Millennials are impulsive—who knew?
The generation that confounds, confuses and often exasperates its older counterparts are much more likely to make risky investment decisions, compared to other Americans, by reacting to short-term market volatility. They are also less likely to rely on professional financial advice, according to new research from MassMutual.
Calling it an “advice gap” between younger workers and other generations, Tom Foster, national spokesperson for MassMutual retirement plans, confirmed what too many 401k advisors already know.
“We discovered that those who rely the least on professional financial advice are most likely to react to shorter-term market trends by making potentially harmful decisions to reallocate their retirement savings investments,” Foster said.
Indeed, Morningstar reports that bad decisions by investors trying to time the equity markets reduce returns on average by 2.5 percent a year. In addition, the longer investors remain in the market, the better their chances of making money, according to data from Standard & Poor’s.
The Dow Jones Industrial average hit 21,000 on March 1, climbing nearly 3,000 points after the November election before sliding back the lower 20,000s and once again approaching 21,000.
Additionally, the CBOE (Chicago Board Options Exchange) Volatility Index, sometimes referred to as the “Fear Index,” which measures expectations for market volatility in the next 30 days, dropped to its lowest level since February 2007 on May 1 after consistently rising in April.
So, where do investors think equity markets are headed?
Overall, 31 percent don’t view the recent market activity as anything unusual, with another 28 percent saying they expect the market to correct after the recent surge, and 19 percent predicting a longer bull market, according to the MassMutual Retirement Savers Study.
One in five (21 percent) of survey respondents said they either don’t pay attention to the markets or simply don’t know how they view the recent stock market activity.
There is good news: despite the recent ups and downs of the market, fully 60 percent of adult Americans say they are standing pat on their retirement savings strategy, with 63 percent of women and 56 percent of men saying the same, according to the study.
Yet only 23 percent of Millennials are maintaining their current strategy compared to 59 percent for those ages 34-49, 74 percent for ages 50-64 and 82 percent for ages 65 and older.
A third of Millennials (32 percent) said they were moving more of their retirement savings into stocks and equities to benefit from future growth, the study found. Meanwhile, a quarter of Millennials (25 percent) said they are moving more of their savings into fixed-income investments such as bonds or money market accounts due to recent stock market activity.
The study pinpointed profound differences in how—or if—Americans receive financial advice.
Overall, 32 percent of Americans polled said they relied on a financial advisor to guide them in making decisions about investments.
However, older respondents were much more likely to use an advisor, with 62 percent of those ages 65 or older relying on professional money advice as compared to 8 percent of Millennials. Women (36 percent) are also more likely to rely on an advisor than men (29 percent), the study found.
“Getting professional advice helps reduce uncertainty about money matters, especially in volatile markets,” Foster said. “Our study showed an inverse relationship between reliance on professional money management and uncertainty about investing.”
The study found that one in 10 Americans admitted to being uncertain about how to invest their retirement savings. Millennials were twice as likely to be uncertain while only 1 percent of those ages 65 or older said the same.
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.
