Are millennials botching their asset allocations?

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vineviz
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Are millennials botching their asset allocations?

Post by vineviz » Tue Jul 31, 2018 9:13 am

Vanguard has published an interesting research paper on their retail investors called Risk-taking across generations.

https://personal.vanguard.com/pdf/CIRRT ... Online.pdf

There is a lot of fascinating data, but the summary bullet points are these:
  • The typical millennial household takes substantial equity risk. However, one notable group, at least a quarter of millennial investors, may have been strongly influenced by bear-market experience and have adopted conservative portfolios.
  • Over the recent five-year period from 2012 through 2017, there has been a general shift toward more balanced strategies and away from all-equity allocations.
  • Millennials who started investing at Vanguard after the global financial crisis are more than twice as likely to hold zero-equity portfolios as those who started investing before.
This last point is what caught my attention, because I think a 0% equity allocation for a millennial is immensely irrational (unless, I suppose, all of your savings is for a house or car). In 2017, the same proportion of millennial investors had 0% equities as had 100% equities.

Image

The drop in 100% equity investors is attributed to the growth of target date funds, which makes some sense. The surge in 0% equity investors is troubling to me, however.
Last edited by vineviz on Tue Jul 31, 2018 9:48 pm, edited 1 time in total.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

T4REngineer
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Re: Are millennial botching their asset allocations?

Post by T4REngineer » Tue Jul 31, 2018 9:17 am

Interesting, at 30 I know of no one in my peer group that holds 0% in equities aside from those who have zero savings :shock:

stimulacra
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Re: Are millennial botching their asset allocations?

Post by stimulacra » Tue Jul 31, 2018 9:24 am

For the most part I stopped subscribing to the belief that there are distinct generational differences between demographic cohorts. In my experience the ratio of aggressive risk-taking investors, risk-averse investors, and people who don't save or invest at all, are roughly the same across all generations.

theDON2050
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Re: Are millennial botching their asset allocations?

Post by theDON2050 » Tue Jul 31, 2018 9:29 am

As a 27 year old who frequents this website, I am not botching my asset allocations. However, I do find concerning the number of my friends/coworkers who have either little to no ability to save, no concern about their retirement, or just trusting their financial advisor blindly.

MichCPA
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Re: Are millennial botching their asset allocations?

Post by MichCPA » Tue Jul 31, 2018 9:33 am

stimulacra wrote:
Tue Jul 31, 2018 9:24 am
For the most part I stopped subscribing to the belief that there are distinct generational differences between demographic cohorts. In my experience the ratio of aggressive risk-taking investors, risk-averse investors, and people who don't save or invest at all, are roughly the same across all generations.
TBH, The 'average' dotted line at the beginning of the linked pdf seems to support your theory pretty well. Except for the well informed risk takers that seem to push up the solid line of the same graph for younger groups, there doesn't seem to be a huge difference.

KlangFool
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Re: Are millennial botching their asset allocations?

Post by KlangFool » Tue Jul 31, 2018 9:41 am

OP,

You see potato, I see potato.

Looking at the same chart:

1) I do not see a substantial difference between generation in term of folks taking extreme AA position: 0% equity and 0% bond:

2017
All - 33%
Millenials - 38%
Generation X - 37%
Baby Boomer - 31%
Silent Generation - 29%

And, the older generation taking less extreme AA

2) I see improvement between 2012 and 2017 with fewer people taking extreme AA positions.

2012 to 2017

All - 38% to 33% = -5%
Millenials - 45% to 38% = -7%
Generation X - 41% to 37% = -4%
Baby Boomer - 36% to 31% = -5%
Silent Generation - 34% to 29% = -5%

So, it is heading in the right direction. More people are doing the right thing.

KlangFool

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camillus
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Re: Are millennial botching their asset allocations?

Post by camillus » Tue Jul 31, 2018 9:44 am

I am technically a millennial. I am also technically (by some definitions) middle-age. I popped out of graduate school in 2008, right in time for my profession to be decimated by the great recession. I think within the "millennial" generation there is an underappreciated diversity. Personally, I've been at 10% bonds for some time, but am becoming more and more interested in changing to 20 or even 30%.

A few more thoughts:

1) As was mentioned above, some 0% equity portfolios can be explained as young people are investing to pay for a near term goal, like a down payment, a wedding ceremony, or a Tesla.
2) Conversely, millennial investing is defined by simplicity in interface - prominently including target date funds if not roboadvisors. A 10% bond position is more or less assumed by most of these platforms for people in their 20s (and 30s!). The critique of target date funds is that they have been chasing performance by way of asset allocation during a bull market. And - if you are at 10% bonds, why not 0% bonds? That's not a far leap.

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vineviz
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Re: Are millennial botching their asset allocations?

Post by vineviz » Tue Jul 31, 2018 10:15 am

KlangFool wrote:
Tue Jul 31, 2018 9:41 am
I see improvement between 2012 and 2017 with fewer people taking extreme AA positions.

