Shaken by last year’s stock market crash, millennials are now making subpar investment decisions and derailing their retirement savings goals, according to new research.
Workers between the ages of 27 and 42, on average, allocated a third of their retirement assets in cash last year, according to one study. Survey of 2,000 workers by investment manager Schrodersthat’s too conservative for older individuals, experts say.
The result is a red flag for a generation of workers who estimate they need $1.3 million for a comfortable retirement, a goal few expect to achieve.
“The average millennial asset allocation is too much cash in a retirement account because of the length of time the funds will be in use,” said Russell Geyser, CFPA and financial adviser to Blackridge Asset Management. ‘ said. “Inflation will eat up that allocation.”
Optimal Allocation?
In addition to a 33% cash allocation, millennial workers say their remaining wealth is split between:
-
31% equity
-
16% in fixed income
-
14% of target date funds, which often include equities
-
6% on other unspecified assets
Geyser said the ideal allocation to equities for this age group would be between 65% and 100%.
“The optimal asset allocation for those 35 and older depends on their savings rate, risk tolerance, and retirement income sources,” he said. “An appropriate asset allocation for this age group could be aggressive: 80% stocks, 20% bonds.”
“Lack of Market Knowledge”
More than three in five millennials say they hold on to cash for fear of losing a lot of money if stocks fall.
In 2022, the S&P 500 Index plummeted by 19.4%. The average balance of similarly tanked 401(k)s, according to fidelityIn the fourth quarter of 2022, it fell 20.5% to $104,000 from $130,700 in the same period in 2021. IRA balances also fell 23.3% during that time, from $135,600 to $104,000 on average.
“There is a lack of market knowledge. In the short term, it may seem like the right decision. No,” Geyser said.
Just over a quarter of millennial workers said they changed their asset allocation to be more conservative that year, highlighting the fears stock market volatility has for some. I’m here. Nearly half of working millennials say their retirement plan performance last year caused anxiety.
“A lot of millennials started investing during the Great Depression of 2007-2008. told Yahoo Finance. “Then they had to deal with the pandemic…there were double-digit market losses. From the last 12 to he 15 years, millennials have struggled.”
According to research, another reason for incorrect allocation was apparent ignorance. Nearly two out of five millennials (38%) said they weren’t sure how their retirement assets would be distributed.
“Maybe you don’t need a million dollars.”
Millennials have so much cash that they may not be able to meet the $1.3 million comfortable retirement goal cited in the study. In fact, just 29% were confident he could hit $1 million before retirement. And nearly two-thirds of those who have a retirement plan at work worry that they won’t be able to increase their retirement plan wealth to the target level.
But both Schiffman and Geiser say millennials have many options available to them to reach their goals. they just have to plan.
“You may not need to save $1 million for retirement, but you should create a roadmap for a retirement that is right for you,” Geyser said, adding that these workers are financially vulnerable. I pointed out that I should seek help from an advisor.
In fact, research shows that millennials are more likely than their financial advisors (22%) to say that family members (38%) or financial websites and publications (23%) have given them the most helpful financial advice. there was.
“There is a disconnect between young people and financial advisors. There is a trust issue where people trust Google more for financial advice than advisors,” Gaiser said. “Financial advisors should approach their clients from the heart rather than just focusing on the business. Meet them where they are.”
Schiffman also said employers can play a role. The survey found that 56% of working millennials with retirement plans said they would like their employers to provide more guidance on how to save for their retirement plans.
“Millennials need more education and guidance on retirement,” said Shiffman, especially as they face market ups and downs.
“Young people have decades to invest in the stock market and increase their savings.”
Ella Vincent is a Personal Finance Reporter at Yahoo Finance. follow her on her twitter @bookgirlchicago.
Click here for the latest personal finance news to help you invest, pay off debt, buy a home, retire, and more.
Read the latest financial and business news from Yahoo Finance
