young and the invested - millennial interrupted1
On a warm day in September 2008, I found myself studying for an exam when a newsflash came across the television hanging in my business school’s lobby.  Standing there with my peer Millennials, we heard the news anchor announce Lehman Brothers, a large investment bank and central culprit to the financial crisis, had just filed for bankruptcy.

We had no idea what this meant for the economy or what stood to follow. We couldn’t know it at the time, but in the coming decade, we would come of age during the deepest economic recession since the 1930s.  Even more unbeknownst to us would be the lasting effect it would have in shaping our lives.

The housing bust and ensuing recovery taught us all the value of living within your means and the risk of buying more than you can afford.  A decade later, it might be easy to forget these lessons as the stock market hits all-time highs, unemployment keeps plumbing new lows and wages continue to rise.

These bright spots compare well to when we entered our 20s.  So, Millennials should be in great shape, right?  We’re certainly in a better place but perhaps not as great as could normally be expected.

Costly Investment Mistakes Millennials Are Making

In light of Millennials having an unfavorable spot in history, we might be more motivated to overcome our economic hardships through saving more and investing smarter.  After all, one benefit we have is a longer expected lifespan.  We should use that to our advantage by investing and enjoying compounding returns.

Yet, according to a study by Vanguard, we aren’t.  In fact, we’re about as risk averse as kids who grew up during the Great Depression.  What gives?

I’ll Have the Investment Account, Hold the Stocks

Vanguard’s study assessed the level of stocks investors held across generations.  The study showed some encouraging results, while some were less so.

Young and the invested vanguard median equity percentage.png

For starters, stock ownership decreases with age, in line with previous studies.  As you can see from the chart above, Millennials’ portfolios have the highest percentage of stocks while each successive generation has less as they age.

By and large, these results are fairly expected.  As you age, your priority switches from wealth accumulation to wealth preservation.  Intuitively, that makes a lot of sense.

For my wife and I, we have roughly 85% of our liquid net worth in stocks.  The remaining 15% is in low-risk bonds.

These bonds help to guard against the stock market turning against us but also as a more conservative investment to put toward a down payment on a house.

This time last year, our investments resembled the results above, roughly 90% of our liquid net worth in stocks.  In the coming year, we’ll continue moving out of stocks and into bonds to protect our money.

We’ve had a great run over the past 5-7 years and want to lock in some of those gains to put a roof we own over our heads.  Unfortunately, as we’ll see below, not enough Millennials have experienced the same gains.

Fear of Missing Out (FOMO)

Many Millennials have a suitable level of stock ownership for their age though this has changed slightly in recent years.

Vanguard says stock ownership has come down due to investors moving money from stocks to bonds by using target-date investments.  These products, which automatically shift investments from stocks to bonds as you age, have gained in popularity as a means to automate prudent investing. This automation often comes at a higher cost than other available options.

These target date products have caused every generation to lower their stock holdings.  Given how the economy has recovered well since the last recession, this is a good sign.

Below, you can see over the past 5 years, every generation’s portfolio composition has changed.  Primarily, each generation reduced the frequency of holding nothing but stocks.

The chart shows another trend that should worry Millennials and Generation Xers. Both generations saw a jump in the number of investors who held no stocks.  Yikes.  Talk about terrible timing to hold nothing but cash or bonds.

These folks missed out on some serious stock market returns.

young and the invested prevalence of extreme allocations by generation

In fact, Millennials are the most likely to hold no stocks.  At our age, we need to hold stocks to grow our wealth in preparation for retirement.  Bonds won’t get us there.

The study thinks the no equity portfolios could be related to inertia.  New investors may be hesitant to put money in an expensive stock market.  They don’t want to lose money like their parents did during the last recession.

Millennials Playing Chess While the Rest Play Checkers?

Maybe Millennials are playing it smart by not risking their money with the market at all-time highs? Maybe they’re waiting for the buying opportunity to come when the next bear market strikes?

If so, that’s a risky proposition because they’re missing out on wonderful gains.  I know my wife and I truly appreciate them.  They’ve allowed me to buy a great investment property that’s appreciated significantly since I bought it 4 years ago.

If Millennials are planning for retirement 30-40 years from now, they should know the stock market has never cut a loss over any 20-year period from 1926–2015.

The odds of realizing a positive stock return are 100% over any 20-year period during that timeframe.  Let me repeat.  Stocks have never seen a loss over any 20-year time period from 1926-2015.  Never.  Not once.

