Millennials’ Aversion to the Stock Market Makes Perfect Sense
There’s Nothing Irrational About Millennial Aversion To Stock Market Risk
Millennials are keeping their distance from the stock market, and according to writer John Aziz at The Week, that makes them financial neanderthals. Even the few lucky Millennials with ample cash to throw around are avoiding the equity markets, a move that Aziz calls “totally boneheaded”.
Just 27 percent of 18- to 29-year-olds reported owning shares in individual companies or as part of a fund, down from 33 percent in April 2008, according to the latest Gallup poll on the matter.
So what’s different for millennials? Over at Bloomberg, Jeanna Smialek argues that they have become extremely risk averse due to the two financial crashes we have seen in our lifetimes: “As the oldest millennials approached college graduation in 2002, they witnessed a 78 percent plunge in the Nasdaq index as the bubble in technology shares burst. As they reached their mid-twenties in 2008, the Standard & Poor’s 500 Index dropped 38.5 percent, the worst single-year performance since 1937. The gauge dropped 57 percent from October 2007 through March 2009.”
And what did the average equity investor (gross of fees, mind you) get in return for the massive risk he or she assumed since the beginning of the 21st century? Roughly 1.5 percent a year over 14 years. From March of 2000 through mid-2013, an investor in a simple corporate bond index would have outperformed an individual who invested in an index fund that tracked the S&P 500.
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Anemic growth barely hovering above zero in the first quarter of 2014 exposed the depths of a lingering and persistently weak U.S. economy. Gross Domestic Product edged up by a scant 0.1 percent, the slackest pace of growth since late 2012.
New Factory Orders gained just 1.1 percent in March, missing expectations of a bounce from a 1.5 percent rise in February. Wages were flat in April compared to March, with the average hourly wage for private sector workers settling at $24.31—a 1.9 percent from April 2013. The average workweek at 34.5 hours was also unchanged from March, though it was up slightly from April 2013.
Consumers have been opening their wallets wider, with spending up some 3 percent. But exports plunged 7. 6 percent and business spending on new equipment—keys to job and productivity growth— was off 5.5 percent. Many believe these indicators suggest a stock market plunge coupled with a recession is in the offing.
Read more – Stock Market at Risk
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