New research from investment management firm BlackRock suggests that Millennials are fearful of the stock market and sitting on too much cash in their accounts. It got me thinking – do Millennials fear the stock market? Or are there other factors at work?

Millennials came of age during the global financial crisis and Bernie Madoff Ponzi scheme era. They watched their parents lose half their retirement savings in just a few short months between 2008 and 2009.

Related: A conversation about Gen Y money

But sitting on cash may not signal a fear of the stock market. On the contrary; it might be a prudent move, depending on their financial goals.

I started investing when I was 19 years old. The TFSA didn’t exist back then and so I decided to put small amounts into my RRSP every paycheque, thinking I was wisely getting ahead.

It turned out that wasn’t such a smart move, after all. Why? Because I was saving for a goal that was at least four decades away. Meanwhile I didn’t bother to prepare a plan for the short-to-medium term future. You know, like how to pay off my student loans and credit card debt faster, where to find money to save for a wedding, house down payment, and maybe a new car.

Investing for retirement should have been the least of my concerns back then, and sure enough, I ended up raiding my RRSP to pay off my debts and get my financial life back in order.

Related: The worst financial advice ever given to Millennials

If I could do it all over again today (and tax free savings accounts existed) I would stash my cash inside a TFSA – likely in a high interest savings account – and use the money to fund my short-term goals. Does that mean I fear the stock market? Hell no! But where you place your cash should be determined by when you need the money. If that time frame is anywhere between 0-5 years, the stock market is not the place to park your savings.

So perhaps Millennials are holding cash and avoiding the stock market for other reasons. Whether they’re burdened with student loan debt, or saving up to buy a home in an expensive city like Vancouver or Toronto, or just trying to get on the right financial footing, you could argue that it makes better sense to hold cash for the short-term rather than stocks and mutual funds for the long term.

Don’t get me wrong; investing for retirement is important, and the earlier you get started, the more compound interest can work to your advantage. But options like a TFSA makes it easier to save for short-term goals so that young savers don’t have to get ahead of themselves like I did, only to dip into their retirement funds later when they need the money.

Related: An easy, yet sophisticated way to invest

The other factor could be that Millennials are shunning the traditional banking and investment model that has been riddled with high fees, conflicts of interest, and stodgy face-to-face, pen-to-paper practices that should be obsolete by now.

Millennials have grown up banking online and should embrace the robo-advisor model where they can open and account on their smart-phone in five minutes and start investing. That, combined with an independent fee-only financial planner should get Millennials excited about investing and building a healthy financial future…eventually.

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6 Comments

  1. Andrew @ AvrexMoney on October 29, 2015 at 10:31 pm

    I agree. I think the robo-advisor model will be embraced by millenialls, for investing. It’s convenient, easy, and most important, low-fee.

  2. My Own Advisor on October 30, 2015 at 5:37 am

    I suspect most Millennials will follow a similar right-of-passage as the previous generation:

    Level 1. Can’t save.
    Level 2. Figure out how to save.
    Level 3. Savings turn into investing and money gets sucked into high-priced big bank products.
    Level 4. Wake up after they realize some of these products are not designed to make them money (only the bank).
    Level 5. Take some personal responsibility.
    Level 6. Devise a plan.
    Level 7. Execute on plan, so they invest smarter going forward.
    Level 8. Realize the benefits and merits of the plan.

    Some people never get past 1.

    I am optimistic that with our information age fully upon us, there are fewer excuses for Millennials than my path to righting-the-ship in my 30s.

    My approach is by no means perfect and I’ve made my share of mistakes but making mistakes is far better than staying at level 1.

    Happy Halloween Robb!
    Mark

  3. Big Cajun Man (aw) on October 30, 2015 at 7:24 am

    It is an interesting dichotomy, in that young folk are usually fearless and feel they will live forever so have plenty of time to recover from mistakes, yet this generation may be suffering from having Helicopter (or worse Blackhawk) parents.

  4. aB on October 30, 2015 at 9:30 am

    If you are young, the stock market is counter intuitive when you start investing. You want to stock market to drop. You want what you are buying to be cheaper every time you put money to work. That is scary.
    But for every generation, I find the problem stems from people not continuing to learn after they graduate and find a job. The information is out there, but there are few teachers that will bring it to you.

    @BCM, different type of fear/mistake. Broken bones and bruises heal. If you lose $100, there is no recovery*, no cool story, no cool scar.
    Helicopter parents leads to the parent’s fear being passed on. Parent’s lost money during the crash, Millennial asks advice on investing? Parents are going to say buy a house, that’s where they made money. [I had this exact conversation.]

    I agree with MOA’s right of passage for the most part, except for Level 8. Seems to me it is a catch-22 is that you never really realize the benefits until you have (level 7) executed the plan for long enough, excluding any other plan.
    I find it’s like believing in a religion. You just have to believe that it will work.. Until it works, or doesn’t, there is not going back. [That being said, I BELIEVE!]
    Level 3/4 can be discouraging enough to send people back to Level 1.

    *recovery – you can replace the $100, you cannot recover the $100 that was lost.

  5. Russ on October 30, 2015 at 11:14 am

    I may be accused of being pedantic, but the correct term is *rite of passage,* not “right of passage.” It makes a difference.

    • My Own Advisor on October 31, 2015 at 7:01 am

      Thanks Russ, I noticed that error on my part after I posted my comment 🙂

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