2012 to 2017

All - 38% to 33% = -5%
Millenials - 45% to 38% = -7%
Generation X - 41% to 37% = -4%
Baby Boomer - 36% to 31% = -5%
Silent Generation - 34% to 29% = -5%

So, it is heading in the right direction. More people are doing the right thing.
That doesn't seem to be the case.

For one thing, a 100% equity allocation for a millennial isn't an "extreme" allocation at least for retirement savings. It's a moderate allocation under MPT parameters.

For another thing, a 58% increase in the number of millennials who hold 0% equity since 2012 is NOT "heading in the right direction".
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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vineviz
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Re: Are millennial botching their asset allocations?

Post by vineviz » Tue Jul 31, 2018 10:19 am

stimulacra wrote:
Tue Jul 31, 2018 9:24 am
For the most part I stopped subscribing to the belief that there are distinct generational differences between demographic cohorts. In my experience the ratio of aggressive risk-taking investors, risk-averse investors, and people who don't save or invest at all, are roughly the same across all generations.
And yet:

Image
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

asif408
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Re: Are millennial botching their asset allocations?

Post by asif408 » Tue Jul 31, 2018 10:30 am

There is no separation between IRAs and taxable accounts in this analysis, so I'm not sure what we can really learn about retirement investing. Maybe millennials have more money where they can actually invest in taxable accounts because they are maxing out tax-deferred space. Taxable accounts could be used for many reasons and could account for some of the increases in 0% equity allocations.

livesoft
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Re: Are millennial botching their asset allocations?

Post by livesoft » Tue Jul 31, 2018 10:43 am

Garbage in, garbage out.

The data appears to come from Vanguard accounts and ignores non-Vanguard things like bank accounts, savings accounts, CDs, Ally, other high-yield savings accounts.
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LawyersGunsAndMoney
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Re: Are millennial botching their asset allocations?

Post by LawyersGunsAndMoney » Tue Jul 31, 2018 10:44 am

As an "old millennial" (1981) I usually find generational comparisons to be kind of dumb. Show me what Gen X did when they were my age, or Baby Boomers WHEN THEY WERE MY AGE. That's interesting.

Survey a few of the 25% of Millennials who are 0% equity and ask them why. Do they even know they are? Are these taxable accounts for home down payments?

I'm 36, DW and I have 24% of our retirement portfolio in bonds, and we sleep well at night.

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Re: Are millennial botching their asset allocations?

Post by SchruteB&B » Tue Jul 31, 2018 10:44 am

Footnote 7 says this includes Vanguard only accounts.

7 Also note that our sample includes Vanguard-only assets, not the household’s entire financial portfolio. It also excludes real estate, Social Security and pensions, and other assets.

So my Baby Boomer mom who has an IRA with Vanguard, consisting solely of Total Stock Market, gets counted as 100% equity. But her total portfolio is actually 50/50 and includes pensions, and IRAs with other providers that includes fixed income holdings.

LiterallyIronic
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Re: Are millennial botching their asset allocations?

Post by LiterallyIronic » Tue Jul 31, 2018 10:44 am

Some would call me a Millennial, but I'm 34 and consider myself Oregon Trail Generation. Don't really fit in with the whole "Millennial" thing of gluing my face to my phone and taking pictures of my food. :happy

But I graduated in December 2008, right into the terrible job market. But, unlike what the article said, "may have been strongly influenced by bear-market experience and have adopted conservative portfolios," I'm probably more aggressive because of that bear market. I'm at 90/10, the most aggressive Target Date fund Vanguard offers because that bad job market helped me get a late start on savings and now I can only try to make up time by being aggressive and hoping it works out.

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Re: Are millennial botching their asset allocations?

Post by KlangFool » Tue Jul 31, 2018 10:50 am

vineviz wrote:
Tue Jul 31, 2018 10:15 am
KlangFool wrote:
Tue Jul 31, 2018 9:41 am
I see improvement between 2012 and 2017 with fewer people taking extreme AA positions.

2012 to 2017

All - 38% to 33% = -5%
Millenials - 45% to 38% = -7%
Generation X - 41% to 37% = -4%
Baby Boomer - 36% to 31% = -5%
Silent Generation - 34% to 29% = -5%

So, it is heading in the right direction. More people are doing the right thing.
That doesn't seem to be the case.

For one thing, a 100% equity allocation for a millennial isn't an "extreme" allocation at least for retirement savings. It's a moderate allocation under MPT parameters.

For another thing, a 58% increase in the number of millennials who hold 0% equity since 2012 is NOT "heading in the right direction".
vineviz,

I disagreed. 100/0 is not on the efficient frontier.

KlangFool

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Re: Are millennial botching their asset allocations?

Post by adam1712 » Tue Jul 31, 2018 10:53 am

livesoft wrote:
Tue Jul 31, 2018 10:43 am
Garbage in, garbage out.

The data appears to come from Vanguard accounts and ignores non-Vanguard things like bank accounts, savings accounts, CDs, Ally, other high-yield savings accounts.
Agreed. My account at Vanguard is 100% equities but my 401k and other accounts are not.

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Re: Are millennial botching their asset allocations?

