Compliance

Shellshocked Gen Y Crossing Off Stocks as Investments

By Staff Report

Sep. 7, 2011

The youngest segment of investors is showing signs of wear and frustration — likely the result of having endured some of the most extreme market conditions in memory.

According to the results of a survey of members of Generation Y (age 18 to 30), younger Americans lean towards a conservative approach when investing their money.

The survey of nearly 1,000 Gen Y investors with more than $100,000 worth of investible assets —conducted by MFS Investment Management Inc. — found that 40 percent of the respondents agreed with the statement: “I will never feel comfortable investing in the stock market.”

And 30 percent of the respondents said they are most interested in protecting principal. Indeed, Gen Y’ers, who have between 35 and 47 years before reaching retirement age, have allocated more money to cash (3 0percent) than any other age group.

Ironically, such conservative views are in line with their parents and grandparents, many of whom grew up in the wake of the Great Depression.

“Many Gen Y’s reached investing age during the dot-com bust, lived through 2008’s Great Recession and continue to experience significant economic uncertainly and market volatility today,” said William Finnegan, senior managing director of U.S. retail marketing for MFS.

“Gen Y, coupled with their slightly older Gen X brethren (31 to 45), continue to form a group of investors today that is larger than the baby boom generation (46 to 64), with nearly equal spending power, a demographic fact the financial services industry needs to embrace,” he added.

According to MFS, Generation Y is represented by 77 million Americans with nearly $1 trillion worth of spending power.

In addition to extreme risk aversion, some of the “red flag” issues that Mr. Finnegan said the financial services industry needs to address involve Gen Yers’ concerns about debt, retirement and spending increases.

The survey found that 38 percent of Gen Y respondents said they live paycheck to paycheck, and 41percent expressed concerns over their household debt levels.

Meanwhile, 54 percent of respondents agreed with the statement: “I’m more concerned than ever about being able to retire when I thought.”

“Whether wealth is transferred to Gen Y from older generations, or they generate it themselves, it is a demographic imperative that the financial services industry embraces younger investors,” Finnegan said.

To accomplish that, he explained, advisers will need to evolve and adapt.

“We’ve identified challenges and opportunities for Gen Y investors that financial advisers are uniquely qualified to address,” Finnegan said. “However, they are operating in a business model geared toward serving older generations.”

He noted that advisers need to rethink how they engage younger investors and help them transition from conservative savers to long-term investors. It won’t be easy, though. Connecting with younger people, Finnegan said, “might just be the ultimate challenge for today’s financial advisers.”

Filed by Jeff Benjamin of InvestmentNews, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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