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The pandemic and the related market volatility has caused investors of all ages and types to reassess their existing asset allocation and determine how comfortable they are that they will meet their long-term goals. These attitudes were apparent in Spectrem’s recent report, Attitudes, Concerns, the Upcoming Election and the Coronavirus Pandemic, part of the 2020 DC Participant Insight Series.
Investors who currently participate in a defined contribution plan, such as a 401(k) or 403(b) plan, were asked how worried they are about depleting their retirement funds too early. In 2019 when defined contribution participants were asked to rate on a 0-100 scale their level of concern regarding depleting their retirement funds too early, they rated their level of concern at 45.33. (A “0” score meant they were not concerned and a “100” score meant they were very concerned.) In 2020 their level of concern increased by 15 points to a 60.98.
It’s interesting to note that one of the groups that has become more conservative as a result of the pandemic is Millennials. In 2019, 45 percent of Millennials indicated they would prefer a guaranteed rate of return for their investments. In 2020, that percentage jumped to 67 percent. In fact, Millennials are more likely to seek a guaranteed rate of return than any of the older age segments.
The concern level of Millennials is heightened by the fact that 72 percent of Millennials are now worried about being able to retire when they want. In 2019, their level of concern was at 47 percent and in 2020, that concern level has increased to 72 percent.
So what should financial advisors and providers do to assist Millennials through this difficult time?
- Keep in mind that many Millennials remember the impact of the Great Recession on their own families and are afraid they may face decimating results of their own. Discuss with Millennials their existing employment situation, their credit concerns as well as other financial and investment issues. Help them to put the current economic instability in perspective in light of their long-term goals.
- Remind Millennials of their long-term investment horizon. While it is admirable that they are now concerned about having enough for retirement, remind them that they have many years to make up for any losses and help them to appropriately allocate their assets.
- Understand their need for security but discuss their overall risk tolerance and how to meet their ultimate goals. While the markets may seem especially scary to young investors, make sure that they understand that they may lose out on a potential upswing if they are too conservative in their investment choices.
It’s a good time for advisors to continue to reach out to clients of all ages. While older investors have experienced numerous investment cycles, Millennials are still relatively new to the ups and downs of the economy over time. This may be the time to earn their respect by educating them about how to properly navigate a volatile period.