Post by jehovasfitness » Tue Jul 31, 2018 10:53 am

theDON2050 wrote:
Tue Jul 31, 2018 9:29 am
As a 27 year old who frequents this website, I am not botching my asset allocations. However, I do find concerning the number of my friends/coworkers who have either little to no ability to save, no concern about their retirement, or just trusting their financial advisor blindly.
Is it really surprising? Real wages have remained flat while housing, healthcare and education have far outpaced inflation. Not much left to save for many.

MittensMoney
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Re: Are millennial botching their asset allocations?

Post by MittensMoney » Tue Jul 31, 2018 10:54 am

Anecdotal evidence here, but nearly everyone I know who is earning enough to invest is in 100% equities. I'm on the younger side of the millennial generation and the 'YOLO' mentality is strong (take big risks, live for today). This will probably change after the next financial crisis/bear market, as everyone near my age range started working in 2012 or later, but for now people are riding the bull market highs and feel like they're awesome at investing.

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Re: Are millennial botching their asset allocations?

Post by theDON2050 » Tue Jul 31, 2018 11:07 am

jehovasfitness wrote:
Tue Jul 31, 2018 10:53 am
theDON2050 wrote:
Tue Jul 31, 2018 9:29 am
As a 27 year old who frequents this website, I am not botching my asset allocations. However, I do find concerning the number of my friends/coworkers who have either little to no ability to save, no concern about their retirement, or just trusting their financial advisor blindly.
Is it really surprising? Real wages have remained flat while housing, healthcare and education have far outpaced inflation. Not much left to save for many.
I agree with what you're saying-- all those things are a factor, but I still find it surprising. Obviously, it comes down to lifestyle and spending habits but yes I find it surprising when peers making a similar amount as me have little to no retirement plan/savings.

snarlyjack
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Re: Are millennial botching their asset allocations?

Post by snarlyjack » Tue Jul 31, 2018 11:10 am

I' am a millennial (24 years old) & 100% equities.

According to portfolio visualizer my 100% stock portfolio
is on the efficient frontier. I think I had a lot of great
Finance Professors & have read a lot of portfolio design
studies & analysis...interesting stuff.

P.S. I would see a "correction or bear market" as a
total buying opportunity. As a long term investor,
lower prices/higher dividend yield would totally
help me...

Ollie123
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Re: Are millennial botching their asset allocations?

Post by Ollie123 » Tue Jul 31, 2018 11:27 am

I wonder how much of our perspective is biased by a function of being here. I think if you asked a bunch of millennials what an "asset allocation" was, I bet 9 out of 10 would have no idea what you were talking about. That's not a knock on millennials (I am one), I think by nature of being on this forum we vastly overestimate how much thought others give to personal finance matters - even if they are the folks who are saving "something".

I would not be remotely surprised to learn that a large portion of these 0% assset allocations consisted of people who panic-sold when the market crashed because someone told them to and haven't logged back in to check it in the last few years. As sad as it is, I actually suspect these folks represent a larger portion of folks saving for retirement than do bogleheads.

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Re: Are millennial botching their asset allocations?

Post by jehovasfitness » Tue Jul 31, 2018 11:34 am

theDON2050 wrote:
Tue Jul 31, 2018 11:07 am
jehovasfitness wrote:
Tue Jul 31, 2018 10:53 am
theDON2050 wrote:
Tue Jul 31, 2018 9:29 am
As a 27 year old who frequents this website, I am not botching my asset allocations. However, I do find concerning the number of my friends/coworkers who have either little to no ability to save, no concern about their retirement, or just trusting their financial advisor blindly.
Is it really surprising? Real wages have remained flat while housing, healthcare and education have far outpaced inflation. Not much left to save for many.
I agree with what you're saying-- all those things are a factor, but I still find it surprising. Obviously, it comes down to lifestyle and spending habits but yes I find it surprising when peers making a similar amount as me have little to no retirement plan/savings.
Yeah, I'd assume they fall into the buying too much house trap, or doing so for a good school system which I don't blame them. sucks up a lot of what could be savings

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akblizzard
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Re: Are millennial botching their asset allocations?

Post by akblizzard » Tue Jul 31, 2018 11:42 am

jehovasfitness wrote:
Tue Jul 31, 2018 10:53 am
theDON2050 wrote:
Tue Jul 31, 2018 9:29 am
As a 27 year old who frequents this website, I am not botching my asset allocations. However, I do find concerning the number of my friends/coworkers who have either little to no ability to save, no concern about their retirement, or just trusting their financial advisor blindly.
Is it really surprising? Real wages have remained flat while housing, healthcare and education have far outpaced inflation. Not much left to save for many.
Until recently I worked with many people in this age group (about 27 yrs old). Most said the mantra above about not being able to save because (enter list of reasons here). I get it, I was 27 once too, raised a family and all that. But I noted these particular people somehow had money for tattoos, cigarettes, Friday night at the bar, vacations, best phones & plans etc.

Edit to add: those folks who did participate in the 401k seemed to just follow whatever advice the plan rep gave them.

jehovasfitness
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Re: Are millennial botching their asset allocations?

Post by jehovasfitness » Tue Jul 31, 2018 12:02 pm

akblizzard wrote:
Tue Jul 31, 2018 11:42 am
jehovasfitness wrote:
Tue Jul 31, 2018 10:53 am
theDON2050 wrote:
Tue Jul 31, 2018 9:29 am
As a 27 year old who frequents this website, I am not botching my asset allocations. However, I do find concerning the number of my friends/coworkers who have either little to no ability to save, no concern about their retirement, or just trusting their financial advisor blindly.
Is it really surprising? Real wages have remained flat while housing, healthcare and education have far outpaced inflation. Not much left to save for many.
Until recently I worked with many people in this age group (about 27 yrs old). Most said the mantra above about not being able to save because (enter list of reasons here). I get it, I was 27 once too, raised a family and all that. But I noted these particular people somehow had money for tattoos, cigarettes, Friday night at the bar, vacations, best phones & plans etc.

Edit to add: those folks who did participate in the 401k seemed to just follow whatever advice the plan rep gave them.
tattoos and the bar and phones are chump change compared to $1500 rent, $800/mo health insurance and $500/mo for student loan payments

cigs are crazy expensive tho lol

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bligh
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Re: Are millennial botching their asset allocations?

Post by bligh » Tue Jul 31, 2018 12:05 pm

akblizzard wrote:
Tue Jul 31, 2018 11:42 am
jehovasfitness wrote:
Tue Jul 31, 2018 10:53 am
theDON2050 wrote:
Tue Jul 31, 2018 9:29 am
As a 27 year old who frequents this website, I am not botching my asset allocations. However, I do find concerning the number of my friends/coworkers who have either little to no ability to save, no concern about their retirement, or just trusting their financial advisor blindly.
Is it really surprising? Real wages have remained flat while housing, healthcare and education have far outpaced inflation. Not much left to save for many.
Until recently I worked with many people in this age group (about 27 yrs old). Most said the mantra above about not being able to save because (enter list of reasons here). I get it, I was 27 once too, raised a family and all that. But I noted these particular people somehow had money for tattoos, cigarettes, Friday night at the bar, vacations, best phones & plans etc.

Edit to add: those folks who did participate in the 401k seemed to just follow whatever advice the plan rep gave them.
While I agree with your general sentiment that millennials spend far too much and save too little, my understanding is that this is true of Boomers and Gen Xers too. It's not a generation specific problem. The big difference in the case of millennials comes from the twin punches of student debt and unaffordable house prices. None of the prior generations have had to deal with that. When you start life out 5 figures in the red, and then look at starter homes you wont be able to afford any time soon, it is easy to give yourself the little luxuries instead. If the prior generation was able to buy the same starter home for $200K with $2K in property taxes / year, and the new generation has to pay $600K with $6K in property taxes / year, the phones and beers and tattoos are a rounding error. Salaries haven't gone up 3x, but it is taking 3x as much to have the exact same roof over your head. You save for the starter home downpayment, you don't save for retirement because it looks like a distant, impossible and hopeless proposition... similar to how a person wouldn't apply for a job or a university that they believe is "way out of their league". It seems so daunting, demoralizing and unlikely, you don't even bother to try. So instead they focus on making the best of "right now". There are many other factors involved too..

I am not supporting that behavior, I think minimizing your spending until you have reached financial independence is the responsible course of action. I am just trying to give a different perspective from the "It's their own fault they don't have anything saved!" narrative. Of course.. they have to deal with the situation they are in, one way or the other .. I think the FIRE community is one such reaction to the situation. They swing in the other direction and are mostly millennials espousing the ideology of rejecting the entire consumerist system altogether. However, they get criticized for being lazy and being okay with living their entire life in poverty. Millennials can't seem to win. :)

It's not about generations being different, it is about situations being different. No generation in US history (AFAIK) has had to deal with the current combination of high education cost, high housing cost, and low expectations of employment prospects, investment returns and projected economic growth. They are dealing with it in different ways, not all of which are constructive.

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jadd806
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Re: Are millennial botching their asset allocations?

Post by jadd806 » Tue Jul 31, 2018 12:22 pm

This little millennial is 100% equities.

I honestly don't find this data that surprising. Anecdotally, I hear more talk about how the stock market is a scam/rigged from my peers than from older folks. Most of my friends just contribute the minimum to their 401k for the match - I know of only 3 people around my age who have an IRA or taxable account (and 2 of them didn't open an IRA until after I explained the benefits to them).

Most people my age are completely obsessed with buying a house and unironically expect 5%+ annual returns from owning a primary residence. But none of them can save for it so they rely on 0-3.5% down mortgage products. Sure sounds sustainable.

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Re: Are millennial botching their asset allocations?

Post by Nate79 » Tue Jul 31, 2018 12:29 pm

Stupid study. There is no way to assess the accuracy of the claims considering the source of their data.

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Re: Are millennial botching their asset allocations?

Post by MJW » Tue Jul 31, 2018 12:31 pm

camillus wrote:
Tue Jul 31, 2018 9:44 am
I am technically a millennial. I am also technically (by some definitions) middle-age. I popped out of graduate school in 2008, right in time for my profession to be decimated by the great recession. I think within the "millennial" generation there is an underappreciated diversity.
This is a good point, especially when considering how broad these generational cohorts are. Like you, I'm sort of a borderline millenial/gen-x (mid thirties) and completed grad school right before the financial crisis. I am confident that my career, and subsequently my earning power and ability to save, was set back years as a result. Add student loan debt and living in a relatively HCOL area and it's clear how someone in my age group would be off to a rough start. Fortunately I've been able to make better strides over the last few years in catching up in my career.

My brother, on the other hand, is eight years younger than me and more firmly entrenched in the millenial generation. He had a much easier time landing a "career job" after college (the economy was well into its recovery by then) and has been able to start saving at a younger age. I think there are "people of a certain age" right now where a handful of years has made a big difference.
Last edited by MJW on Tue Jul 31, 2018 12:32 pm, edited 1 time in total.

lukestuckenhymer
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Re: Are millennial botching their asset allocations?

Post by lukestuckenhymer » Tue Jul 31, 2018 12:32 pm

I'm 31... I'm 100% equity in retirement accounts. In taxable accounts, I'm 80/20 stock/tax-exempt bond.

Most millennials don't understand it and don't seek to understand it... that's the tragic thing. And once they get a rudimentary understanding, teaching Boglehead discipline is even harder.

snarlyjack
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Re: Are millennial botching their asset allocations?

Post by snarlyjack » Tue Jul 31, 2018 12:33 pm

In my case the "stars all aligned"...

I was just graduating with a B.S. Degree in Finance.
My Mom died & I inherited some money. I found
Bogleheads & started studying. I knew I had to
get money smart. (About 4 years ago, I was 20 years old).

I found the FIRE community (and it clicked) all at
a very young age. Being a poor student I lived
the poor student life. My living standard was very
low & I just kept it that way.

Then I discovered if I' am smart...I could FIRE in
about 12-15 years. That would make me 32 or 35
years old. I would have to be disciplined & smart.
I started reading & studying..."the stars were lining up"...
FIRE is possible...but you have to know what your doing.

foamypirate
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Re: Are millennial botching their asset allocations?

Post by foamypirate » Tue Jul 31, 2018 12:34 pm

Sorry guys, my fault. The only assets I have at Vanguard are my e-fund in Prime Money Market. Guess I must've thrown off the numbers! :mrgreen: Everything else is in my Fidelity 401K.

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Re: Are millennial botching their asset allocations?

Post by Dottie57 » Tue Jul 31, 2018 1:05 pm

LiterallyIronic wrote:
Tue Jul 31, 2018 10:44 am
Some would call me a Millennial, but I'm 34 and consider myself Oregon Trail Generation. Don't really fit in with the whole "Millennial" thing of gluing my face to my phone and taking pictures of my food. :happy

But I graduated in December 2008, right into the terrible job market. But, unlike what the article said, "may have been strongly influenced by bear-market experience and have adopted conservative portfolios," I'm probably more aggressive because of that bear market. I'm at 90/10, the most aggressive Target Date fund Vanguard offers because that bad job market helped me get a late start on savings and now I can only try to make up time by being aggressive and hoping it works out.
Saving more and living belw means are a much better way to catch up than asset allocation

warner25
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Re: Are millennial botching their asset allocations?

Post by warner25 » Tue Jul 31, 2018 1:05 pm

Ollie123 wrote:
Tue Jul 31, 2018 11:27 am
I think if you asked a bunch of millennials what an "asset allocation" was, I bet 9 out of 10 would have no idea what you were talking about. That's not a knock on millennials (I am one), I think by nature of being on this forum we vastly overestimate how much thought others give to personal finance matters - even if they are the folks who are saving "something".
This is my thinking too. I seriously doubt that most asset allocations, regardless of generation, are the result of any careful thought. What prevails are the default options in employer-sponsored retirement plans, naive stock-picking (i.e. mostly loading up on FAANG and TSLA) among people who don't even know that they're "100% equities," or maybe simply doing what someone else (advisor, uncle, smart-sounding coworker) told them to do.

At the start of my career, before I found Bogleheads, before the 2008-2009 crash, my whole IPS was just "buy index funds" because one of my college professors said so. I didn't even know that holding a NASDAQ index fund along with an S&P 500 fund was silly, and I really didn't understand the supporting theory or the risks. I'm not sure I knew that I was "100% equities" at the time.

Older folks might be more educated, on average, because they took more interest as they approached retirement, but what would they have done in their 20s or 30s? I don't think we know. I don't think retail investing was common yet.

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Tamarind
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Re: Are millennial botching their asset allocations?

Post by Tamarind » Tue Jul 31, 2018 1:58 pm

The data is a little iffy, but while we're speaking broadly about generations, I'd say this is comparable to some in the generation whose financially formative years included the 1929 crash. Many of them swore off stocks for the rest of their lives and did all their savings in bank accounts and CDs.

