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Gen Y, Boomers Share Similar Asset Allocations, Investment Styles: Fidelity

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Gen Y workers in higher education retirement plans tend to be as conservative as their older counterparts a Fidelity survey released Monday found. Fidelity surveyed approximately 600 higher education employees and found that Gen Y, Gen X and boomer workers share similar asset allocation strategies.

The 2011 Higher Education Generational Survey, conducted by Versta Research for Fidelity, found that Gen Y workers typically allocate 50% of their portfolios to stocks, 35% to bonds or annuities and the remainder to cash. By comparison, baby boomers’ typical allocation was 47% to stocks, 39% to bonds or annuities and 14% to cash.

John Ragnoni, executive vice president for Fidelity’s Tax-Exempt business, cautioned against such conservative strategies for young investors.  

“Time until retirement is one of the biggest factors that should be considered when determining asset allocation,” he said in a statement. “While we recognize many investors are feeling cautious in these uncertain markets, the asset mix of a participant with decades until retirement should look very different from that of someone who is on the verge of tapping into his or her retirement savings.”

Overall, nearly half of respondents said they are conservative investors and 55% said they are “beginners” at investing. Gen Y workers were especially likely to describe themselves as beginners (71%), while similar percentages of boomers and Gen X workers were likely to do so (51% versus 50%).

Sixty-three percent of respondents said they were concerned that they would not be able to live comfortably in retirement, and 60% are concerned about having enough for long-term care. Forty-seven percent say they are concerned about having enough for medical needs. Just one-quarter say they are concerned about paying for basic living expenses.

More than half of respondents said they were overwhelmed by retirement planning and “wished they could get more guidance,” but boomers were most likely to rely on financial advisors for advice. Gen Y typically turned to their friends and family members or to online planning tools for guidance. Gen X workers also showed a preference for online help, but their primary source of financial advice is from their employers.

Less than a quarter of higher education workers said they had a formal plan for retirement, and just 27% of boomers said they had a formal plan. In fact, for many respondents, their retirement plan seems to be not to retire. Forty-six percent of respondents said they will delay retirement or won’t retire at all. Despite not having a plan in place, 82% of respondents said they check their retirement accounts at least once a year.

Annuities continue to be a source of confusion for investors young and old. Half of all respondents said they would choose an annuity plan over a mutual fund if they had to choose just one product for their retirement plans, but more than half are laboring under some misconception about the products. Thirty-eight percent believe investors can choose the investments within a guaranteed fixed annuity. Twenty-seven percent believe they can withdraw income from a fixed annuity at any time without paying a penalty and 26% believe that younger investors should have a higher percentage of fixed annuities in their portfolios.

Fidelity’s results are in line with an earlier survey of advisors and investors by MFS Investment Management, which found that investors’ willingness to take on risk, both in domestic and international investments, has declined since February, said William Finnegan, senior managing director and head of U.S. marketing for MFS. In particular, he noted a surprising shared pessimistic conservatism between Generation Y investors under the age of 31 and baby boomer investors between the ages of 46 to 64.

Calling Gen Y investors “recession babies,” Finnegan said that many young people moved in with their parents during the financial crisis and watched them struggle with layoffs, unemployment, the credit crunch and the housing market crash.

“Advisors have an opportunity to tell Gen Y clients and prospects about how to invest for their retirement years, which are 30 to 35 years away,” Finnegan told AdvisorOne. “Recession babies have a tendency to think of themselves as savers, rather than as investors, but you can be too conservative as much as too aggressive.”


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