(Bloomberg Business) — When it comes to millennials and stocks, study after study paints the 20-ish to 30-ish set as risk-averse cash hoarders. Yet many younger workers probably have most of their retirement savings in stocks.
As more employers automatically enroll new employees in 401(k) plans, they are increasingly putting them in target-date funds, also called lifestyle funds. Some of these funds start out with equity weightings as high as 90 percent.
A big weighting in stocks when you’re young makes sense, because you have decades to ride out market cycles. But younger workers can’t count on a defined benefit pension plan, are more likely to lose their jobs than are older workers, and tend to use 401(k)s as rainy day funds to tap between jobs. That makes holding a lot in equities riskier for them than for previous generations.
How do millennials feel about that risk? FinaMetrica, an Australian psychometrics firm, ran the data for us on the 25,000 millennials in the U.S., Australia, New Zealand, and the United Kingdom who have taken its risk assessment. It found that an 80 percent or 90 percent weighting in equities is way above the risk tolerance of millennials.