But what about over shorter intervals, you ask?  How about 10 years? A sobering 94% of the time there was a gain.  5 years?  86%.  I don’t know about you, but I’ll take those odds if my alternative is holding cash in a checking account.

What’s the take home message I’m trying to deliver?  Your objective, should you choose to accept it, is to identify low-cost passive index funds and ride them as long as possible.  Pick a Vanguard S&P 500 index fund or invest through a robo-advisor like Betterment to manage the entire process for you.

It might seem dangerous and the wrong thing to do at times, but it really pays to buy and hold.

If you had the misfortune of buying an S&P 500 index fund the Friday before Lehman Brothers went bankrupt you would’ve lost 46% over the next 6 months. On the other hand, if you bought that day but never sold, you’d be up 185% assuming you reinvested dividends.

Millennials Have a Shared Experience, but Different Risk Tolerances

One last thing to note from the study.  When examining Millennials by the years in which they began investing, an odd pattern emerges.  For the younger Millennials who began their investing journey after the recession, their likelihood of holding no equities in their portfolio was twice that of older Millennials who had invested prior to the recession.

young and the invested millennial households by year of entry

Compounding this younger group’s financial mistrust of stocks, they are much less likely to have a full 100% of their portfolio invested in stocks (14%) as compared to their older Millennial cohort (33%).

It seems odd that individuals who had no financial assets at-risk during the major market pullback are so gun shy with their investments now.  You would suppose the opposite to be true, where the older Millennials, who did lose value on their investments during the recession, might be more likely to avoid market risk because of the scarring experience.  However, the study doesn’t bear that out.

And it’s not just me feeling this way.  The study’s authors had this to say:

“Memories of the financial crisis may make many Millennials more reluctant to take on market risk due to heightened fears of market losses.  For that group – Millennials who opened accounts after the crisis began – market risk is more salient than potential return.  For Millennials who began investing at Vanguard before the crisis, the opposite seems true.”

Emphasis added.

In response to their findings, the study’s authors caution that the youngest cohort examined “ought to reevaluate risk levels” given their investing time horizons.  No kidding.  They’re not wrong.

Let’s Hope Millennials Rise to the Occasion

One important question the study did not address was the reasoning for these conservative investment strategies.

Some possible explanations that come to mind are: (1) short-term savings goals, (2) prioritizing student loans over investing, (3) high rent payments, or (4) saving money in conservative investments in a quest to become first-time homeowners.  It likely isn’t to finance their Pumpkin Spice Latte or avocado toast habits.

young and the invested pumpkin spice latte

Or perhaps Millennials know they will live longer and thus have a longer time to invest?  If so, they could place any excess funds not into stocks, but rather toward student loans or buying those ever-more-expensive homes on their stagnant wages.  It’s a risky bet to be sure.

My wife and I have prioritized investing now while we can afford it before expenses of starting a family add up.  We know a stock market pullback is inevitable.  We know we won’t see it coming.  We also know that time spent in the market is more important than timing it.

Looking back ten years, a lot has happened to shape our young lives forever.  Many mistakes have been made, but thanks to our youth, none that can’t be forgiven.

Millennials are still too young to be judged by history.  Investing in index funds and compounding returns is the way to go.

Perhaps we need a bit more time to come around to this line of thinking given our mistrust of markets and the perceived risk of investing.  I can’t say for sure, but something needs to change or Millennials risk making a costly investment mistake.

About the Author and Blog

In 2018, I was winding down a stint in investor relations and found myself newly equipped with a CPA, added insight on how investors behave in markets, and a load of free time.  My job routinely required extended work hours, complex assignments, and tight deadlines.  Seeking to maintain my momentum, I wanted to chase something ambitious.

I chose to start this financial independence blog as my next step, recognizing both the challenge and opportunity.  I launched the site with encouragement from my wife as a means to lay out our financial independence journey to reach a Millennial retirement and connect with and help others who share the same goal.

Some of my favorite things to discuss include investing in index funds, how to save money, travel hacking with help from the Reddit churning community, house hacking and optimizing the benefits of my condo vs. apartment living, and tax topics like the earned income tax credit, common tax deductions,  tax reform in 2018, or other useful tax topics.  I want this to be a journey for us all to learn how to make a lot of money and pursue the lives we want.

Please continue to watch the site for more to come and post below with your questions or comments.


I have not been compensated by any of the companies listed in this post at the time of this writing.  Any recommendations made by me are my own.  Should you choose to act on them, please see my the disclaimer on my About Young and the Invested page.

Sign Up to the Newsletter for the Latest Updates

Receive Access to a Free Budget Calculator

Leave a Reply