Are millennials botching their asset allocations?

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Nestegg_User
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Re: Are millennial botching their asset allocations?

Post by Nestegg_User » Mon Aug 20, 2018 4:44 pm

MJW wrote:
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.

alas, that’s been shown time and time again; if a group starts during more “challenging times” they often stay below the earnings levels of cohorts on either side.

I’m a early/middle Joneser that had to compete for jobs after grad school... when the earlier Boomers had already occupied many positions and the earlier 80’s (small) recession started the downsizing of many STEM positions in corporate world, reductions in grants in academic world, etc , so it was harder to get a toehold but I didn’t have the drag of loans (worked throughout undergrad and had scholarship). as noted, the generalizations don’t work for such large and long groups; those from ‘45-~’53/54 are significantly different than those of ‘55-‘63: the earlier group being exposed to potential “commitment” to Nam after high school, the rise of school enrollments, the beginning of “commercialization” towards that group....while the latter wasn’t exposed to the “lottery” draft, experienced the overcrowding in schools, and the machinery of commercialization was already established. Further, the earlier group was often grandfathered into pension plans while the latter was the first group to have to wade through the defined contribution world (pensions either frozen or eliminated)

The Gen-X and Millennials arrived without pensions being available, with waves of ups and downs in the economy (‘87, early ‘90’s, followed by the boom until ‘01). {As the Joneser, these times weren’t as conducive to job hopping (like today) to improve ones trajectory.} At least they didn’t have a leg kicked out from under them... it just didn’t exist... but it did require a wholesale different plan to try to make it towards what hoped to be “retirement”.

Some of us made it through, largely thanks to the tailwinds of a good market, while others struggled; I suspect that if the market wasn’t as good that our group (Joneser’s) would have been the group most talked about as being unprepared.

dogagility
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Re: Are millennial botching their asset allocations?

Post by dogagility » Mon Aug 20, 2018 5:17 pm

KlangFool wrote:
Tue Jul 31, 2018 10:50 am
I disagreed. 100/0 is not on the efficient frontier.
I'm not convinced risk-adjusted return is an appropriate way to think about investing on a 30-40 year time horizon. I would suggest "risk" is not consequential with this timeline and will only serve to reduce return during the investment period. (Assuming you can stomach this allocation during a significant downturn)

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willthrill81
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Re: Are millennial botching their asset allocations?

Post by willthrill81 » Mon Aug 20, 2018 5:22 pm

dogagility wrote:
Mon Aug 20, 2018 5:17 pm
KlangFool wrote:
Tue Jul 31, 2018 10:50 am
I disagreed. 100/0 is not on the efficient frontier.
I'm not convinced risk-adjusted return is an appropriate way to think about investing on a 30-40 year time horizon. I would suggest "risk" is not consequential with this timeline and will only serve to reduce return during the investment period. (Assuming you can stomach this allocation during a significant downturn)
:thumbsup

If you can tolerate the roller coaster ride known as owning stocks, they have been the means to the best returns.

KlangFool's experiences have led him to be a bit of a 'personal finance prepper'. He always wants his portfolio to be 'retirement ready'. If I had had his experiences, I might share his perspective.
“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 » Mon Aug 20, 2018 7:04 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.

I think many people are like this. They don’t worry until some event makes them really think. Marriage, kids, death of a parent. And then the thoughts about aging and the future start wiggling into the brain.

MJW
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Re: Are millennials botching their asset allocations?

Post by MJW » Mon Aug 20, 2018 7:30 pm

Maybe we can form a support group on the BH forum for this particular demographic.

"Hi, my name is MJW. I'm a millennial and I have botched my asset allocation."

Daryl
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Re: Are millennials botching their asset allocations?

Post by Daryl » Mon Aug 20, 2018 7:38 pm

0% Equity and 100% equity accounts don't tell the whole story. I'm in this demographic and have a little bit of each. To one broker, I'm a 100% fixed income investor. To another, I'm 100% equities. Neither sees the whole picture.

TallBoy29er
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Re: Are millennials botching their asset allocations?

Post by TallBoy29er » Mon Aug 20, 2018 7:55 pm

I wonder if I am botching my asset allocation. I'll tell you how I did when I hit the finish line. I expect millennials will do the same. So stay tuned...

