Canada’s digitally savvy millennials are the most educated, culturally-diverse generation to come along. But like their grandparents, they fear market volatility and often prefer to hoard cash, even though, with a lifetime ahead of them, they should be investing more in equities for higher returns.
So why aren’t they? Katherine Tang, a 19-year-old woman working in the financial industry, blames market volatility. “There is just too much uncertainty. We want to know our money is in safe investments and there when we need it.”
Many millennials, who are equally nervous about investing in equities, share Tang’s view. And that’s just one of the surprising facts about this plugged-in generation captured in Sun Life Global Investments Inc.’s 2016 market sentiment report.
Among millennial respondents, the report found:
- 31 per cent hold their portfolios in cash, second only to 37 per cent of Canadians over age 67.
- 33 per cent sold investments to raise cash in the last 12 months. Among those who did, 50 per cent did so out of fear of losing money.
- 51 per cent said they’d settle for lower returns if it meant less volatility, compared to 46 per cent for people over age 67.
- 44 per cent view themselves as conservative in their investment approach.
The conservative investment bias captured in the report is surprising when you consider that after adjusting for inflation, the median millennial household earns roughly 16 per cent more than the cohort that preceded them, Generation X.
Read: How millennials are forcing financial firms to rethink retirement
So why are they so cautious when they invest? Perhaps their attitude reflects repeated bouts of market volatility, triggered by events like the market crash in the 2008 or the British decision to leave the European Union. They’ve also faced escalating housing costs that have led to bigger mortgages and more debt if, in fact, they can afford to buy. Tang certainly believes all of those issues weigh on her generation, suggesting that “at a time when we’re trying to pay off student debts, start careers and deal with higher housing costs, it makes millennials more cautious with their money.”
That cautious attitude spills over into workplace savings plans, with those enrolled taking an even more conservative approach than those without a plan. In fact, 57 per cent of millennials surveyed with an employer-provided plan said they’d settle for lower returns with less volatility, compared to 51 per cent without one.
Yann Tastayre, 30, of Toronto is an exception. Unlike his more cautious peers, he has a different view on equities. “I have over 30 years left to invest and I know the market will move higher. So I’m OK with holding equities as part of my workplace plan.”
Read: 62% of millennials have started saving for retirement
But here’s the issue: Tastayre shouldn’t be the exception. He should instead be the rule because, by 2020, millennials will make up 50 per cent of the workforce, with their numbers in company retirement plans increasing dramatically.
So what do the findings mean for plan sponsors? The report sets out a clear challenge for the financial industry to illustrate the risk and return trade-off for millennials in the hopes of moving them into more age-appropriate portfolios.
There are signs they may at least be willing to listen, with 50 per cent of millennials in workplace plans saying they’re having more conversations with their financial advisors. But only 24 per cent of those surveyed agreed that staying the course through periods of market volatility was the best advice they received from their advisor, compared to 48 per cent for baby boomers.
Read: Millennials more optimistic than boomers about retirement
That gap between how millennials and their grandparents perceive a key piece of investing advice suggests we have a lot of educating to do. But the old approaches to communication won’t work with this generation. To reach them, we need to cross the digital divide, using tools like Skype, Facebook and YouTube in a personalized, mobile-friendly way.
Fortunately, the digital highway flows in both directions. This allows us to open up conversations about financial security, specific investment solutions and why the power of time allows young investors to take on more investment risk and potentially reap bigger rewards later in life.
In the end, millennials want the same financial security enjoyed by previous generations. But to get them there, we have to understand the obstacles they face and use the digital language they speak.
Lori Landry is chief marketing officer at Sun Life Global Investments.