Advisors Have Big Opportunity to Guide Millennials

Name a generation – baby boomers, Gen X, millennials or Gen Z – and there’s opportunity for registered investment advisors (RIAs). Part of that opportunity stems from advisors being astute.

Translation: Advisors should be aware that each generation has their own, distinct goals, thoughts and views. That is to  say advice and strategies applicable to baby boomers probably isn’t as pertinent to millennials and so on.

Indeed, evidence suggests that even generations that are close in chronological order, say Gen X and millennials, have divergent financial goals and view investing differently. Today’s younger generations – millennials and Gen Z – some credit. They’re quite optimistic regarding cobbling together wealth. That’s saying a lot because, like other generations, millennials and Gen Z are enduring their share of challenges and economic strife.

Focusing on millennials, this is a demographic ripe with opportunity for advisors and not just because they’re part of the great wealth transfer age group. Fact is millennials need financial advice.

Rough Market Shook Millennials

Consider the point that many of the oldest millennials entered the workforce leading up to, during or following the global financial crisis. More recently, younger generations – along with the rest of us – had to deal with the coronavirus bear market and the related economic headwinds. That was followed by a yet-to-be-completed era of rising interest rates and the worst inflation in 40 years –prior to the births of many millennials.

Millennials actually need quite a bit of guidance from advisors. As has been well documented, both stocks and bonds are struggling this year, but millennial investors are taking it particularly hard, running for the exits and hitting the “sell button” at a time when they should being just the opposite.

“When asked if they had at least one investment product in their household, younger respondents reported a steep drop from 2021. Just 57% of millennials and 49% of Gen Z adults claimed to own an investment account in June 2022, down from 70% and 60%, respectively, a year earlier,” notes Ally Chief Market Strategist Lindsey Bell.

It’s not a stretch to infer from those data points the combination of lack of government stimulus, collapsing meme stock enthusiasm and the so-called crypto winter are playing negative roles in younger investors’ outcomes and views.

“In our own survey, at Ally, we found that millennials were more likely than any other generation to sell their investments over the past year,” adds Bell. “49% of millennials told us they sold all or some of their investments, which compares to 21% of Gen X and 17% of Gen Z. The top reason that millennials sold was to cover household expenses. Losses from crypto investing, inflation and the fear of losing money also resulted in selling by this generation.”

In other words, the investment departures by millennials are nearly as much as the other three generations COMBINED.

Millennials Need Guidance, Reminders

Millennials’ recent investing jitters suggest several of things, including these market participants don’t fully understand the benefits of time and nor do they realize assets don’t move up in straight lines.

On the bright side of this equation, is the point that knowing the two points above equips advisors to work with millennial clients and position them for long-term success.

“How important is time in the market? When you start investing early and you stay invested, you’re letting your money do the heavy lifting for you. The chart below is among my favorites to illustrate the power of saving early and often. Contributing $20 per month for 20 years can yield an account value of nearly $12,000. Begin 10 years later, though, and you’d have less than $3,700. Start even later in the game, and it’s hard to build significant wealth,” concludes Bell.

Related: How Advisors Can Work More Effectively with Black, Hispanic Clients