Gig em
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Re: Are millennial botching their asset allocations?

Post by Gig em » Mon Aug 20, 2018 9:07 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.
I’m 26, working in a decently paying industry, and basically everyone I know is doing both of these:
1) their 401 is minimum if any (maybe enough to get the match, no more) And invested in the expensive default active target date fund
2) they put a shocking amount of their bonuses in crypto’s individual stocks, etc.

It’s like come on- at least put it all in the cheap S&P index with me!

3funder
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Re: Are millennials botching their asset allocations?

Post by 3funder » Tue Aug 21, 2018 6:34 am

vineviz wrote:
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.
I'll do you one better; I think a 0% equity allocation for anyone is immensely irrational.

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Re: Are millennial botching their asset allocations?

Post by David Jay » Tue Aug 21, 2018 7:45 am

T4REngineer wrote:
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:
I think the "zero savings" group is skewing the sample. A hundred bucks in a savings account is 0% equity.
Last edited by David Jay on Tue Aug 21, 2018 8:37 am, edited 1 time in total.
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MI_bogle
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Re: Are millennial botching their asset allocations?

Post by MI_bogle » Tue Aug 21, 2018 8:34 am

David Jay wrote:
Tue Aug 21, 2018 7:45 am
T4REngineer wrote:
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:
I think the "zero savings" group is skewing the sample.
Another issue is the fact that "auto-enrollment" in 401k and similar workplace retirement accounts has increased, and many of those default to the stable value/money market/etc accounts that are basically 0% equities, and leave the allocation to the worker. Of course, those folks rarely go in and change things. Thankfully, some places are starting to use target date funds as the default

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Re: Are millennial botching their asset allocations?

Post by dodecahedron » Tue Aug 21, 2018 8:58 am

MI_bogle wrote:
Tue Aug 21, 2018 8:34 am
David Jay wrote:
Tue Aug 21, 2018 7:45 am
T4REngineer wrote:
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:
I think the "zero savings" group is skewing the sample.
Another issue is the fact that "auto-enrollment" in 401k and similar workplace retirement accounts has increased, and many of those default to the stable value/money market/etc accounts that are basically 0% equities, and leave the allocation to the worker. Of course, those folks rarely go in and change things. Thankfully, some places are starting to use target date funds as the default
I am pretty sure that target date funds as the default for auto-enrollment is now considered the fiduciary standard for employer committees charged with overseeing benefit plans. All the young people I know who started private sector jobs with 401k plans in recent years were defaulted into target date funds. They also have large amount of savings outside their retirement plans essentially in cash (because they live modestly, don't know how stable their jobs, what opportunities there might be down the road to start a business or buy a house.) I personally don't know of any young folks who I would consider to have "botched" their asset allocations. (Then again, perhaps those folks aren't choosing to share their situations with me.)

When I think of what my husband and I did in the late 1970s, when we were first starting out (as newly minted PhDs in economics, him in particular with a lot of experience and expertise in finance), we would have been much better off had we been defaulted into target date funds. However, sadly, no such things existed at the time, and the offerings available in our retirement plan were pretty pitiful (I think some kind of VALIC annuity product was the least bad, so we went with that. Sadly not even TIAA-CREF there.) We learned, investment choices and information improved. What we did when very young was not the end of the world.

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Re: Are millennials botching their asset allocations?

Post by 2015 » Tue Aug 21, 2018 11:19 am

JoeRetire wrote:
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.
I agree, nothing to see here. More Vanguard marketing disguised as information. You would think they were trying to compete with eft.com with all of the schlock they've been publishing lately.

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nedsaid
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Re: Are millennials botching their asset allocations?

Post by nedsaid » Tue Aug 21, 2018 12:08 pm

Being a member of the baby boom generation, it is a relief that someone else is getting criticism. It seemed that us boomers were the cause of everything wrong in the world. Now the millennials are getting their share of criticism. I do believe that each generation has some unique characteristics, mainly shaped by events in their formative years, but in the final analysis people are people.

The thing is, I was very conservative as a young person. My IRA was in Certificates of Deposit at the bank until a friend went into the brokerage business. Even my investments in my workplace savings plan were in very conservative investments in the very beginning. When I opened my brokerage account, I did buy AST Research, an individual stock. I also bought 3 Treasury Zeroes and a 5 year Certificate of Deposit. So I guess I was a Millennial almost before there were Millennials.
A fool and his money are good for business.

