A new survey from MFS has found that the younger generation’s definition of long-term investing is quite short, and that these “recession babies” invest more conservatively than even their grandparents.
“The data confirm that we have a lost generation of investors,” said William Finnegan, senior managing director and head of Global Retail Marketing for MFS, in a statement releasing the MFS Investing Sentiment Insights survey. “The impact of 2008’s Great Recession has had a deep-seated secular impact on millennial investors. Their grandparents are more aggressive investors.”
The survey found that 40% of millennial investors — adults under 34, also referred to as Gen Y — define long-term investing as less than five years, the shortest holding period of any age group polled.
MFS calls the survey results “striking” given that millennials have a much longer investment time horizon than older generations.
The poll found that 30% of millennials consider themselves short-term investors, and one quarter of them say their primary goal is protecting principal — something that’s traditionally more common among older folks. The survey also reveals that millennials hold more cash on average, at 25.8%, and fewer U.S. equities, at 30.5%, than older generations.
Calling millenials “recession babies,” Finnegan notes that given their time horizon, “millennials will be all right once the economy improves, but reality shows [they] don’t trust the markets and have embraced a conservative approach that could prevent them from reaching their long-term financial goals.”
Millennial sentiment may actually be slipping, the survey found, as 46% of them agree with the statement that they would never be comfortable investing in the market, up from 40% in MFS’ June 2011 survey. Furthermore, despite an improving economy and a large move up in stock market valuations in recent years, millennials’ U.S. equity allocation has in fact fallen from 32.7% in June 2011 to 30.5% today, the survey says.
But financial advisors surveyed by MFS remain upbeat on the economy over the next five years, with 79% saying they are optimistic. However, only 44% of investors are optimistic, while 38% are pessimistic about the economy over the next five years.
The survey found, however, that only 44% of investors are confident about their current asset allocation. As a result, investors are holding relatively high levels of cash, currently 24%, which is down slightly from 26% in June 2011.
U.S. equity allocations increased modestly, to 39% from 37% in June 2011. On the plus side, 37% of all investors agree that U.S. equities are an excellent or very good place to invest over the next year, higher than any other asset class.
“While equity exposure may be ticking up slightly for all age cohorts, investors continue to hold larger-than-expected cash allocations, which will make it very hard for them to meet their long-term financial goals,” added Finnegan. “A significant number of investors are pessimistic, and the memories of 2008 are still fresh in their minds. Regardless of their time horizon, they continue to trade growth for safety.”