent market conditions, evolved expectations, or some combination of both. Regardless, in the years to come, the industry will be watching Generation Y and responding with new ways to serve its needs.

[1] UBS Investor Watch: Think you Know the Next Gen Investor? Think Again: Q1, 2014

[2] Decline figures reflect S&P 500 returns that include reinvested dividends.

[3] Bundrick, Hal, Gen Y Develops a Depression-Era Mentality, Jan 28th, 2014,

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