For decades Baby Boomers and Generation X have viewed blue chip stock as bedrock—solid, low-risk, and essential to a balanced portfolio. But that changes with Millennials. In their 20s and early 30s now, Millennials seldom invest.
Only one in three owns stock (one in five among younger Millennials.(1) Forty percent of Millennials prefer cash over stock for long-term savings, and only 1 in 10 Millennials say they would use a raise at work to invest in the market.(2)
When they do buy, they’re skittish about big blues. Their investments lean toward the small, the short term and the disruptive. Why do Millennials seem bent on what looks like high risk to older generations? It’s mostly their history.
Why So Market-Shy?
Depending on their age, Millennials experienced up to three major market crashes-- 1987, 2001, and 2008 -- before they turned 20. The only market they have ever known has seemed risky. According to a 2015 survey, 93% of Millennials named lack of trust or lack of knowledge as the primary reasons they are market-leery.(3)
That’s not to say they won’t buy stocks. On the whole, Millennials are remarkably optimistic and pragmatic. They simply want things to work. During the past couple of decades, Millennials have seen that no company is too big to fail, and they’ve seen startups become unicorns. It is often easier for them to trust alternatives, private equity and startups. This flies in the face of traditional wisdom, but mirrors the Millennial mindset.
Being an entrepreneur is a key role model for this generation. Fifty-four percent have started or plan to start their own business. Twenty-seven percent are self-employed.(4)
Millennials are risk-adverse, but they see risk where other generation see stability.
What Are They Looking for?
You can reach Millennials with education. As a group, Millennials are notoriously financially illiterate, but open to coaching. They trust learning that is experiential and conversational. They want to be talked with, not talked at. State Farm’s Next Door coffee houses are a good example of testing the waters with the kind of financial education Millennials value.
If blue chips feel risky to Millennials, what might feel safe? Ironically, disruptors. Millennials have grown up during an age of disruption. They are accustomed to new ideas that upend traditional business models. Think Warby Parker, Amazon Fresh, AyrB&B or UBER.
It doesn’t seem particularly risky to Millennials to create a whole new way of doing business. On the contrary, it’s simply what you do.
Finally, Millennials want control. This generation goes online to do everything for themselves. Mobile apps let them shop and bank with their thumbs. Many Millennials trust tech over people. If asked to choose between a traditional investment firm or a payment app, 37% of Millennials say they trust a payment app more.(5)
The popularity of investment apps like Stash or Wealthfront tell us that Millennials, who may be hungrier to invest than we realize, want to do so with a feeling of control. In fact, 67% of Millennials say that when they do invest it’s very important to them to decide for themselves which funds or companies to invest in. They want your advice, but not your supervision.
Millennials can learn to trust the market, and probably will, but with a difference. They may never assume bigger is better, and it’s a sure bet they’ll always want more control than Boomers or Gen X expected.
Author, speaker and consultant Amy Lynch works with companies that want to Harness the Power of Generational Intelligence. Contact her about your next event. www.GenerationalEdge.com
1. Bankrate 2016
2. Wells Fargo 2016
3. CapitalOne Sharebuilder
5. Harris Poll