Millennials have flooded into the stock market in droves in 2020, with popular trading apps such as Robinhood and WeBull reporting huge spikes in younger users.
But despite a new generation of investors entering the market for the first time this year, the latest data from Goldman Sachs suggests millennials have a lot of catching up to do when it comes to investing.
The Goldman chart below shows that millennials account for just 3% ownership of $39 trillion in global household and equity and mutual fund assets.
Millennials don’t own a lot of stock pic.twitter.com/Xq8GrGtBlP
— Gunjan Banerji (@GunjanJS) October 16, 2020
Some experts believe millennials simply weren’t born at an opportune time for investing. Older millennials came of age in the aftermath of 9/11. Many younger millennials grew up during or after the housing market collapse and 2008 financial crisis. Even younger millennials were too young to participate in the decade-long bull market and are only now financially sound enough to invest.
Millennials’ Tougher Financial Road: DataTrek Research co-founder Jessica Rabe told Benzinga the experiences millennials have faced in their young professional lives have certainly shaped their approach to the markets.
“Millennials’ approaches to money differ from their Baby Boomer parents because of record levels of student loan debt and now having lived through three Financial Crises earlier on in their lives,” said Rabe. “This is very different from our Baby Boomer parents, who grew up investing in the 1980s and 1990s, when crashes were short-term phenomena and stocks compounded 18% annually across those two decades.”
By contrast, U.S. equities have generated only a 6% compound annual return over the past 20 years.
“That’s why there was an influx of millennial investors during the COVID-19 crisis because even if they don’t know that exact number, they understood that they had to take advantage of a rare major market pullback to build wealth.”
Other Financial Priorities: RSM Chief Economist Joe Brusuelas told Benzinga that millennials simply have other financial priorities at this point in their lives.
“It is not so much that they care less about equities, it’s that their income is allocated to necessities rather than the luxury of investing due to a lack of personal disposable income,” said Brusuelas.
He also notes the financial crisis has left many millennials gun-shy when it comes to investing.
“The searing experience of the [Financial Crisis] has likely left residual scarring and general skepticism about financial markets in general and capitalism in particular,” he said. “One fears that the economic impact of the pandemic will leave similar scarring on Gen Z resulting in similar preferences around investing in equities and the general legitimacy of capitalism.”
Benzinga’s Take: When it comes to investing, one of the few ideas that almost all financial planners can agree on is that the earlier in life you start buying stocks and/or diversified ETFs like the SPDR S&P 500 ETF Trust (NYSE: SPY) the better.
Even millennials who don’t have much in savings should go ahead and start learning about investing and dipping their toes into the market now so they can begin to benefit from the power of compound returns and be comfortable with how to handle the market when they have a much larger nest egg down the road.
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