Dot coms. Bernie Madoff. Real estate. The credit crisis. The flash crash.
For investors under the age of 40, much of their adult life has been occupied by accelerated boom and bust cycles in the world of finance, peppered liberally with doses of scandal and market turmoil. A lack of growth in the Dow Industrials and S&P 500 over the past 10 years (don’t ask about the NASDAQ) has led to the this period being referred to as a “lost decade.”
So what are the lessons to be learned by a young investor? If recent media reports are any indication, it seems to have been: Live for the now – and avoid any kind of risk with savings and investing. A day spent observing the financial media suggests that young investors – those that should be most willing to take more risk in their investments – have become extremely risk averse. Can we really blame them? Setting aside the historic data on market performance, we are dealing with an investing demographic that has been conditioned to view the financial markets like a casino – one where risk taking is rarely rewarded and the odds appear to greatly favor the house.
But this will have to change eventually, right? Interest rates are at multi-decade lows at a time when a large contingent of investors are looking for a major uptick in inflation (there’s a method to the madness of those gold bugs). The future outlook for social security is increasingly uncertain. As difficult as it might be to admit, the way to grow an investment portfolio and preserve the purchasing power of money is by taking risk. And, with the luxury of time being on their side, it is younger investors that are among the best-suited to take on more investing risk. And while I’m not an advisor, I do remember the basics of “be aggressive when you’re young and work your way to a more conservative model as you approach retirement.” Otherwise, I wonder if the current youngest generation of investors is willing to accept a smaller future nest egg in exchange for greater peace of mind today. Something tells me that’s not the case.
I can’t help but think that something has to give here. Will it take yet another bubble? Or just a return to normal returns from the markets? Will younger workers begin to save money at a higher rate than the overall population? Are we providing enough education in the workplace to help this generation think more clearly about their long term goals? Is there a golden opportunity for advisors to take on this generation and hope for a loyal customer down the road?
Something will have to change or we risk seeing the “lost decade” in the markets leading to a “lost generation” of investors that are less able to provide for their future financial needs – and those of their families. What do you think, are younger generations putting their financial future at risk by shying away from investment opportunities now? And if so, any suggestions on how to reach them with this crucial message?
To reach Donna: