If you think this cohort is all about DIY investment apps, think again, according to a new report from Natixis Investment Managers
Millennials may be fully engaged with the digital world, but that doesn’t mean they don’t like a more traditional solution when it makes sense.
And that includes managing their finances and financial goals, recognizing that algorithms may not be in their best interests, especially as they approach retirement.
Considering that the oldest of the generation are now in their forties, retirement is something that is on their agenda and most believe that a human financial advisor (FA) can help them do it right.
A new survey from Natixis Investment Managers published today (May 4) shows that Millennials in North America are more likely to have an FA (72%) than Gen Xers (66%) or Boomers (70%).
The poll of almost 2,500 Millennials globally including 275 in North America with at least US$100K of investable assets, also revealed that the average age this cohort wants to retire is 59.
However, there are concerns about achieving these goals, including inflation, having to work longer, and the cost of healthcare during their retirement.
Half of respondents say they may never have enough money to retire and almost the same share believes that being financially secure in retirement will take a miracle.
Financial surprises
Millennials have seen how finances can be crushed and are keen to ensure that their dreams are not.
“This generation has enjoyed a long bull market with low interest rates and little inflation for much of their adult lives,” said Dave Goodsell, executive director of the Natixis Center for Investor Insight. “They also saw how 9/11, the tech bubble, and the global financial crisis crushed many in their parents’ generation.”
Around half of respondents said they were stressed by the financial impact of the pandemic. But it also heightened their awareness of some key elements of financial security including having an emergency savings account (49%), keeping their spending in check (49%) and having a will and estate plan (32%).
Financial planning
More than 8 in 10 respondents have clear financial goals and want financial planning advice to be able to achieve them.
Wealth accumulation has been important to this generation with 36% having gained considerable wealth through business ownership or self-employment and 42% doing so through investing.
Just 12% of Millennials saying they have accumulated wealth through inheritance.
Saving is important towards achieving retirement goals with the average respondent saving 19% of their income for this life milestone.
Defining risk
While risk remains the top factor that Millennials consider when making investments, their definition is not always the same as that of the financial advisor.
While FAs may choose to talk of risk as not meeting financial goals, just 12% of Millennials use this definition, with other factors ranking higher including losing money (15%), missing out, such as underperforming the market (16%), having too much money in cash positions (10%) and missing out on potential investment returns (10%).
“The way Millennials understand risk matters because it guides investment decisions and return expectations,” added Goodsell. “Despite high annual return expectations of 18.2% above inflation, Millennials may be more risk-averse than they let on and more exposed than they know.”
Volatility is a concern and although most respondents understand the normality of 10% swings in the market, more than half think it undermines their ability to reach their financial goals while 70% think it creates opportunity to grow their wealth.
Values vs. wealth
Much is reported about Millennials’ sense of purpose and doing good in the world, but they also know that accumulating wealth is not a bad thing.
Three quarters of respondents said that investing can have a positive impact and matching their values is the second most important investment decision factor after risk.
While only 40% said that have ESG investments, driven by improving the world, new investment opportunities, and because they think it’s a better way to invest. Another 46% are interested in doing so but lack of knowledge is the biggest barrier.
