From the WSJ:
Many of Andy Tilp’s Generation X and Y clients live for the adrenaline rush they get from outdoor sports like snowboarding and white-water rafting.
When it comes to their money though, many of those younger clients—roughly age 45 and below—aren’t seeking any thrills. They’re opting for what they see as safe investments, such as certificates of deposit and savings accounts.
Among those who do venture into some of the more traditional portfolio assets—stocks, bonds, real estate and commodities—many are shying away from equities and are more concerned about protecting their principal than growing their money.
“They’re leaning toward really conservative portfolios—similar to some retirees,” says Mr. Tilp, a financial planner based in Portland, Ore.
Such risk aversion is understandable, given the two nasty bear markets already this century and the current depressed job market. Many Generation X and Y investors have watched plunging financial markets destroy their parents’ retirement plans.
But many advisers are concerned that the low risk tolerance of some of these investors may ruin their retirements too, by leaving them short of funds when they get there. These advisers are encouraging young investors to rethink their views.
A recent survey by Bank of America Merrill Lynch found that 59% of affluent investors ages 18 to 34 who responded sought relatively low risk when choosing investment strategies, and that a higher percentage were risk-averse than in all other age groups, including investors their grandparents’ age.
Investors of all ages may have been spooked by the most recent market downturn in particular. “When you’ve been burned and there is great uncertainty, it’s a natural inclination to withdraw,” says Yuval Bar-Or, an expert on decision-making and an adjunct professor of finance at Johns Hopkins University’s Carey Business School.
But that inclination may be tempered among investors who have weathered previous bear markets—a perspective that many younger investors don’t have. If investors haven’t been in the market long enough, Mr. Bar-Or says, they may not see the “wisdom” of investing for the long term and therefore may shy away from what they perceive as higher-risk investments.
The stock market isn’t the only thing that’s making these young investors jittery. After seeing friends get laid off or getting fired themselves, some Generation X and Y investors may be keeping more cash on hand in case of an extended period of unemployment.
“Generation X and Y see their careers as more tenuous than their boomer parents,” says Rand Spero, a Lexington, Mass.-based certified financial planner.