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.