Millennial Investing Habits You Can Learn From in 2019

Millennials in a business meeting
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Millennials get a bad rap. They get blamed for everything from the death of cable TV to the decline in sales of mayonnaise. This generation—generally people born anytime from the early 1980s to the late 1990s—represents a large group of people with a significant impact on the economy. They are unique in their saving and investing habits.

Investing and Savings Habits of Millennials

Here’s a look at millennials and their investing and saving habits these days:

Retirement Saving Isn’t Their Top Priority Right Now

Not surprisingly, putting aside cash for retirement is not top of mind for most millennials. They are too busy battling with debt. The 18th Annual Transamerica Retirement survey revealed that 45% of millennials marked saving for retirement as a financial priority. Meanwhile, 67% of millennials named paying off debt as a priority.

Millennials Are Risk Averse

Many millennials may recall the major stock market decline in 2001 and the financial crisis in 2008 and 2009. They may have memories of loved ones losing jobs and losing a lot of money in the markets. Despite a lengthy bull market in recent years, these memories may impact their investing approach and cause them to act cautiously.

A survey from Bankrate revealed that 30% of millennials see cash as their favorite investment. All other generations said they preferred stocks.

They Expect to Retire On Time Or Early

Research shows that millennials have no intention of working into old age. While 69% of baby boomers said they expect to work past age 65, 58% of millennials said they plan to be retired by that age, according to the Transamerica Retirement Survey. In fact, many millennials surveyed said they hope to retire even sooner.

Millennials are DIY Retirement Savers

More than any other generation, Millennials know that they will likely be responsible for saving for their own retirement. Transamerica reported that 53% believe that that the primary source of retirement income will be from 401k, IRA, and other savings accounts, rather than defined benefit pensions. Thus, they have started to save earlier and are more likely to discuss saving, investing, and retirement planning with family and friends. More than half of Millennials who are offered a 401k plan will contribute to it, a higher rate than other generations.

Millennials are also slightly more likely than other generations to have a written retirement plan, the Transamerica survey said.

Millennials Expect to Live Longer

Millennials expect to have a much longer retirement than other generations. Not only do they plan to retire early, they expect to live much longer. The Transamerica survey revealed that 17% of millennials expect to live past 100 years old. Meanwhile, only 11% of Gen Xers and 9% of baby boomers expect to be around that long.  

If millennials expectations regarding retirement and life expectancy hold true, they could be the first generation to have retirements that are longer than their time spent working.

They Have Some Catching Up to Do

So Millennials hope to retire early, and they expect to live a long time. This means they have some work to do to get their retirement savings on course. A report from The Center for Retirement Research at Boston College says that millennials have a wealth-to-income ratio of 40%

That means that their total net worth is only 40% of their current annual income. That’s lower than the 53 percent reported by Gen Xers and 47% by baby boomers when they were the same age. Boston College notes that millennials are weighed down by student loan debt, stagnant wages and a high cost of housing.

Socially Responsible Investing Matters to Them

There’s been rising interest in so-called “socially responsible” investing, which takes into account social and environmental good as well as overall return. This is driven by an increasing number of millennials starting to invest. Morgan Stanley last year reported that 86 percent of Millennial investors are very or somewhat interested in sustainable investing, compared to 75 percent for the entire population.

Morgan Stanley said millennials are twice as likely as the broader investment population to invest in companies targeting social or environmental goals. Also, 90 percent of millennials want to see sustainable options in their 401(k) plans.

Millennials Like Simple Investments

When millennials do invest, they like to avoid complication. Millennials are a significant driver of the push toward index mutual funds, which have low expense ratios and are merely designed to track the movements of individual indexes or the overall stock market. (Passive funds now make up about 30 percent of the market, according to Moody’s.)

They’ve also taken advantage of new exchange-traded funds and target-date mutual funds. These funds automatically shift investments appropriately as the investor gets older.

Fewer of Them Have Employer Retirement Plans

The growth of the gig economy may be impacting the number of Millenials who have 401(k) and other company-sponsored retirement plans. The report from the Center for Retirement Research at Boston College notes that fewer than 40 percent of millennials are taking part in employer plans. Meanwhile, baby boomers and Gen X-ers take part at a clip of more than 50 percent.

“This lack of a savings vehicle is a particular concern given that individuals who do not have a workplace retirement plan rarely save for retirement on their own,” the authors of the Boston College report said.

Emergency Funds are Lacking

It’s generally recommended that people have at least a few months of living expenses saved in cash, in order to pay for unexpected emergencies, such as a health scare or significant car or home repairs. Transamerica said that one-fourth of millennials have less than $1,000 saved, with the median level at just $2,000.

The good news, however, is that they are starting to save earlier than other generations did. millennials have started putting away money at age 24, on average, while baby boomers waited until they were 35 and Gen-Xers waited until age 30.

Advice To Millenials

So what’s the upshot for the millennial generation? Millennials aren’t doing poorly. They face challenges that are not necessarily their fault. Clearly, they need to boost their rating of saving and can do so by working to reduce their debt load and becoming slightly less risk-averse.

Those that have 401(k) plans available to them should take advantage and contribute at least to the level needed to get the maximum in matching funds from their company. Millennials would also be wise to explore the use of a Roth IRA to gain tax-free growth on investments. Meanwhile, they should bolster their emergency funds.