Chart of the Week: Millennials Favorite Investment is Also the Worst Performing

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Bankrate.com is out this afternoon with results of their monthly financial survey. One of the questions Bankrate asks is: “What is your preferred method of investing money that you don’t need for at least 10 years.”

 

The results are a little troubling, though understanding considering what investors have experienced since 2000.

One data point stands out:

 

  • The youngest age group, those between 18 and 29, favored cash above all other investment choices (39%). Just 13% chose the stock market.

 

Over 10 years, your money has time to compound and grow. Cash provides no return (really, a negative return considering inflation).

Here is a chart of some historical returns of stocks, bonds and cash:

 

Returns after tax and inflation of different securities

Now, stocks obviously have the chance of going down significantly, though your chances of hitting a 10 year period of negative returns is slim based on historical data.

 

Someone in their 20’s or 30’s who is saving for retirement with cash is going to have a really hard time saving enough money unless they plan on living on a significantly less amount of income during retirement.

 

But the results of the study point to this affection to cash in all ages of respondents. All together, the answers look like this:

 

chart1

Even then, cash has a very strong bias.

What effect does a cash heavy asset allocation have on your long term savings goals?

Using our Asset Allocation Calculator🙁 I evenly split the “other” and “don’t know” responses among the other options)

AA_calc

A portfolio heavily invested in cash, meant a 1000% difference based on historical returns. Despite the 2000 tech bubble, the 2009 crisis, the inflation of the 70’s, the 87 crash….holding cash still hurt you over the long term.

 

Young Investors – Is there hope?

 

However I am skeptical of the conclusions being arrived to from surveys like this. For one, investors asset allocation at some of the largest brokers do not support this survey’s findings.

 

 

Just one example from Vanguard:

 

Vanguard_young_investor_AA

Fidelity doesn’t break down the numbers as nicely, but they did say in a November 2013 report:

 

“For younger Gen Y participants, 55 percent had all their assets in a target date fund, providing this population with a considerable improvement in their age-based asset allocation over prior years.”

 

 

Investors have had a volatile ride in the stock market since 2000, but I am still not convinced that most see cash as their best way to save for retirement, as many are implying based on this survey.

 

My theory is that “10 years” and “retirement” would get very different answers from most.

Millennials (and others), am I wrong?

Categories: Chart of the Week, Investing and Retirement

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