Wait, what? Despite experiencing two bear markets and daily wailing about how they’re doing it all wrong, most millennials maintain appropriate allocations to equities given their age and financial goals.
Vanguard found that the typical millennial investor allocates 90 percent of their portfolio to equities, which is consistent with professional portfolio allocations.
Millennials migrate towards target-date funds
The research also found that millennials, similar to other generations, have been adopting balanced investing strategies.
During the period between 2012 and 2017, investors shifted away from extreme equity allocations; in fact, the millennial group experienced a 7 percent decrease in all-equity portfolios, which could partially be attributed to the increasing use of target date funds.
Among IRA holders in the sample universe, about one-third of all millennials own TDFs.
In its recently-released How America Saves 2018, the investment behemoth confirmed the findings on the increasing use of TDFs, with 82 percent of plan participants under the age of 25 allocating their portfolio to TDFs, while 67 percent of those ages 25-34 were invested in these funds.
“Target-date funds are reshaping investor behavior of millennial and gen X investors, with the potential to improve outcomes over an investing lifetime,” Jean Young, senior research associate for the Vanguard Center for Investor Research and author of the paper, said in a statement. “Younger investors are benefitting from balanced, diversified portfolios, and shifting away from the extreme equity allocations that we’ve witnessed in the early years of previous generations.”
Risk-averse behavior occurs most around bear markets
While most millennials hold age-appropriate allocations, an increasing cohort holds zero-equity portfolios—19 percent in 2017, up from 13 percent in 2012.
One reason may be the apparent reluctance towards equities among millennials who opened accounts after the global financial crisis of 2008-2009.
Pre-crisis (2007 and earlier), only 10 percent of millennial investors held zero-equity portfolios, and 33 percent held all-equity portfolios.
During and after the crisis, more than twice as many millennial investors held no equities in their portfolios, and the percentage of millennial investors holding all equities in their portfolio fell to 14 percent.
Other reasons for zero-equity portfolios cited by Vanguard researchers are inertia and investing for short-term goals, such as a house purchase.
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.