The effect is not so pronounced among millennials simply because the downturn wasn't so severe, and also because as pointed out above many of them use their employer's default target date funds, which are equity-heavy.

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Re: Are millennial botching their asset allocations?

Post by LiterallyIronic » Tue Jul 31, 2018 2:03 pm

Dottie57 wrote:
Tue Jul 31, 2018 1:05 pm
LiterallyIronic wrote:
Tue Jul 31, 2018 10:44 am
Some would call me a Millennial, but I'm 34 and consider myself Oregon Trail Generation. Don't really fit in with the whole "Millennial" thing of gluing my face to my phone and taking pictures of my food. :happy

But I graduated in December 2008, right into the terrible job market. But, unlike what the article said, "may have been strongly influenced by bear-market experience and have adopted conservative portfolios," I'm probably more aggressive because of that bear market. I'm at 90/10, the most aggressive Target Date fund Vanguard offers because that bad job market helped me get a late start on savings and now I can only try to make up time by being aggressive and hoping it works out.
Saving more and living belw means are a much better way to catch up than asset allocation
I save 25% of my gross income and live in a 1274 square foot house at the bottom of the pricing scale in my town, that I bought with 29% down, so my PITI is only $808, but we pay extra every month. I have to save more, live frugally, and invest aggressively to catch up. I finished school at age 32 and I want to retire at age 50. An 18-year career requires it all to come together.

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Re: Are millennial botching their asset allocations?

Post by Meg77 » Tue Jul 31, 2018 2:08 pm

I would wager that most of the Millennials who have IRA and/or taxable accounts at Vanguard also have other financial assets: an employer 401k plan, bank savings/checking accounts, etc. This makes it difficult to speculate broadly based solely on asset allocation of one person's Vanguard holdings.

I'm a married Millennial, and my Vanguard account consists solely of a Roth IRA that is 100% in the VG small cap equity index. *GASP* So aggressive! My husband's Vanguard account consists of a small Roth IRA that is 100% International equities, and a brokerage account that is 50% cash (our EF) and 50% international equities.

Oh, but we also both have large 401ks which is where we have bonds and domestic large cap equities (S&P500 index). And we have bank checking accounts with more cash padding.
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Portfolio7
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Re: Are millennial botching their asset allocations?

Post by Portfolio7 » Tue Jul 31, 2018 2:18 pm

vineviz wrote:
Tue Jul 31, 2018 10:19 am
stimulacra wrote:
Tue Jul 31, 2018 9:24 am
For the most part I stopped subscribing to the belief that there are distinct generational differences between demographic cohorts. In my experience the ratio of aggressive risk-taking investors, risk-averse investors, and people who don't save or invest at all, are roughly the same across all generations.
And yet:

Image
Sure, but aren't those percentages roughly appropriate (a bit aggressive, but reasonable) for each cohort? i.e. the difference is due to age, not so much due to risk tolerance (or maybe a better way to say it, it properly reflects a reduction in future earning power within each age group?) Such that each group is reflecting roughly the similarly aggressive behavior, simply adapted to their age?
Last edited by Portfolio7 on Tue Jul 31, 2018 2:24 pm, edited 1 time in total.
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bligh
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Re: Are millennial botching their asset allocations?

Post by bligh » Tue Jul 31, 2018 2:22 pm

Portfolio7 wrote:
Tue Jul 31, 2018 2:18 pm
vineviz wrote:
Tue Jul 31, 2018 10:19 am
stimulacra wrote:
Tue Jul 31, 2018 9:24 am
For the most part I stopped subscribing to the belief that there are distinct generational differences between demographic cohorts. In my experience the ratio of aggressive risk-taking investors, risk-averse investors, and people who don't save or invest at all, are roughly the same across all generations.
And yet:

Image
Sure, but aren't those percentages roughly appropriate (a bit aggressive, but reasonable) for each cohort? i.e. the difference is due to age, not so much due to risk tolerance (or maybe a better way to say it, it properly reflects a reduction in future earning power within each age group?)
You also need to account for the size of the portfolios of each generation.

If you have $10K saved and you can go 100% equity and not sweat a 50% market crash. You are down $5K.
If you have $500K saved a 50% market crash on a 100% equity portfolio is $250K. That is years of saving disappearing before your eyes. It's gonna hurt a lot more.

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Re: Are millennial botching their asset allocations?

Post by willthrill81 » Tue Jul 31, 2018 2:26 pm

This finding is in line with academic research which has shown that Millennials tend to prefer 'guaranteed' investments, even when they offer very low returns, to 'risky' stocks.

Millennials' saving grace may be the target date funds that they are usually placed in automatically when they enroll in their company's 401k plan.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Are millennial botching their asset allocations?

