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When it comes to investing, millennials have interesting reputations. The generation born between 1981 and 1996 actively participated in meme stock mania and is well-known for its embrace of cryptocurrencies, including some of the riskier fare in that space.
However, with older millennials now in their 40s, some are embracing more conservative investing postures. In fact, registered investment advisors should note that millennials are surprisingly devoted retirement savers and they’re besting some of their older counterparts on that front.
That’s important news for advisors working with younger clients, particularly because these clients tend to have ambitious retirement goals. Here’s something advisors really need to focus on working with clients in the millennial and Gen Z demographics: A recent survey by the World Economic Forum found that 44% of people under 40 want to retire by age 60.
Another surprise is the extent to which millennials are enthusiastic about bonds and fixed income exchange traded funds. Let’s explore that concept in more depth here.
What Survey Says About Millennials and Bond ETFs
At least two reasons standout regarding why it’s surprising millennials are so keen on bond ETFs. First, many members of this demographic are too young to be excessively exposed to bonds. Second, they’re coming of age and entering prime earnings years in one of the worst interest rate environments in decades.
Still, the data Schwab Asset Management’s annual “ETFs and Beyond” survey confirm millennials love bond ETFs. Fifty percent of millennials polled by Schwab are interested learning more about bond ETFs – a percentage that’s above the 44% average. Fifty-one percent of the millennials queried by Schwab said they will invest in a bond ETF over the next year.
Here’s where advisors should really get involved. Millennials, broadly speaking, aren’t doing 60/40. Rather, the average for that demographic is 55% equities and 45% bonds – the latter of which may be too high considering millennials’ ages. Consider this, on average, Gen X and baby boomers are 63% and 69% allocated to stocks, respectively.
“ETF investors have navigated two dramatically different market environments over the last two years, yet their approach to investing and affinity for ETFs has remained extremely consistent,” said David Botset, Managing Director, Head of Equity Product Management and Innovation, Schwab Asset Management. “As we’ve seen historically, Millennials take a unique approach to how they invest, and that holds true for their approach to fixed income – an asset class that has garnered a lot of attention.”
Something Else to Know About Millennials
For advisors looking to better connect with millennials, it pays to be conversant and up-to-date on ETFs because this generation’s affinity for ETFs isn’t limited to bond funds. Rather, millennials like ETFs of all stripes.
Eighty-nine percent of millennials told Schwab ETFs are their preferred investment vehicle, adding that 37%of their portfolios are allocated to ETFs – far higher than the percentages of baby boomers and Gen X saying the same. Additionally, 22% of millennialls said they expect to significantly increase ETF exposure over the next year, but just 10% and of 3% of Gen X and boomers said the same.
“We are at a moment where ETF investing has matured, and many investors are very comfortable using these products to execute their long-term plans. At the same time, there is a contingent of investors who haven’t tried ETFs yet and their interest is on the rise, so there is still significant runway for future education and adoption,” added Botset.