Generation Y is rattled for good reason
May 6th, 2009 | by mbhunter |People invested in less-volatile vehicles just can’t catch a break. According to this article, Generation Y may not be able to retire because they’re not invested in a portfolio with an “appropriate” risk level for their age.
The article cites Brad Klontz, a psychologist who specializes in money disorders, says that he sees a lot of Gen Y clients investing in things like cash, Treasurys, and gold, to “preserve” their savings.
There’s more evidence from other studies cited in the article that younger investors are by and large not investing in employer-sponsored retirement plans, and if they’re investing outside of them, they’re investing in less-volatile vehicles rather than equities.
The overarching tone: Young investors need to get with the program, listen to the cookie-cutter advice from financial planners, get back into stocks, and take the roller coaster ride like real men and real women, because the return in the long run will be a lot better than what they’ll get from the mattress they’re stuffing their savings in. We promise.
What I think of Generation Y: GIT-R-DONE!!
Generation Y has every reason not to do what is described in this article, and every reason to continue investing how it has been. It could be true that they might not be saving much. But if they have their money in cash instead of stocks, I’d take it as a sign that they’re not fearful, but instead that they’re thinking for themselves. If they’re not investing in their company’s 401(k) and instead putting the same money in a savings account, might it not be that they’re (a) concerned about losing their job and need an emergency fund, or (b) they’re concerned that their company could go under and take their 401(k) with it?
Conservative investing is certainly not something to see a psychologist about! They’re just not drinking the dollar-cost-averaging Kool-Aid® that’s being served to them. Good for them!
It will take years for people to break even from the beating their portfolios have taken over the past year and a half — if they stayed in stocks. If people got out of stocks then, they’re probably not doing too badly. If they get out now, they’ll likely avoid Round 2 of the beating. (If you ask why I say this, look around you. Do you see things getting better?) But if they stay in stocks (or get into them) they’ll experience the full thrill of the roller coaster.
Misery loves company, but I’d rather not be miserable. 
UPDATE: Thanks to Earn What You Spend for including this post in the Carnival of Personal Finance!
5 Responses to “Generation Y is rattled for good reason”
By tom on May 6, 2009 | Reply
I’m Gen-Y and I have everything invested in equity. In fact, I’ve increased my 401(k) contribution from 8% (max match) to 15%. Yeah, it is down, but my portfolio is only down 16% from this time last year, my cost-value is down only 7.8%. Obviously I cannot predict the future of the market, but Gen-Y is missing out on an equity clearance sale.
I agree with you that no one should be taking financial advice from a shrink.
Bottom line is that I’m happy they are saving, because I’ve seen stats that says Gen-Y isn’t even investing in 401(k)s enough to get the match. I do think that they are missing out by not investing in higher risk equity.
By Bret on May 11, 2009 | Reply
The stock market may be risky, but to recommend young people invest completely in cash accounts or Treasuries for retirement is horrible advice.
For starters, they are paying less interest than the real rate of inflation. So, they would be losing money each year. That doesn’t add up to a wise investment or a secure retirement.
Second, the US Government is 12 trillion dollars in debt and dangerously close to becoming insolvent. So, it’s very likely that we will see a lot more inflation in the future.
Most Gen Y investors aren’t familliar with the Carter era when inflation devastated people’s savings. Trust me, it was a lot worse than the current economic fiasco and we got through it.
The only way to save for retirement is to select investments that will outpace inflation in the long-term. Anything else, comes up short.
By Stephanie PTY on May 11, 2009 | Reply
I disagree with your theory about why Gen Y is investing like this. I just graduated from college, and one of the last classes I took was a personal financial management class. And believe me, my classmates were SPOOKED! Many of them were terrified of stocks, asking how they could get good interest rates on savings accounts – for retirement money! Every time someone would bring up stocks, there was at least one person who would always say “But you could lose everything!” No amount of explaining risk vs. reward seemed to calm them.
I think it’s good that my generation is considering risk, but I think they’re doing it wrong. Instead of learning how to take on risk in a smart and careful way, they’re avoiding financial risk altogether.
By Jack on Sep 4, 2009 | Reply
Whereas Brad Klontz makes this statement in reference to young investers (Generation Y investers) essentially saying they are not investing in enough risky stocks and equity (s) followed by a reccomendation to get with it like real men & women and ride the rollercoaster….they will be better off in the end “WE PROMISE” who the heck is WE? George Bush? and why should they risk their lifes earnings on the same empty promise THEY made when THEY reccomended we all participate in the co. 401 K and save for ourselves just to have someone figure out how to mix the good with the bad to such a point the whole world economy was brought to it’s knees. Keep stuffing the mattresses and keep your eyes on that!
By Jack on Sep 30, 2009 | Reply
My opinion is that we must be smart to analize the market and the country s economical position and take desitions based on economical tendencies. We all expect that our economy ywill indeed recover BUT we will repeat the same mistakes in the future if we dont keep in mind what caused our country to get in them on the first place.