Post by Dottie57 » Tue Jul 31, 2018 2:50 pm

LiterallyIronic wrote:
Tue Jul 31, 2018 2:03 pm
Dottie57 wrote:
Tue Jul 31, 2018 1:05 pm
LiterallyIronic wrote:
Tue Jul 31, 2018 10:44 am
Some would call me a Millennial, but I'm 34 and consider myself Oregon Trail Generation. Don't really fit in with the whole "Millennial" thing of gluing my face to my phone and taking pictures of my food. :happy

But I graduated in December 2008, right into the terrible job market. But, unlike what the article said, "may have been strongly influenced by bear-market experience and have adopted conservative portfolios," I'm probably more aggressive because of that bear market. I'm at 90/10, the most aggressive Target Date fund Vanguard offers because that bad job market helped me get a late start on savings and now I can only try to make up time by being aggressive and hoping it works out.
Saving more and living belw means are a much better way to catch up than asset allocation
I save 25% of my gross income and live in a 1274 square foot house at the bottom of the pricing scale in my town, that I bought with 29% down, so my PITI is only $808, but we pay extra every month. I have to save more, live frugally, and invest aggressively to catch up. I finished school at age 32 and I want to retire at age 50. An 18-year career requires it all to come together.
With that rate of saving you will do well. My main point is that the savings rate is extremely important. An agressive amount of stocks won’t help if the rate of investing is small.

Don’t stress on a “late start”. I started at age 31. 401k plans were much less prevalemt in the 1980’s. And the max contribution was about 9k. Which I could not begin to afford.

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Re: Are millennial botching their asset allocations?

Post by youngpleb » Tue Jul 31, 2018 9:36 pm

theDON2050 wrote:
Tue Jul 31, 2018 9:29 am
As a 27 year old who frequents this website, I am not botching my asset allocations. However, I do find concerning the number of my friends/coworkers who have either little to no ability to save, no concern about their retirement, or just trusting their financial advisor blindly.
Same. I’m also 27, and can count the number of friends who actually utilize their 401k on one hand, and none of them could tell me what their asset allocation is.
27. Always learning.

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Re: Are millennial botching their asset allocations?

Post by Engineer250 » Tue Jul 31, 2018 11:54 pm

youngpleb wrote:
Tue Jul 31, 2018 9:36 pm
theDON2050 wrote:
Tue Jul 31, 2018 9:29 am
As a 27 year old who frequents this website, I am not botching my asset allocations. However, I do find concerning the number of my friends/coworkers who have either little to no ability to save, no concern about their retirement, or just trusting their financial advisor blindly.
Same. I’m also 27, and can count the number of friends who actually utilize their 401k on one hand, and none of them could tell me what their asset allocation is.
33. My personal friends (millennials and Xers) are not college educated and working low paying jobs in a high cost town. I doubt any of them have money in retirement accounts, some have student loans from programs they never finished, and none will likely ever be able to afford a house.

My coworkers, largely being engineers, could probably afford to max out their 401ks but I suspect most don't. That said, I'm sure they are putting some standard amount (10 or 15% in). Either they are cutting back after becoming young parents, or some have invested in rental homes (often with parental help). I know some of the older guys max out their retirement. But they also bought homes longer ago, have older or grown kids, and larger salaries.

I think it's dangerous to make too many generational assumptions. All the young people I know who aren't investing can't afford to do so. The young people speculating in real estate got into it because their parents or grandparents did so and profited.
Where the tides of fortune take us, no man can know.

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Re: Are millennial botching their asset allocations?

Post by stimulacra » Mon Aug 20, 2018 11:58 am

vineviz wrote:
Tue Jul 31, 2018 10:19 am
stimulacra wrote:
Tue Jul 31, 2018 9:24 am
For the most part I stopped subscribing to the belief that there are distinct generational differences between demographic cohorts. In my experience the ratio of aggressive risk-taking investors, risk-averse investors, and people who don't save or invest at all, are roughly the same across all generations.
And yet:

Image
That bar graph is a snap-shot of asset allocation today. What would it look like 20 years from now? I would wager that the bar values would stay the same but with label “Generation Z” replacing “Millennials”, “Millennials” replacing “Gen X” and so on. People adjust their allocation as they near retirement and afterwards.

What would it look like if you looked at the entire lifespan of investments?

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Re: Are millennials botching their asset allocations?

Post by northtexan » Mon Aug 20, 2018 12:24 pm

I only talk to one friend about investing, we are both millennial but have very different views on asset allocation. I am pretty much all stock maybe 5% bond at the moment. He heavily favors fixed income, and things that less risk will be more beneficial in the long run. I do not believe that. I like the risk since we both have 40+ years till retirement (unless it is early). I have tried to get him to read "simple investing" but he won't. And he believes that his advisor knows all since that is his profession. He doesn't not think about the fees either. In all I believe most millennial think like he does, the want low risk, and do not think about the fees involved with advisors. He is a good friend and I am concerned he is missing out on a lot of potential growth since he is stuck in his ways.

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Re: Are millennial botching their asset allocations?

Post by jhfenton » Mon Aug 20, 2018 12:36 pm

KlangFool wrote:
Tue Jul 31, 2018 10:50 am
vineviz,

I disagreed. 100/0 is not on the efficient frontier.

KlangFool
Perhaps not. The efficient frontier by some accounts is 117/-17.

