Younger workers don’t think ahead—not exactly a shock, but a particularly serious issue with retirement planning, for what should be obvious reasons.
“They feel they have time on their side, so they’re focused on cars, houses, having fun with their friends, and not about retirement savings,” says Jim Owen, managing partner with GRPAA, a network of 401k advisors. “But we all know about the time value of money, and what happens if they start saving at age 25 versus 35, and the better outcomes that result.”
So how do we get millennials and their siblings to save?
“Invest in what you know” is Buffett’s basic behavioral tenet, and certainly applies here. Forget Coca-Cola, IBM and the rest of the traditional blues; investment options in line with their values (meaning impact and ESG) and consumption habits are increasingly important.
One idea particularly ripe for 401k investment menu inclusion is the Nasdaq 100, the famed index of the largest non-financial firms in the world, with a heavy concentration in tech. Its composite companies are particularly attractive to the younger set.
“Younger workers have social pressures that compete with saving and they therefore lack a wealth effect,” says Steve Rogers, CEO of San Francisco-based Shelton Capital Management. “As a result, retirement savings rates are low, and the generation as a whole is having trouble finding its feet. However, we believe that the best way to establish wealth is through an employer-sponsored retirement plan.”
Moving forward, millennial workers will be looking for investment strategies in plan menus like the Nasdaq 100, which “until now has not had a good footprint into the retirement plan space,” Rogers adds.
Yet its technology focus, with known names like Apple, Google (Alphabet), Microsoft and their associated products are companies with which millennials came of age.
Shelton’s five-star Nasdaq 100 mutual fund, with approximately $500 million in assets, replicates the index and launched in 2000 specifically to address needs of younger generations.
“They’re screaming for these types of investments, well not these necessarily, but less brick-and-mortar,” Roger notes.
The firm might have been ahead of the curve with the fund’s 401k adoption, believing the overall retirement plan space would move to index and tech-type investments sooner than it has. But smaller employers have been particularly slow to migrate due to legal issues, which he admits “is a legitimate concern.”
Including a fund like the Nasdaq can complement core holdings, he argues, specifically more conservative balanced investments and fixed income holdings.
“The problem is that they don’t have enough accumulated wealth to drive decision-making with the plan, so it’s not included in the menu and therefore negatively affects and fails to meet millennial needs.”
And part of the issue might be a failure of focus with Nasdaq itself.
“Its success with the ‘Qs’ has daunted its retirement inclusion, but as an entity, it’s started to look at the plans market,” Rogers notes. “It has good growth potential with solid companies. Buying cheap is always better than buying expensive, but at least since the dot-com crash investors have been rewarded.”
While millennials might not necessarily be experienced investors, they’re obviously well-versed in performing online research.
“That’s why the NASDAQ 100 makes sense,” Owen concludes. “It has a good [reputation] and an index fund, which means it’s inexpensive and reasonably diversified. And because it’s tech-focused, they’re investing in companies they know and products they actually use; Apple, Amazon, companies like that. They see what the investments they make can actually do.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
