Stock prices too volatile. Young adults opt out of market.
Stock prices have plunged too often in the past decade for risk-averse young adults. Will Wall Street lose a generation of investors?
The students at George Washington University in Washington, D.C., listened as a panel of financial pros laid out their investment choices: stocks, bonds, and so on. But in the question period, some students at the March personal-finance conference were dissatisfied with the options.Skip to next paragraph
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"Some wanted to know: 'What else?' " recalls Ben Levy, one of the panelists and president of Young Money, an online personal-finance magazine based in Hunt Valley, Md. "It was the first time that question had come up."
It may not be the last. Amid ferocious swings in stock prices and a sagging economy, data show that young adults – the 18-to-29-year-old crowd known as Generation Y – are decidedly jittery about stocks and currently more risk-averse about investing than any group since the generation that grew up during the Depression.
Who can blame them? For all of their working lives and, for many of them, much of their teen years, the stock market has done nothing. The dot-com boom of the late 1990s and the frothy years of the mid-2000s each gave way to big market crashes. The Standard & Poor's 500 index was nearly 40 percent lower in early September 2010 than it was in September 2000.
But if Gen-Y takes a timeout on stocks – or, more dramatically, becomes a lost generation for the equity markets – that has huge implications: for them and everybody else. Stocks are one of the few investments that have handily beaten inflation over the long term. So if Gen-Yers don't buy equities, how will they put their children through school and save for retirement?
Baby boomers face the flip side of the problem. "A lot of that generation's portfolios consist of stocks," says Sam Stovall, chief investment strategist of Standard & Poor's Equity Research in New York. So if an entire generation doesn't buy stocks, that means fewer buyers for the equities that boomers sell to fund their retirement.
How skittish are Gen-Yers (also known as Millennials)? Only 17 percent were "somewhat" or "very comfortable" taking risks with investments by accepting volatility in hopes of higher returns, according to July field research by Hearts & Wallets, a Hingham, Mass., consultancy for the financial-services industry. That percentage was lower than those of Generation X (27 percent) or boomers (26 percent) and on par with that of the "greatest" generation, which grew up in the 1930s.