Millennials are sitting out the bull market. How can they get into the saddle?

A perspective from E*TRADE Securities2

09/14/18
Of all the demographic groups studied over the past several decades, few have garnered more attention than millennials. Nearly every product, short of geriatric meds and mobility scooters, has been ideated, tested, and marketed with an eye toward millennials. That’s for good reason: According to the Pew Research Center, in 2019, millennials will overtake baby boomers as the largest US demographic group.1
Projected population growth by generation

Source: Pew Research Center


Millennials — not as young as you might think

Millennials’ quirks, foibles, and proclivities have been dissected with such scrutiny that about the only thing most of us don’t know about millennials is how to define them. Pew defines millennials as having been born between 1981 and 1996. That may come as a surprise to those of you approaching 40 who shake your heads at 20-somethings snapping hundreds of selfies a day. If you’re 37, you, too, are considered a millennial—although we understand the term comes with a fair amount of baggage.

Thanks to marketers’ fixation on millennials, if you technically fall into this camp, we know quite a bit about you. For example, your generation is increasingly ditching the traditional trappings of car and home ownership, and opting instead to live in walkable urban locales. Many express a desire to spend income on experiences rather than things (with the notable exception of smartphones, of course). Younger people are also not voting in large numbers.  

Millennials and investing: Like oil and water?

What about investing? The news here is not great. To wit:

•  Three in five millennials lack stock market exposure.2

•  70% of young adults know they need to be more financially secure but don’t know how to get there.3

•  Roughly one-third of millennials believe cash is the best long-term investment.4

•  Two-thirds of millennials have saved nothing for retirement, and 95% of millennials are not saving enough for retirement.5

Why are millennials so gun-shy when it comes to the markets? One reason could be their experience of the 2008–2009 financial crisis, when many of them came of age and saw their parents’ or even their own savings erode over a short period of time. Some may also remember the dot-com crash of 2000. Or perhaps it’s simply because so many potential younger investors are desperately in need of cash. Collectively, Americans owe roughly $1.5 trillion in student debt, which may be keeping potential investors on the sidelines.6

A case study in missing out by holding out

Staying out of the markets can mean missing out on big gains. Consider the following data assembled by J.P. Morgan Asset Management:

20-year annualized returns by asset class, 1998-2017

Source: J.P. Morgan Asset Management


•  Over the past 20 years, a simple 60/40 portfolio split (60% stocks, 40% bonds) more than doubled the average investor’s returns on an annualized basis.

•  Assuming a hypothetical $100,000 portfolio, investors who allocated their assets in a 60/40 split prior to the financial crisis recouped losses as early as 2010—nearly two years before the S&P 500® did.7

What can be done to get millennials into the markets?

If any of this sounds all-too-familiar, we’d like to offer some perspective on how to approach the markets without a lot of complications:

 Take advantage of workplace retirement plans. Participating in a workplace retirement plan such as a 401(k) or 403(b) is one of the best ways to gain basic exposure to the markets. Although two-thirds of millennials’ employers offer a retirement plan, only a little more than one-third of millennials are actually participating in their employer’s plan.5

 Leverage technology. The investment world and its jumble of jargon can be confusing to those looking to get their financial start. But investing doesn’t have to be complicated—especially for tech-savvy younger investors. Technology-focused firms like E*TRADE make it easy. With some basic information, you can set up a professionally managed core portfolio within minutes, with assets allocated according to your individual financial goals, risk tolerance, and time horizon. Using this same technology, you can customize your investments as your life circumstances evolve.

•  Dollar-cost average. One of the biggest hurdles facing millennials—particularly those saddled with college debt—is finding the funds to invest in the first place. But by making small sacrifices, such as eating out less frequently or taking one less trip per year, you can take the dollars that would have been spent on chia seed pudding or Instagrammable beach time and dollar-cost them into the markets.

Despite the ungainly name, dollar-cost averaging is a simple concept that involves taking a pre-determined dollar amount—say, $500 per month—and shoveling it into the markets on a regular schedule. Dollar-cost averaging eliminates the temptation to time the markets and allows investors to purchase more shares when prices go down. Putting a portion of your paycheck into a 401(k) is a good example of dollar-cost averaging.

 Start early and use the power of compounding. It doesn’t take a lot to build a nest egg, but starting early can help you harness the power of compounding.

Compounding is the process of earning a return on reinvested principal and interest. For example, if you held $1,000 under a mattress, it still be would be worth $1,000 at the end of five years. But if you put it into an investment that earned 10% annually, you’d earn 10% on $1,100 in the second year, 10% on $1,210 in the third year, and so on. By the end of five years, you’d have earned in excess of $610 on your initial $1,000 investment.

How compounding works

For illustrative purposes only. Not a recommendation.


Using this principle, if you could sock away $50,000 by age 35 and put it into the stock market, it could be worth a cool half-million dollars by the age of 65, assuming 8% annualized returns. (Over the past 30 years, the S&P 500 Index has generated an annual total return in excess of 10%.)
Growth in the S&P 500 Index over a 30-year period

Source: FactSet Research Systems


In life it seems there is a never-ending tradeoff between time and money. If you’re a millennial, you have time on your side. By taking a few simple steps, younger generations can tip the scales in favor of money as time becomes more precious.

1. Pew Research Center, “Millennials projected to overtake Baby Boomers as America’s largest generation,” March 1, 2018. http://www.pewresearch.org/fact-tank/2018/03/01/millennials-overtake-baby-boomers/

2. Federal Reserve Bank of St. Louis, “Millennials Are Not Investing in the Stock Market—But Might Want to,” March 7, 2018. https://www.stlouisfed.org/open-vault/2018/march/millennials-not-investing-stock-market

3. Ally Financial, “Sixty Percent of Americans Battle the 'Someday Scaries,' According to New Survey from Ally Invest,” October 16, 2017. https://media.ally.com/2017-10-16-Sixty-Percent-of-Americans-Battle-the-Someday-Scaries-According-to-New-Survey-from-Ally-Invest

4. Bankrate, “Millennials prefer cash over stocks—and it could cost them millions,” July 25, 2018. https://www.bankrate.com/investing/financial-security-july-2018/

5. National Institute on Retirement Security, “New Research Finds 95 Percent of Millennials Not Saving Adequately For Retirement,” February 27, 2018. https://www.nirsonline.org/2018/02/new-research-finds-95-percent-of-millennials-not-saving-adequately-for-retirement/

6. Board of Governors of the Federal Reserve System, Consumer Credit Outstanding (Levels), September 10, 2018. https://www.federalreserve.gov/releases/g19/HIST/cc_hist_memo_levels.html

7. J.P. Morgan Asset Management, “Guide to the Markets,” June 30, 2018. https://am.jpmorgan.com/us/en/asset-management/gim/adv/insights/guide-to-the-markets/viewer