Millennials Must Open Their Investment Minds

Much has been written and discussed about the millennial generation, those born between the early 1980s and the early 2000s, typically on the subject of their cultural values, career challenges, work habits or digital savvy.

I’m going to join the conversation, because there’s something else very unique about millennials. Very soon, they will be the recipients of the greatest generation-to-generation wealth transfer in history.

According to a recent study conducted by Deloitte and published in a report titled “Catalysts for Change,” 75 million millennials (some experts number them more) are positioned to become the wealthiest generation ever, surpassing the 80 million baby boomers. Over the next 40 years, baby boomers will transfer an estimated $41 trillion to their heirs, resulting in a very wealthy, very powerful —and potentially, history-changing — generation.

So who are these millennials and will they be good stewards of this massive amount of wealth?

The ‘selfie’ generation

Also known as Generation Y or Generation We, and sometimes referred to as the boomerang generation, the Peter Pan generation and even trophy kids (because of the awards based on participation as opposed to achievement that they earned as children), this generation gets mixed reviews. This is a group that has been described as entitled, demanding, self-obsessed, narcissistic (they did invent the “selfie”), lazy and unrealistic about the working world.

In the positive column, others have characterized this generation as engaged, team-oriented, possessing a strong community spirit and more willing to their donate time, money and labor than preceding generations. Surveys show that they are less prejudiced in regards to race, gender and sexual orientation.

Whatever the truth about millennial beliefs and traits — and the verdict is still out because they have decades of life ahead of them —their values will drive the political, social, environmental and economic changes in our country’s future.

Young in years, old-fashioned in their investing habits

As investors, this generation is skeptical and understandably so. They’ve witnessed Enron, WorldComm, Tyco, HealthSouth and Bernie Madoff. They endured the financial crisis of 2008, the worst since the Depression.

Having lived through scandals and an economic mess of epic proportions, many millennials undoubtedly either have very little trust in the system, very little to money to invest — or both. Research shows these factors are influencing their investment behavior.

According to a UBS survey published this year, “Think You Know the Next Gen Investor? Think Again,” the millennials’ tolerance for risk is very low. This and other studies reveal they are wary of the stock market and sitting on piles of cash. Fearful of market losses, it seems this generation has decided that the most important investment principal is not to lose money as opposed to growing it.

While nobody wants to lose anything they have, an overly conservative portfolio can make it very difficult to achieve long-term financial goals and can possibly lead to large shortfalls come retirement years.

Famed for their newfangled worldviews, millennials ironically have the financial frugality and fear of their Depression-era grandparents and great-grandparents.

Striking the right risk-to-reward ratio

Risk is not a bad thing. In fact, as with many facets of our lives, there’s often no reward without risk, and that’s certainly the case with investing.

Millennials need to apply to investing the same open-mindedness and receptiveness they’re so noted for when it comes to their cultural and political ideas. Sure, make some safe choices, but balance that with more daring ones, as well. That’s the definition of a diversified portfolio.

In the course of your individual lives and as a generation, you will be the stewards of your own earned and a vast amount of inherited wealth. In that wealth is the potential to put people to work, cure diseases, educate the unfortunate, create new technologies, clean the environment and build a better world, a signature notion of the millennial generation.

For all of our sakes, pursue that admirable mission and make the very most of your wealth.

The very first step can be to talk to a financial adviser.

Phoebe Venable, chartered financial analyst, is President & COO of CapWealth Advisors LLC. Her column on women, families and building wealth appears each Saturday in The Tennessean.

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