Most financial advisors encourage Millennial investors to put a significant amount of their investments into equities. This makes sense due to their age and the years they have until retirement.

But several articles in the media in recent years have reported that Millennials, as a group, are investing less in stocks than financial advisors might expect or recommend for someone their age. A CNBC article cites a survey by “A huge number of them are opting out of stocks," Claes Bell, a banking analyst at Bankrate, said in the article. "This is a big deal." Bell adds that Baby Boomers, who are closest to retirement, are twice as likely to own stocks. (For more, see: Millennial Portfolios: Do They Take Too Little Risk?)

Losing Out

This reluctance to invest in equities could be explained, at least in part, as Millennials witnessed the devastation caused by the financial crisis. They saw their parents lose money due to the sharp decline in stocks and may have experienced this themselves as well.

Millennial investors who underweight stocks at this stage of their lives are missing out on years of potential compounding that they will have trouble making up for. Add to this the probability that Social Security and Medicare benefits will likely be reduced for this generation and the under utilization of equities at this age becomes an even bigger issue for Millennials. (For more, see: The Changing Wealth Demographic — And How to Leverage It.)

Student Debt

Another issue that is a bit unique to this generation more than their predecessors is the impact of often crushing student loan debt. This limits the amount that some Millennials have available to invest in anything. This debt level might serve to make some of these investors less reluctant to take additional risks with their investments.

Millennial Attitudes

Financial planning is key for this group. Besides the obvious benefits of having a financial plan, this approach will help to shed light on the need to be a bit more aggressive in their early years of investing and saving for retirement. (For more, see: Money Habits of the Millennials.)

A survey by Charles Schwab Corp. shed some light on Millennial spending. An article by The Motley Fool highlights the following from the survey: “… Millennials are willing to make fewer sacrifices than other generations, especially when it comes to using disposable income for entertainment. A whopping 44% of Millennials surveyed were unwilling to sacrifice things that add to the quality of their life, such as vacations, whereas just 29% of Boomers responded this way. Millennials also noted by a substantial margin compared to Boomers (30% to 20%) that they're unable to save for retirement due to basic monthly bills.”

Financial planning for this group needs to focus, at least in part, on budgeting and spending. The Schwab survey participants were 401(k) participants so they are saving for retirement to at least some level.

Providing Advice

Many have pointed to robo-advisors as being the answer to providing advice to Millennials and younger investors in general. They cite the fact that this group is used to doing things online including banking and buying goods and services. That is all true, but even if Millennials use a robo-advisor they have to be willing to invest based upon the allocations the robo-advisor provides based upon the information the client supplies.

LearnVest, a robo-advisor whose model is based upon financial planning (versus just straight investing), is a good option for Millennials. LearnVest offers low cost financial planning services that include a comprehensive financial plan, tools for clients to track their money, a goal calendar, classes and ongoing support. (For more, see: What Northwestern’s Acquisition of LearnVest Means.)

Many younger financial planners are using a different model than the traditional percentage of assets model that advisors serving Baby Boomers made popular. Part of the reason is that younger investors just don’t have the assets to justify this model in many cases and also that their needs are different than their Boomer parents. For example, Dallas-based financial planner Katie Brewer offers financial planning and ongoing coaching. Her firm’s services as listed on her website include: comprehensive financial planning, ongoing monthly coaching, retirement, debt payoff, education planning, budgeting and employee benefits analysis. Brewer's clients are primarily Millennials and Gen Xers. Her services can help lead these clients to the appropriate asset allocation for their age and financial goals.

The Bottom Line

Just as things were different for Baby Boomers in terms of their retirement with the rise of the 401(k) and the demise of the defined benefit pension, things are and will continue to be different for Millennial investors. The last 30 years gave rise to financial planners and registered investment advisors (RIAs), as opposed to stockbrokers, as a major source of financial advice to Boomers. The delivery of financial advice to this generation will likely evolve as well. Those financial advisors who can serve this group effectively and in a cost effective way will provide the lead in helping Millennials invest in a fashion that is more appropriate for their age. (For more, see: A Financial Advisor's Guide to Millennial Clients.)

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