Millennials Have More Than 60% Of Retirement Savings Allocated To Stocks

This cohort came of age at the height of the Great Recession, and some recent media reports suggest that this has made young adults more reluctant to put their money into the markets.

HOWEVER, a new analysis from MagnifyMoney, however, shows that millennials aren’t exactly allergic to “risky” investments such as stocks. We examined 20 years of workplace savings account data from the Federal Reserve’s Survey of Consumer Finances and compared millennials’ investing habits with prior generations of young savers.

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Key Findings

• In 2016, millennials had 60.3% of retirement accounts like IRAs and workplace savings accounts like 401(k) plans allocated to stocks or stock funds. This means millennials have 8 percentage points more of their retirement account funds invested in stocks than those 53 and older — the widest gap since 2001.
• In general, exposure to stocks (equities) has trended downward over the past 20 years. In 1998, all generations had an average of at least 60% of their workplace retirement savings in stocks and stock funds. In 2016, millennials were the only age group who allocated more than 60% of retirement assets to stocks and stock funds.
• How investors view their tendencies and what they actually do can be two different things. Some millennials claiming they are risk-averse (and thus claim they don’t invest in stocks) may unknowingly own stocks through target date funds (TDFs) and other multi-asset class investments in their retirement plan.

Millennials’ stock-heavy portfolios in line with conventional advice to young investors

Overall, millennials have more of their retirement funds invested in stocks and stock funds than older savers. Here’s a look at the allocation of retirement account assets across millennials (ages 35 and younger), Generation Xers (ages 35 to 51) and baby boomers (ages 51 and over).

Millennials Have More Than 60% of Retirement Savings in Stocks

In 2016, millennials had, on average, 60.3% of their retirement savings in stocks and stock funds, compared with just 53% for Generation Xers and 52.3% for baby boomers.

This trend of millennials allocating a larger portion of savings to higher-risk or more volatile assets such as stocks is actually in line with conventional retirement planning advice. Younger workers are advised to be more aggressive investors — with decades left to save and weather market ups and downs, they can afford to front-load risk (and reward) today.

Older generations, on the other hand, are advised to allocate retirement funds to less volatile assets as they get closer to retirement age. Baby boomers, in particular, might be planning to live off of retirement savings soon — or might already be relying on those savings. So it’s important to shield retirement savings from high-risk and volatile investments.

Across age groups, today’s investors are choosing stocks less

Overall, this analysis shows that today’s investors are less likely to have a large portion of retirement savings allocated to stocks and stock funds. Here’s a chart that compares the percentage of retirement savings allocated to stocks among age groups, over time:

Stock allocations across all three age cohorts show a largely downward trend, with current stock investments among the lowest levels reported.

Two major changes since 1998 may explain these shifts better than differences in generational risk aversion: the decline of workers with pensions and the rise of target date funds.

TDFs are playing a role in “right-sizing” asset allocations based on age, including those of millennials, who have had access to them since the beginning of their saving careers.

Meanwhile, most private-sector workers today only have defined contribution plans (401(k)s), and not defined benefit (DB) plans.

Major market ups and downs also correlate to some of the trends in this graph above, too. Stock allocations rose in the late 1990s, for example, as the dot-com bubble boomed — and fell in 2000 following its burst. Another small dip in stock investing is seen from 2007 to 2010, in line with the Great Recession and following recovery.

How to start investing in stocks

Whatever your age, buying stocks can be a smart way to grow your net worth and build a secure financial future. However, weathering stock market volatility isn’t always easy — and you’ll want to make sure your stocks strategy is in line with the rest of your financial goals.

If you’re interested in adding stocks to your investing or retirement savings strategies, here’s where you can begin.

Learn the stock market lingo. The world of stocks can seem complicated at first, so picking up on common stock terms can help you make sense of options. You should figure out what stock funds and exchange-traded funds are, for example, and know the difference between preferred and common stocks.

Set your stock investing goals. It’s important to make sure you align your stock investments with your bigger goals. Maximizing your 401(k) funds for a retirement that’s 30 years away will call for a much different investing strategy than if you’re investing in short-term savings. If you know what you want to accomplish by investing, you can choose stocks and funds that are most likely to make that happen.

Research stocks and funds. Once you’re aware of the types of stocks, funds and other assets you can buy, you can look for specific shares that you think are a smart buy. You can research how stock prices are set, and how you can evaluate whether a stock is overpriced or undervalued. Keep an eye out for deals you think are good, and figure out which ones would match well to your investing goals.

Review your account allocations. Many investors have a 401(k) or IRA but might not know how their funds are invested within those savings accounts. Revisit your retirement accounts to see if you want to adjust your allocations for new contributions. You might even want to rebalance your portfolio, selling some assets and buying others, to align with your targeted returns (and risk).

Set up a brokerage account. Most investors can’t buy and sell stocks directly — they’ll need a brokerage account to do so. A traditional broker can be an affordable way to get started — just look for one with low fees to ensure that your returns aren’t eaten up by investing costs.

Download an investing app. Downloading an investing app can be a smart and simple way to get started. Some of the best investing apps can help you analyze stocks, trade and manage investments and even find more funds to invest. Robinhood, for example, charges no commission fees on trades. Or try Acorns, where you can link your checking account to round purchases up and invest the change.

Stay cautious when getting started with stocks. No matter how well-researched or experienced an investor you are, no one can predict the future. As a new investor, however, it’s easy to make rookie mistakes that can cost you big. Keep in mind that every investment you make carries a risk of loss, so start investing a little bit to get comfortable while figuring out the right investing strategy for you.

These tips can get you started if you want to invest in stocks, but make sure you aren’t overlooking other ways to invest.

In some cases, stocks won’t be the best way to invest your funds and keep them growing. If you’re stocking away money for a shorter-term goal, you might want to consider a certificate of deposit. And a savings account is an old favorite if you want to safely store emergency funds or keep your funds easily accessible.

Adding stocks to your investing and money management strategy can be a move that pays off big. The U.S. stock market has consistently performed well, and lots of people have grown their wealth and net worth by investing their funds here. Start small and simple, investing what you can afford to each month, and you could see the effects add up over time.

This article originally appeared on MagnifyMoney