Piedmont Financial Advisors

When it comes to investing, it appears that Generation Y has chosen to continue carrying the torch of human irrationality.  Case in point from this Reuters story “Generation Yikes: Why young savers are avoiding stocks“:

But Diane Casaretti is no rube. She’s a successful marketing rep in Stamford, Connecticut, and in her career has worked with many Wall Street banks and brokerage houses. But she’s made a conscious, rational decision: Stocks just aren’t for her.

 

“My parents always invested their money in the stock market, and all my friends’ families did too,” says the 26-year-old. “When the whole thing came crashing down with the financial crisis, that’s when I said, ‘No way am I comfortable with this.’ To me it just doesn’t seem logical, that you could save all that money and then potentially lose it all down the road.”

 

It’s a refrain that you’re hearing more and more these days – and not from risk-averse seniors, as you might expect, but from those just starting out in their working and investing lives. Even with decades to go until retirement, and plenty of time to rebound from market collapses, many young Americans don’t trust the stock market with their savings.

 

Take a recent Investing Sentiment Survey by Boston-based money managers MFS Investment Management. The poll discovered that 29 percent of people say they will never be comfortable investing in stocks – a shocking number in and of itself. But among Generation Y investors under 31, that number spikes to 52 percent.

This isn’t really an unexpected development. Fear and its counterpart, greed, are a strong, deeply ingrained emotions. I don’t expect young adults, who have limited life experience, to respond any differently. But making investment decisions based on these emotions is a mistake and quite often lead to terrible results. Moderate amounts of risk-taking (not zero) combined with reasonable diversification (large-, small-, international-stocks + short and intermediate bonds) can lead to solid returns over time. Avoiding stocks completely, especially for someone that is 30+ years from retirement is a mistake of epic proportions.