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The Rude Awakening for Millennial Investors

Many Millennials might not be prepared for the realities of the stock market

Are Millennials investing in the stock market? Yes, but maybe not for long. According to the New York Times, many Millennials have retreated from the market into savings accounts after witnessing the volatility in inflation and rising interest rates.

Why Millennials are Cautious Investors

As investors, Millennials have been mostly cautious. Coming of age during the Great Recession, Millennials are no strangers to living paycheck to paycheck, returning to school, or cobbling together a living wage with one or more part-time jobs. Many even lived – or are still living – with their parents well into their late twenties.

It’s no surprise, then, that saving for retirement seemed like a remote possibility for them as they watched their student loans and credit card debt pile up.

Who Do Millennials Turn to for Financial Advice?

However, with several recent years of sustained stock market growth, some Millennials have ventured into investing. But rather than turn to professional advisers, who tend to handle much larger amounts than most young people have to invest, many Millennials use ‘robo-advisers’ that offer low-cost, auto-piloted portfolio management.

According to a recent survey conducted by the Legg Mason asset management firm, only about a third of Millennials currently hold stocks, and of that group, more than 80% describe their investing strategy as “conservative.” But the survey, conducted as major indexes were surging to new highs amid ostensibly low volatility, found that the group expected to eventually take on more risk than their elders.

Millennials’ expectations are now skewed, with many of them expecting an annual return of 13.7%, compared to the 7.7% return that Baby Boomers expect, according to a survey from the AMG asset management company.

But everything turned when a slump overtook the market in early February 2018.

“They’ve never seen a sell-off like this, and it’s especially scary because they don’t know who to ask for advice — they may not have a relationship with a financial adviser they can call or text to walk them back from the cliff,” said Jason Dorsey, President of The Center for Generational Kinetics. “For many of them, it’s been a pretty rude awakening.”

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