NEW YORK (MainStreet) Millennials are still opting to pour their money into cash for long-term savings, according to a new Bankrate.com report.
The youngest American adults or 18 to 29 year-olds are more likely to choose cash as their favorite long-term investment than any other age group. The study found that 39% of 18-29 year-olds say cash is their preferred way to invest money they don't need for at least 10 years. The amount is three times the number who picked the stock market, despite the fact that the S&P 500 has gained 17% over the past year while most cash investment yields remain below 1%.
This statistic is very troubling, said Greg McBride, Bankrate.com's chief financial analyst and a CFA. He points out that this age group has the biggest retirement savings burden and won't get there with low-yielding cash investments.
"They aren't going to get there with enough retirement savings by hunkering down with cash investments," he said.
Since Millennials have had a "front row seat" to how the technology bust and the financial crisis affected the finances of their parents or family members, their strategy has remained much more conservative than other generations.
"They have had a very conservative investment mindset from the get go and it will be hard to get them to switch," McBride said. "They have had a real eye opener."
In previous cycles, investors tended to change their performance based on the outcome of the market, he said. When the market was hitting its highs in the past, investors were jumping onto the bandwagon. Investors have largely refrained from doing after the 2009 financial crisis.
The market performance over the past 25 years "really put volatility into perspective," McBride said. This demonstrates to investors that even severe dips in the stock market will not harm investors if they had remained in the market and continued to invest.