Millennial Investors Remain Shaken by the Financial Crisis - Even Though All They Did Was Watch

- Ten Years after it Hit, Crisis Still has Major Psychological Impact

- Millennials' High Risk Aversion Could Jeopardize Retirement Savings

- Generation Prefers to Live for Today vs. Save for Tomorrow


June 1, 2017


Millennial investors in the United States report that the Financial Crisis and subsequent Great Recession strongly influence their investment decisions, leaving them more risk-averse than any other age group.

This is one of the most striking conclusions from the latest annual Global Investment Survey, released today by Legg Mason.

A huge majority of surveyed Millennials (82%) said their investment decisions are influenced by the Financial Crisis, with 57% saying they are “strongly influenced.”

By comparison, 39% of Gen-X, 13% of Baby Boomers, and 14% over age 65 said their investment decisions are still “strongly influenced” by the tumultuous global financial events that began in 2007 and ended in 2009.

A similar number of Millennial investors said they are conservative investors (85%), with 52% calling themselves “very conservative.” Only 30% of Gen-X, 29% of Baby Boomers, and 28% over age 65 consider themselves “very conservative.”

Surprisingly, compared to Millennial investors, almost twice as many investors over age 65 (28% vs. 15%) consider themselves to be aggressive investors.

“Who thought Millennial investors, most of whom were too young to be actively engaged in the markets at the time, would turn out to be the unwitting victims of the Financial Crisis?” said Tom Hoops, Executive Vice President and Head of Business Development at Legg Mason. “The pain their parents and grandparents experienced left an indelible impression that is only now manifesting itself as they begin to engage with the markets. They are not emulating previous generations in their investment behavior.”

“If the markets fall this could prove beneficial, but if their conservative approach keeps them away from stocks and bonds entirely, it could have perilous implications for their ability to save and benefit from market growth for retirement.”


Yet Millennials May be Becoming More Risk-On … after the Sustained Bull Market

Though they admit to being highly conservative, 78% of Millennial investors said this year they plan to take on more risk – with 45% saying “much more risk.” About 66% say they are interested in investing in equities.  Just 27% of Gen-X investors plan to take on “much more risk.”

“Millennials have one great advantage over all other investors: their youth,” Mr. Hoops noted. ”History shows again and again that growth investing works over the long term. If they avoid potential growth opportunities like equities, they are letting their greatest advantage slip through their hands.”

”Millennials should be willing to take risk now, when they have time to make up for possible losses,” he continued. “If they do not capture investment gains, they could find themselves short on savings later in life. That could force them to take greater risk at the absolute worst time: right when they should be taking less.”

The post-Financial Crisis U.S. equity bull market, at eight years and counting, has rewarded investors with annualized total returns of more than 14.6%. With lower growth projected, in the U.S. and globally, returns at those levels are far from assured. Most U.S. annual forecasts are in the 1.8-2.2% range, perhaps as high as 2.5. Some developed nations expect half that. Japan expects less, and China is facing “a soft landing.”

This could mean Millennials could be revisiting equity investments with an unrealistic set of expectations. If their timing turns out to be especially poor, it could scare them away from putting their money into the stock and bond markets, possibly forever.

“Millennials are thinking about taking on more risk in their portfolios,” Mr. Hoops reported. “That’s generally good news, although these may not be times for aggressive trading or concentrating in only a few stocks or sectors. Holding a diversified basket of stocks for long periods remains one of the best ways to earn the returns young investors need over a lifetime.”


What Should Risk-Adverse Young Investors Do?

“Given their conservative nature, Millennials should consider a risk-managed approach to equities,” Hoops said. “Diversification and down-side risk management will help Millennials avoid emotional over-reactions to the all-too-inevitable market dips and let them stay the course for the long-term.”

“To achieve their financial goals, young investors must become more outcome-oriented in their choices. They should consider going outside their home markets, finding proven long-term managers and consider putting part of their equity allocations in low-volatility strategies. They also should consider multi-asset products, and alternative products such as real estate and infrastructure. Both require longer-term investments so liquidity may be a challenge, but that’s the kind of trade-off investors should be prepared to make.”

“Investing with conviction requires patience, but it can be the best approach.”


Investing with … Regret?

This could be a challenge for Millennial investors, however, because the clear majority (84%) of those surveyed reported that they have regrets about the investment decisions they have made since 2007.

In contrast, 31% of Gen-X, 53% of Baby Boomers, and 59% of investors age 65 and over said they do NOT regret any of their decisions. 

The top three investment decisions Millennial investors regret making since the financial crisis began are:

    1.     I stopped speaking to my financial advisor

    2.     I stopped actively managing my 401k

    3.     I got the market timing wrong


Live for Today… Save for Tomorrow – Maybe

If Millennial investors have regrets today, those regrets might be worse tomorrow: Only 10% of Millennial investors said they “prefer to save and invest for tomorrow rather than live for today.” Instead, over three times more (36%) said they “live for today and don’t really think about tomorrow;” while another 41% said they “live for today, but would like to plan more for tomorrow.”


About the Legg Mason Global Investment Survey

Cicero Research conducted the fifth annual Legg Mason Global Investment Survey among 900 U.S. participants, including 305 Millennials and 458 investors with investable assets not including their home. Fielding was conducted through an online survey between January and February 2017. To learn more about the survey findings, click here:

About Legg Mason, Inc,

Legg Mason, Inc. is a global asset management firm, with $731 billion in assets under management as of April 30, 2017. The company provides active asset management in many major investment centers throughout the world. Legg Mason is headquartered in Baltimore, Maryland, and its common stock is listed on the New York Stock Exchange (symbol: LM).


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