Millennials are more timid than older generations when it comes to investing their money. It’s not hard to see why they are so reluctant — not only have they experienced two major market crashes in their lifetimes, witnessing firsthand the impact that profound economic downturns can have on their families and themselves, but they’re also facing immediate and intense financial pressures such as dealing with college debt and making the next month’s rent payment. As a result, millennials tend to display a much lower tolerance for risk than any other generation, keeping a lot of money on the sidelines rather than investing in the market.
The data speaks for itself — 85%of millennials self-identify as “conservative” in regards to their risk tolerance and only one-third choose to invest in the stock market. While their rationale for this behavior is understandable, advisors are in a perfect position to educate millennials about the benefits of taking on risk to grow their wealth over the long term. To achieve this goal, advisors should focus on using positive, clear communication and leveraging technology in accordance with millennials’ tech habits.
Educating millennials about the benefits of investing that are unique to their generation is key to assuaging their fears about entering the market. Using jargon-free language, advisors should underscore that millennials have a long investing time horizon, so the money they invest or save for retirement today has a chance to multiply over a longer time period than if they entered the market later in life. Along these lines, advisors should also convey that millennials are in fact in an excellent position to take on risk, because if a serious market downturn occurs, they will have many years left to recover returns.
There are many tools advisors can leverage to drive home these points by tangibly modeling portfolio performance in a variety of positive and negative market conditions. That way, advisors can help millennial clients visualize the long-term benefits of investing in an accessible and transparent fashion, eliminating some of the uncertainty that is so daunting to them and helping them feel more comfortable entering the market.
It is also important to consider that millennials are the demographic most likely to use technology for their financial needs, which should influence how advisors communicate with this generation. As digital natives, millennials have much higher expectations when it comes to technology, and specifically expect access to online tools and client portals that allow them to quickly review their accumulated assets at any time during the investment cycle.
Advisors should capitalize on these preferences and leverage technology to meet Millennials where they are. For example, 60% of millennials reported preferring texting to calls when interacting with businesses, with email coming in as a close second preference. Making yourself available to answer questions and give portfolio updates via text (if your firm allows), email or online conferencing rather than simply relying on traditional calls and in-person meetings will make a big difference when working to make millennials feel more comfortable entering the world of investing.
Financial advisors have an enormous opportunity to help millennials become educated, responsible investors who understand the impact that investing their money today can have on their families’ future prosperity — especially considering that this demographic will soon become the next generation of clients for the industry. According to a recent study, Generation X and millennials will outpace baby boomers in household wealth by 2030. By leveraging a strategic combination of clear, educational communication along with technology that meets their particular preferences, advisors will be able to build millennials’ familiarity and comfort level when it comes to investing, setting them on a path toward long-term financial success.