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The Markets July 21, 2014
Many Millennials Prefer Cash as Long-Term Investment
American adults under age 30 favor cash and other lower-risk assets, even as the basis of a long-term investment strategy, according to new research.
Reported by Matthew Miselis
An analysis of Bankrate.com’s Financial Security Index shows that 39% of young working adults in the U.S. say cash is their preferred way to invest money they won’t need for at least 10 years. That’s three times the number of people in the age group who picked the stock market, Bankrate.com says, despite the fact that the S&P 500 Index has posted strong gains over the past year. Most cash investment yields remain below 1%, the Bankrate.com report shows, implying Millennials who rely on cash investments could fall short on retirement income down the line.
The findings match other recent research suggesting Millennial employees and their Baby Boomer counterparts share a lot of common ground when it comes to keeping the risk level of their investments low (see “Millennial Investing Balancing Risk and Returns”). But whereas lower risk levels may be essential for Baby Boomers to protect accumulated wealth, younger workers could be playing it too safe.
“The preference for cash and aversion to the stock market among young adults is very troubling considering this age group has the biggest retirement savings burden,” says Greg McBride, Bankrate.com’s chief financial analyst. “They won’t get [to retirement readiness] without being willing to assume a little short-term price risk in their long-term money.”
Overall, one in four Americans prefers cash investments for money that will not be needed for at least 10 years. Cash slightly edged out real estate (23%) for the top spot, while stocks came in third with 19% of the vote. Fourteen percent of Americans say they would invest in gold and other precious metals, and just five percent say they would choose bonds as a long-term investment.
The Financial Security Index also shows that four of the five components of financial security assessed by Bankrate.com—job security, comfort level with debt, net worth and overall financial situation—have shown improvement compared to last year.
Savings continues to be a sore spot for most Americans, though. The Bankrate.com index shows those feeling “less comfortable” with their savings outnumber those feeling “more comfortable” by a two-to-one margin. While men believe that they have seen improvement in their financial security over the past year, women feel their financial security has deteriorated.
The Bankerate.com Financial Security Index can be viewed in full here.