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nedsaid
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Re: Are millennial botching their asset allocations?

Post by nedsaid » Tue Aug 21, 2018 12:15 pm

dodecahedron wrote:
Tue Aug 21, 2018 8:58 am
MI_bogle wrote:
Tue Aug 21, 2018 8:34 am
David Jay wrote:
Tue Aug 21, 2018 7:45 am
T4REngineer wrote:
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:
I think the "zero savings" group is skewing the sample.
Another issue is the fact that "auto-enrollment" in 401k and similar workplace retirement accounts has increased, and many of those default to the stable value/money market/etc accounts that are basically 0% equities, and leave the allocation to the worker. Of course, those folks rarely go in and change things. Thankfully, some places are starting to use target date funds as the default
I am pretty sure that target date funds as the default for auto-enrollment is now considered the fiduciary standard for employer committees charged with overseeing benefit plans. All the young people I know who started private sector jobs with 401k plans in recent years were defaulted into target date funds. They also have large amount of savings outside their retirement plans essentially in cash (because they live modestly, don't know how stable their jobs, what opportunities there might be down the road to start a business or buy a house.) I personally don't know of any young folks who I would consider to have "botched" their asset allocations. (Then again, perhaps those folks aren't choosing to share their situations with me.)

When I think of what my husband and I did in the late 1970s, when we were first starting out (as newly minted PhDs in economics, him in particular with a lot of experience and expertise in finance), we would have been much better off had we been defaulted into target date funds. However, sadly, no such things existed at the time, and the offerings available in our retirement plan were pretty pitiful (I think some kind of VALIC annuity product was the least bad, so we went with that. Sadly not even TIAA-CREF there.) We learned, investment choices and information improved. What we did when very young was not the end of the world.
That is my view too. I did a lot of less than optimal things over my investment career and somehow I survived all of it. I also champion Target Date Funds, they have flaws but are much superior to what most investors would come up with on their own.
A fool and his money are good for business.

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Re: Are millennial botching their asset allocations?

Post by Maverick3320 » Tue Aug 21, 2018 12:27 pm

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 would argue it's more of a spending problem than an income problem.

Maverick3320
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Re: Are millennial botching their asset allocations?

Post by Maverick3320 » Tue Aug 21, 2018 12:40 pm

bligh wrote:
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.
Other generations had to deal with things like being drafted into world wars, Spanish Flu, and harvesting the fields in the summer. This generation is coming of age in one of the richest, most stable nation-states in the history of the planet. There is so much wealth in this country that those that don't have it seem to think they are entitled to it. Employers are literally screaming for skilled labor but can't fill positions because Millennials look down on skilled trades. My mom grew up making her own clothes and worked her way into college; try asking college students now about working a job while in school and they'll look at you like you have a third eye.

It's difficult to have sympathy when you hear an Audi A4/BMW 3 series - driving Millenial complain about student loan payments over a $8 drink at Starbucks for about the millionth time (right after discussing their fifth trip to Thailand).
Last edited by Maverick3320 on Tue Aug 21, 2018 12:41 pm, edited 1 time in total.

WanderingDoc
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Re: Are millennials botching their asset allocations?

Post by WanderingDoc » Tue Aug 21, 2018 12:40 pm

vineviz wrote:
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.
Very interesting article, thanks for sharing.

One thing from Fig. 2 in the article, is that millenials have only been invested for 4 years on average. However in their opening statement, they note that millenials (born after 1980) have "been through" 2 major market corrections. I can tell you firsthand that I have not "been through" any corrections. The only correction you endure is one where you actually are invested in 8-) So based on the 4 year number, most millenials have been through exactly zero corrections (myself included).

In 2000-2002, I was in high school. In 2007-2009, I had MAYBE 1 or two Roth IRA contributions (not in Vanguard), was just starting medical school, and had no idea what the equity markets were doing.
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

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GoldStar
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Re: Are millennials botching their asset allocations?

Post by GoldStar » Tue Aug 21, 2018 12:43 pm

OP,
Can you be more specific about why it is troubling you?
Are you concerned the shift might somehow impact your investments?
Sorry - I am somehow missing the point.

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