Common wisdom says that young people are supposed to be wild and carefree, but young investors are a different story. Investors considered “young”—and there’s no “at heart” about it—are those under the age of 35. And it seems these investors are going against standard market wisdom, and avoiding investment risk.
Young Investors Are Wary Of Risk
While the typically recommended investment portfolio begins with a heavy investment in stocks—and therefore risk—and grows more conservative over the years, CNN Money reports that only 22% of young investors currently feel comfortable following this pattern. This is marked decrease from 2001, when 30% of young investors operating with the safety net of a solid economy were willing to take substantial risks with their money.
Outside Forces Have Prompted A New Pattern Of Decisions
As with most spending, consuming, living, and investing patterns, this new conservatism is a direct result of a disheartening past few years. In the stage of their lives that young people are supposed to begin establishing infrastructure for the future, to get jobs, to graduate college, to move away from home, many young would-be investors are crippled by a less-than-friendly economy. The unemployment rate for those under 35 is 3.6% higher than that for the country, and graduates are moving home to families that have suffered all manner of financial set-backs, from depleted retirement accounts to foreclosed homes. It’s no wonder that young people feel more comfortable keeping their money in money market accounts and CDs, where they can see it, rather than in a threatening stock market.
When Everything Is An Anomaly, How Do We Act?
Young investors are in a singular situation: Their generation is expected to live longer than any before it, but Social Security won’t sustain them. A retiree is expected to need at least 70% of her previous salary after stopping work, which adds up to a lot of money over 15 years of retirement. Now imagine that retirement lasts at least 30 years—the new generation of retiree will need twice as much in savings as their predecessors! The old fix for this would be investing early and investing heavily, but the new investor reluctance poses a problem. How is the young investor supposed to account for an extended retirement? Or obtain her first job in a market where every applicant is overqualified? Or sink her money into stocks and real estate that have nothing to do with the markets learned about in school? Never fear, young investor: Perhaps there will be time for wildness after maxing out your IRA.
Tell us in the comments: What's your best advice for the young investor?