Millennial investors are woefully underprepared for the next financial crisis according to a survey conducted by online real estate crowdfunding service Fundrise.
The service surveyed over 1,000 millennial investors to try and figure out their investment preferences, and understanding of financial assets earlier this year, and what they found was that almost half believed that there was nothing they could do to protect their portfolio from a market downturn or financial meltdown.
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Millennial Investors Don’t Know How To Diversify
The Fundrise survey suggests that 67.2% of millennial investors are not prepared for the next crisis, and 47.1% feel that there is nothing that they can do to prepare for it. With 83 million millennials in the US holding an average of $75,500 in assets, this means the largest generation is at risk of losing $3.1 trillion in the next financial crisis assuming a repeat of the 50% drawdown seen last time around.
That’s assuming millennials’ love affair with ETFs does not exacerbate any sell-off. According to an annual study by Charles Schwab, 56% of millennial investors say ETFs are their investment of choice, compared to only 23% of seniors.
Millennial investors also appear to be unaware of the benefits of diversification according to the Fundrise study. 77.8% of respondents said that they had no interest in investing outside of the stock market while 42% of millennials surveyed said that they did not know whether it was important to invest outside of the stock market. These trends are quite concerning — even more so when you consider the fact that millennials are piling into ETFs when the market is trading at its third-highest valuation in history according to the Shiller P/E.
Moreover, as well as being clueless about the need to diversify, it seems as if young investors are also clueless about what assets are best to diversify into.
Indeed, according to Bankrate’s Financial Security Index, 28% of investors believe real estate is the best place to invest ‘money you wouldn’t need for 10 years or more’ with cash being the second most favored asset at 23% (only 4% of respondents thought bonds were a good investment idea for the next decade.) Over the past ten years, cash has produced an annualized return of 0.3% compared to 8.6% for equities. Housing returned only 1.3 % annually after inflation from 1900 to 2011.