Millennials need the stock market, and the stock market needs millennials – Milwaukee Journal Sentinel

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Millennials, the children of the stock-loving baby boomers who helped fuel the best-ever bull market in the 1990s, haven’t yet developed a good working relationship with the market like mom and dad did.

Now mostly in their 20s and early 30s, the people making up the nation’s largest generation have yet to embrace the concept of stock investing to meet long-term goals, like funding retirement, surveys show. Only one in three millennials say they invest in stocks, a Bankrate.com survey has found. Six in ten say they have less than $10,000 saved for their post-working years, according to Ramsey Solutions’ 2016 Retirement in America Survey.

The top reasons for avoiding individual stocks like Apple, or equity funds like Vanguard’s Growth and Income Fund? Nearly half of millennials say investing is “too risky,” a BlackRock study says. And four of ten say they don’t have enough spare income to squirrel away for the future, according to a just-released survey from Stash, a financial app.

The fear of risk is understandable. Millennials experienced and were scarred by the 2008 market collapse sparked by the financial crisis. Before that, older millennials remember the bursting of the internet stock bubble in 2000.

But there is a hint of change. A look at millennials who have already made the jump from saver to investor suggests that they may embrace stocks one day.

The still-frosty relationship between most millennials and stocks isn’t a good thing for their future nest eggs. Nor is it necessarily good for the long-term health of the stock market, which could find itself starved of the cash it needs to thrive if the roughly 75 million millennials don’t start putting money in more aggressively.

The reason they need to invest, Wall Street pros argue, is that stocks have delivered bigger returns than both cash and bonds over the long-run. Large-company stocks have generated compound annual returns of 10% since 1926, according to Morningstar, vs. a 5.6% return on long-term U.S. government bonds and 3.4% for cash. A $1 investment in stocks at the start of 1926 was worth $5,390 at the end of 2014, compared with just $132 for bonds and $21 for cash.

A portfolio with 70% invested in cash, a conservative approach favored by many millennials, just won’t get young people where they need to be financially decades from now.

“There’s a symbiotic relationship: The market needs demand and participation from millennials, and millennials need to be able to leverage the long-term growth potential of the stock market,” says Ken Hevert, senior vice president of retirement and college planning at mutual fund company Fidelity Investments. “The bigger risk for millennials is not investing for growth.”

“Are the millennials important to the market? Absolutely,” says JJ Kinahan, chief market strategist at TD Ameritrade. “You want to make sure this generation is as engaged in the market as their parents were.”

It isn’t just anxiety that’s driving their reluctance. Millennials are also burdened with costly student loans. Median education-related debt is $19,978, according to the 2016 Wells Fargo Millennial Study. College loan balances for those between ages 18 and 34 at the end of 2013 were nearly three times what they were in 1989, U.S. Census Bureau data show. Also slowing this generation’s financial gains are careers that took flight later because of a lack of jobs after the Great Recession.

“They’ve had some rough knocks,” says Sarah Holden, senior director of retirement and investor research at the Investment Company Institute, a trade group for mutual, exchange-traded and other funds.

But with jobs more plentiful and wages edging higher, millennials who commit to trimming their spending and freeing up cash to invest can get their finances back on track.

“It’s been bleak for a lot of millennials, but it doesn’t have to be that way forever,” says Andrew Cohen, an ex-Wall Street trader who teaches finance at Old Dominion University in Norfolk, Va. “They should not fear the stock market. They can change things. It’s up to them.”

The question is whether millennials, as they get older, climb the career ladder, earn more money and start focusing on how their finances might look 20 or 30 years from now, will embrace investing like boomers.

The question is whether millennials, as they get older, climb the career ladder, earn more money and start focusing on how their finances might look 20 or 30 years from now, will embrace investing like boomers.

Life’s financial challenges will eventually lure millennials into the stock market, some market professionals say. As they get married, have kids, buy their first home, and start realizing they have to save for college and retirement, they will get more active. “Investing is a part of growing up,” says Tobias Levkovich, equity strategist at Citigroup.

Some behavioral finance pros, or experts who study how psychology affects investment decisions, say young people won’t fear the stock market forever. “I don’t think there is any reason to believe millennials are more risk averse than other (generational) cohorts,” says Richard Thaler, a professor at the University of Chicago’s Booth School of Business.

But skeptics question whether millennials will ever feel comfortable owning stocks, after seeing the devastation caused by the market’s 50%-plus market drop from late 2007 through early 2009.

Charles Biderman, chairman of TrimTabs Investment Research, a firm that measures the market’s health based on cash flows in and out of stocks, says millennials will be just as hesitant to invest in stocks as the generation that grew up during the Great Depression after the 1929 stock market crash. The Dow Jones industrial average, he points out, didn’t surpass its 1929 high until the mid-1950s, or more than 20 years later. “I don’t think millennials will ever trust the stock market,” he says.

Woody Dorsey of Market Semiotics, a behavioral research firm, says don’t expect the baby boomers’ kids to invest like their folks did: “It’s just not going to happen,” he says. “Things change … There’s a deep cultural disaffection with the market. It’s a liability.”

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