100/0 is perfectly reasonable for a risk-tolerant millennial. The risk of panic selling is the primary reason to hold fixed income at that age, and I've never been convinced that someone who would not panic at 90/10 would panic at 100/0.

We were 100/0 until age 45. Through 2000-2001. Through 2008-2009.

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Re: Are millennial botching their asset allocations?

Post by KlangFool » Mon Aug 20, 2018 12:44 pm

jhfenton wrote:
Mon Aug 20, 2018 12:36 pm
KlangFool wrote:
Tue Jul 31, 2018 10:50 am
vineviz,

I disagreed. 100/0 is not on the efficient frontier.

KlangFool
Perhaps not. The efficient frontier by some accounts is 117/-17.

100/0 is perfectly reasonable for a risk-tolerant millennial. The risk of panic selling is the primary reason to hold fixed income at that age, and I've never been convinced that someone who would not panic at 90/10 would panic at 100/0.

We were 100/0 until age 45. Through 2000-2001. Through 2008-2009.
jhfenton,

<<100/0 is perfectly reasonable for a risk-tolerant millennial. >>

1) It is not reasonable to assume that someone is risk tolerant and his/her job is 100% safe through multiple recessions. Especially a young person that had not experience a recession first hand.

2) It is normal for folks to be overconfident.

KlangFool

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Re: Are millennial botching their asset allocations?

Post by vineviz » Mon Aug 20, 2018 1:16 pm

KlangFool wrote:
Mon Aug 20, 2018 12:44 pm
jhfenton wrote:
Mon Aug 20, 2018 12:36 pm
KlangFool wrote:
Tue Jul 31, 2018 10:50 am
vineviz,

I disagreed. 100/0 is not on the efficient frontier.

KlangFool
Perhaps not. The efficient frontier by some accounts is 117/-17.

100/0 is perfectly reasonable for a risk-tolerant millennial. The risk of panic selling is the primary reason to hold fixed income at that age, and I've never been convinced that someone who would not panic at 90/10 would panic at 100/0.

We were 100/0 until age 45. Through 2000-2001. Through 2008-2009.
jhfenton,

<<100/0 is perfectly reasonable for a risk-tolerant millennial. >>

1) It is not reasonable to assume that someone is risk tolerant and his/her job is 100% safe through multiple recessions. Especially a young person that had not experience a recession first hand.

2) It is normal for folks to be overconfident.

KlangFool
But any reasonable millennial would be risk tolerant.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

JoeRetire
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Re: Are millennials botching their asset allocations?

Post by JoeRetire » Mon Aug 20, 2018 1:43 pm

It's ridiculous to lump folks into these arbitrary "generations" and try to draw any conclusions that mean anything at all.

Are some "millennials" botching their asset allocation? Yes, of course!
Are some "baby boomers" botching their asset allocation? Yes, of course!

Conclusion: some folks botch their asset allocation.

Nothing to see here, move along. Keep calm and carry on.

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Re: Are millennial botching their asset allocations?

Post by KlangFool » Mon Aug 20, 2018 2:06 pm

vineviz wrote:
Mon Aug 20, 2018 1:16 pm
KlangFool wrote:
Mon Aug 20, 2018 12:44 pm
jhfenton wrote:
Mon Aug 20, 2018 12:36 pm
KlangFool wrote:
Tue Jul 31, 2018 10:50 am
vineviz,

I disagreed. 100/0 is not on the efficient frontier.

KlangFool
Perhaps not. The efficient frontier by some accounts is 117/-17.

100/0 is perfectly reasonable for a risk-tolerant millennial. The risk of panic selling is the primary reason to hold fixed income at that age, and I've never been convinced that someone who would not panic at 90/10 would panic at 100/0.

We were 100/0 until age 45. Through 2000-2001. Through 2008-2009.
jhfenton,

<<100/0 is perfectly reasonable for a risk-tolerant millennial. >>

1) It is not reasonable to assume that someone is risk tolerant and his/her job is 100% safe through multiple recessions. Especially a young person that had not experience a recession first hand.

2) It is normal for folks to be overconfident.

KlangFool
But any reasonable millennial would be risk tolerant.
vineviz,'

1) Why would that be true? This applies to any human beings. Furthermore, most normal human behave emotionally in the face of a bear market.

2) With the exception of a few folks with excellent job security, it is unknowable whether someone will be unemployed for a fair amount of time in a recession. If a person is unemployed in a recession, the difference between 100/0 and 70/30 could be the difference whether someone would live on the street before they find a new job.

KlangFool

cheezit
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Re: Are millennial botching their asset allocations?

Post by cheezit » Mon Aug 20, 2018 3:35 pm

vineviz wrote:
Tue Jul 31, 2018 10:19 am
stimulacra wrote:
Tue Jul 31, 2018 9:24 am
For the most part I stopped subscribing to the belief that there are distinct generational differences between demographic cohorts. In my experience the ratio of aggressive risk-taking investors, risk-averse investors, and people who don't save or invest at all, are roughly the same across all generations.
And yet:

Image
Looks like every generation's asset allocation roughly follows that of target date funds.

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