The Hesitant Millennial Investor.

Why now is the time to face your fear of investing.

Beyond the Millennial Stereotype
When I get referred to as a Millennial, I usually cringe. I always strive to be an individual and pride myself as an independent thinker. When I’m lumped in with the crowd, I tend to object. Of course, I do love my avocado toast but that’s beside the point.

Certain traits become identifiers for groups of people based on their age. I may not think of myself as tech support, but my parents still assume I can “fix the internet” because I was born between 1981 and 1996.

I tell myself that I am not the Millennial stereotype, but in recent years I had to do some difficult soul-searching on the financial front. Was I really fitting into the mold of the dangerously conservative Millennial investor? A recent BlackRock Global Investor Pulse Survey showed that we hold more of our assets in cash than any other age group.

There’s a disclaimer before I continue: stagnant wages and student loan debt are no joke. This is not another article suggesting if you quit buying Starbucks that wealth will rain down. Bloomberg published their generational wealth report in late 2020 that supports this argument. Millennials have 4.6% of national wealth compared to the 21% share that Baby Boomers had at the same average age. That deficiency comes from lower relative wages. And saving more of your take home pay is only part of the solution.

Shortly after I started my financial career, I found that I was making a big mistake. I was just like everyone else, holding more than the recommended three-month’s salary in my emergency savings fund. I was earning far less than I could be with the cash sitting in a savings account that offered a fractional interest rate.

But why was I still holding all that cash? And why are we seeing higher percentages of Millennials doing the same?

The Ripple Effect of the Great Recession

The popular notion is that the Great Recession damaged how Millennials view investing. We watched many of our parents lose their jobs and see their 401K balances take a dive. We all had a friend or family member who was forced to sell their home or other assets to survive.

Then we dealt with lingering unemployment for years, with the annual rate not falling below 7% until 2014. I graduated from college in 2011 and it was a ghost town on the entry level job front.

Here we are a decade later and that experience still stings for many. The Federal Funds Rate, the standard at which banks lend each other money, influences how much interest can be earned from your cash. It has never returned to pre-recession levels and likely will not for years. Yet there is still hesitancy to invest in other vehicles.

One option that has gained traction amongst Millennials is the Roth IRA. Almost perfect for this stage of life, the Roth IRA allows tax-free distributions at age 60 and beyond. Meaning that any growth in value will not be touched by the government if you abide by that guideline. Major investment platforms like Fidelity have reported exponential growth among Millennial Roth contributions in the last five years.

However, the high level of cash still on hand is troubling for financial advisors like me.

Additionally, inflation has come back in the conversation for the first time in my adulthood. When Baby Boomers talk about the 1970s, you might get a glazed-over look in your eyes, but that was their Great Recession. The skyrocketing prices and increased unemployment that came out of Nixon’s fiscal policy likely influenced the modern policies that have kept wages stagnant. (That’s probably another article by itself, so I’ll stop there.)

What you need to know now is that pandemic-based supply and demand issues are the current cause, but the potential trend should be enough to push the most conservative cash holder to rethink their strategy. If the inflation rate is much higher than the interest rate you are earning, you’re in trouble.

The good news is that time is every Millennial’s secret weapon. Keeping your money invested for as long as you can, without pulling it out when the going gets rough, is the most fundamental investing principle. This makes investing in your 20s and 30s crucial to maximize your results.

The Action Plan

Enough with the personal stories and history lessons. There’s real action that needs to be taken on your part. You won’t want to work until age 75 and you probably want to stop renting that apartment at some point.

The Path to Greater Wealth

By contributing whatever excess cash you have into an account with sound investment vehicles, you have greatly expanded your ability to create wealth. What about that terrible feeling of dread that you will lose it all? That should go away when you have a conversation with a financial advisor. Good financial advisors will put you in a position to succeed. The vast majority of equities and mutual funds do not collapse suddenly. Even when a world-stopping pandemic rears its head, the market does not stay down forever.

Since 1896 when the Dow Jones index was first developed, there has always been a bull market that follows a recession. Life is cyclical in nature and investing is no different. There are down times, but growth always follows.

Hopefully that reassures you, fellow Millennial, on your path to greater wealth.