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Millennials: The Generation that Changed Investment

Tamara Kerrill Field

They are the digital natives, global citizens, the generation that came of age with the internet. They’ve been stealing the spotlight since the late 1990s when they shed their designation as “Generation Y” and became the rockstar cohort known as Millennials. Aged 27 to 40, Millennials are 83 million strong, the largest generation in American history. They’ve upended everything.

With a focus on social and environmental causes, combined with what seems sometimes to be blind faith in the digital universe, Millennials have flipped American culture. While they were at it, they changed the face of investment.

Three distinct trends rise to the fore. First off, Millennials prioritise their worldview when it comes to investment decisions, eschewing the profit-first ethos of the 1980s and 1990s. Secondly, they let their thumbs do the talking. Investment apps like Robinhood are their conduits of choice. They prefer the apps’ promise of even digital playing fields, with commission-free trades along with other financial services geared to the investor who would rather not deal in live humans.

The third of these trends is reactionary. From old guard firms like Merrill Lynch and Fidelity to startups helmed by Millenials themselves, the investment world has tailored offerings to lure the giant cohort. Big firms with research arms have done countless studies on Millenials, looking at their preferences and financial habits. Many have created exchange-traded funds (ETFs) curated specifically for Millenials, and they now have apps that mirror Robinhood’s commission-free options or online digital platforms that allow investors a bigger hand in managing their own portfolios.

To quote a Billy Squier song Millenials probably won’t even recognize: everybody wants you.

Federal Reserve statistics reveal that Millennials have doubled their assets in the 21st century, hitting $10 trillion in value in 2020. An in-depth 2021 study by The Motley Fool found that though many Millennial investors seek out a mixture of old and new products, they have dumped much of their parents’ caution. They are far more likely to buy and monitor individual stocks than to pack money into mutual funds and they are more likely to invest in cryptocurrency than old mainstays such as bonds.

There are other factors at work in the Millennial financial picture, not all of them to the advantage of this giant generation. One positive: Millennials are not deluded about what awaits them post-career. Pensions, the stalwart of previous generations, are unlikely to meet their retirement needs by age 65 and are less likely to even exist regardless. Much of this may be offset by the fact that Millennials stand to inherit considerable wealth from their parents. The Brookings Institution examined these inter-generational phenomena in a 2020 paper:

Millennials have certain advantages over previous generations in terms of wealth accumulation. They are the most educated generation in history and generally have higher earnings than their predecessors. Because of the evolution of the pension system toward defined contribution plans, Millennials may well work longer than any previous generation, giving them additional years to save. And Millennials may well end up inheriting more than any prior generation.

On the debit side of the ledger is the new math of the 21st century. Older Millennials were in their early- to mid-20s when Lehman Brothers went bankrupt in 2008. Recession dug in right when they should have been establishing themselves in the workforce: “The Great Recession knocked everyone for a loop,” said William Gale, senior fellow in the Economic Studies Program at Brookings. “It caused unemployment. It caused slow wage growth. It made it harder to accumulate wealth.”

Millennials face higher income-to-cost-of-living ratios than their parents, fewer chances for jobs in their chosen fields, and fewer promotions and salary increases within a company.

HuffPost new economy writer and podcaster Michael Hobbes laid it out in a first-person narrative:

For a decade now, I’ve been waiting for adulthood to kick in. My rent consumes nearly half my income, I haven’t had a steady job since Pluto was a planet and my savings are dwindling faster than the ice caps the Baby Boomers melted. We’ve all heard the statistics. More Millennials live with their parents than with roommates. We are delaying partner-marrying and house-buying and kid-having for longer than any previous generation.

Mention “Millennials” to anyone over 40 and the word “entitlement” will come back at you within seconds, our own intergenerational game of Marco Polo.

Still, there’s no denying that the financial sector is throwing everything and the kitchen sink at those younger than 40. Punch “ETF” and “Millennials” into Google and you will find an array of options, including a large number of niche funds that invest in so-called “green” stocks, or companies that promote social justice and global parity. Driven in tandem by the growing investment prowess of Gen Z (just behind Millennials, aged 7 to 26, approximately), many of these funds are brand new or are among constantly morphing investment bank offerings.

