“Hard Times,” Studs Terkel’s oral history of the Great Depression, offers a vignette of a survivor who would routinely smoke cigarettes down to the filter, even many years after the hard times ended and he could well afford more lenient tobacco habits. Young investors may now be undergoing similar habit-changing experiences regarding their financial lives.
In a poll of wealthy Americans conducted for the Affluent Insights Quarterly report by Merrill Lynch Wealth Management, released today, 52 percent of young investors, age 18 to 34, said they had low tolerance for risk. It was the second-highest response among all age groups polled, just behind retirement-age investors who understandably are more risk-averse because their best income-earning days are behind them. Among investors age 65 and older, 55 percent said they had low tolerance for risk.
The poll results also suggest that younger investors may be growing more cautious about risk than older age groups who have greater experience with recession. Fifty-six percent of 18- to 34-year-olds said their risk tolerance was lower than it was a year ago, compared with 49 percent of investors age 35-50, 47 percent of investors age 51-64, and 40 percent of investors age 65 and older. The telephone survey of 1,000 individuals with investable assets of $250,000 or more was conducted between June 11 and June 29.
The traditional advice that financial planners provide to younger clients is to take more risk, since their investment time frame is longer and provides for opportunities to recoup losses that are experienced along the way. Investing too conservatively at the start would undo that strategy. “One certainly expects, after a downturn of the magnitude we’ve seen, increased conservatism among investors,” Sallie Krawcheck, president of Global Wealth & Investment Management (GWIM) for Bank of America, said during a presentation today on the results of the quarterly report. “The risk that this generation has is that this isn’t a passing issue.
“The risk with this group is, this conservatism is embedded, and that this could be a depression generation. The generation who grew up during the Depression was impacted by that through the course of their lives in terms of the level of their thriftiness,” Krawcheck said. “This may be a long-lasting impact as opposed to this being one experience that happened during the course of a long investing life.” The risks are more acute in the current low-interest rate environment, she added. Once subjected to inflation, younger investors “could be essentially moving backward year after year,” she said.
The results suggest one avenue that Merrill will use to promote Merrill Edge, an online discount brokerage tool that the company launched in June and is aiming at lower net-worth investors, particularly younger investors. “What we want to do is engage these clients earlier on and bring them into Merrill Lynch and get them acclimated to financial planning,” said Dean Athanasia, head of GWIM Banking and Merrill Edge.
Among other findings in the Merrill quarterly report:
* 52 percent of investors polled said various financial responsibilities were “keeping them up at night.”
* 51 percent of affluent couples said they disagreed about financial matters, with sticking to the family budget (45 percent), purchasing luxury items (33 percent) and managing credit cards/paying off debt (28 percent) the top subjects of dispute.
* 45 percent now expect to retire later than they planned, compared to 31 percent who thought so one quarter ago and 29 percent who thought so in January 2010.