These targeted products are often far from subtle. Open any link from that Google search and chances are, if you’re in your mid-40s or older, you’ll quickly see that you are not the sought-after demographic. Take the much-discussed Global X Millennial Consumer ETF (MILN) established in 2016. Though the fund has been recommended to older investors in media stock picks, this is how Global X summarizes the fund:

The Global X Millennial Consumer ETF (MILN) seeks to invest in companies that have a high likelihood of benefiting from the rising spending power and unique preferences of the U.S. Millennial generation (birth years ranging from 1980 to 2000). These companies come from a broad range of categories, including social media and entertainment, food and dining, clothing and apparel, health and fitness, travel and mobility, education and employment, housing and home goods, and financial services.

The confused Millennial will find no shortage of financial advice. Kristy Shen and Bryce Leung, Canadian computer engineers who retired in 2015 in their early 30s, have crafted a matter-of-fact (at least by their own estimation) investing strategy that they say any Millennial can pull off. In 2019, the married couple rose to fame with the blockbuster Quit Like a Millionaire: No Gimmicks, Luck, or Trust Fund Required. The couple also founded a Financial Independence Retire Early (FIRE) site, Millennial Revolution, which offers an expanding array of tools and workshops for Millennials interested in investment. If the site’s name is not a big enough clue as to its target audience, the language therein will clarify things.

Chapters for the couple’s free workshop include: “What the F@#$ Is Opportunity Cost?” and “Stupid Holidays”. A HUGE caveat: neither Shen nor Leung is a financial advisor and the site is partnered with Vanguard.

Regardless of how one feels about financial sites like Millennial Revolution, online commission-free trading is a priority for Millennials. Robinhood (HOOD), founded in 2013 by Millennials Vladimir Tenev and Baiju Bhatt, pioneered the commission-free digital trading revolution, originally offering a platform for trading stocks and ETFs. Robinhood, which went public in June 2021, has survived a plethora of business models, failures, and scandals. The company incurred a record-breaking $70 million fine in June 2021, the same month the company went public. The fine covered myriad issues, including the sharing of false and misleading information and the harm customers suffered from system outages in March 2020.

Still, Robinhood remains the trading platform of choice for Millennial investors, to the tune of 37% of those surveyed in The Motley Fool’s wide-ranging 2021 study.

The Motley Fool study also cemented social media’s status as Millennials’ number one source of investment advice. The study found that 75% of Millennials surveyed use social media as their main source of investment advice. TikTok and YouTube how-to videos are popular, along with Facebook and Reddit threads. Millennials conceded this may not be the best idea, with 83% saying they believe traditional investment sites are the most accurate sources of information. But they still turn to social media more often.

This mirrors a trend in the cohort’s personal finances. Multiple studies have found that Millennials as a whole are not great money managers, a 2020 TIAA Institute study found.

Millennials are worse off along these dimensions than young adults were in 2009. These factors likely explain much of the financial fragility and high levels of anxiety over personal finances that exist among Millennials.

This anxiety is expressed by many in the Millennial generation.

Kellie Beach, a 40-year-old real estate attorney, told Bloomberg that the Covid-19 pandemic jolted her into reality. With savings having dwindled and investments lagging, she wasn’t thrilled with her overall financial picture. So, she’s decided to take advantage of her relative youth to begin saving and taking advantage of Millennial-tailored investment opportunities.

“I stayed afloat with credit cards,” she said. “I was just used to swiping and overspending.”

“Now I have this feeling — like this fire — of urgency,” Beach said. “I’m not going to be in this place again. I can’t wait to get out of this debt. I can’t wait to save up for my emergency fund and invest again.”

Photo by CoWomen on Unsplash

Tamara Kerrill Field’s writing and commentary on the intersection of race, politics and socioeconomics has been featured in USNews & World Report, the Chicago Tribune, NPR, PBS NewsHour, and other outlets. She lives in Portland, ME.