Millennials and Gen Z investors shaken by market downturn but still shun financial advisors

Priyanka Godbole, a 24-year-old public relations professional in New York, experienced the first stock market panic of her life in mid-March, when the S&P 500 index plunged deeper into correction territory. In a frantic group chat with friends, she typed, “Did you see what happened today?

This March 14, Wall Street’s gauge of major US companies had slid again on a series of bad news, including a resurgent pandemic in China that could reduce exports to US companies and a blow to commodity exports from war-torn Ukraine. The S&P is down nearly 13% from its all-time high in January. Godbole’s portfolio had fallen to around $40,000, about 25% below its high of $53,000.

“I don’t look” on my online brokerage statement, replied a friend who sees no harm. Another wrote stoically that she “didn’t touch anything”.

“We totally had a moment of panic,” Godbole said. “I was researching what exactly a bear market means, and it’s kind of terrifying.”

Her inquiry did not come from a financial adviser, as she does not use one. Instead, Godbole said she gets her market information and advice from an app at TD Ameritrade, where she has a brokerage account, along with The Motley Fool, The New York Times and Bloomberg. It’s all part of her DIY journey to wealth creation, in which she’s invested half her money in individual stocks including Tesla, Microsoft, Costco and Netflix, and the other half in two exchange-traded funds. , Vanguard Total Stock Market Index Fund and Vanguard. S&P 500 Index Fund.

“I think it’s more satisfying to invest your own money and learn a thing or two about doing it solo, because it forces you to follow the news,” Godbole said. “I never considered using a financial advisor.”

Time is on their side
From Gen Zers like Godbole, who started investing in 2019, to slightly older millennials, younger investors seem to prefer managing their long-term savings plans on their own — even though some are experiencing their first bear market. The self-sufficiency method, fueled by robo-advisors and a flood of free investing news and data, is a big challenge for the wealth management industry, which sees the earning potential of well-educated and socially-minded cohorts. responsible as a great opportunity. Although generational definitions vary — Goldman Sachs has his — Pew Research considered anyone born after 1996 to be Gen Z (the oldest are now 25) and those born between 1981 and 1996 (now 26 to 41) to be millennials.

Just over half, or 56%, of Gen Z and 65% of Millennials use financial planners, according a 2021 survey by the National Association of Personal Financial Advisors. But are they even listening? Only 21% of millennials get most of their financial advice from an advisor; for Gen Z, it’s 17%, according to the trade group. Other data suggests that even fewer young investors are turning to professionals. Natixis said only four in 10 millennials use advisors.

A handful may present themselves, thanks to stocks approaching a bear market (a 20% drop from a recent high). Derek Delaney, founder and president of PharmD Financial Planning in Owatonna, Minnesota, said nine millennials have contacted him in the past two months.

“They pick up the phone and say, ‘I like the SPDR ETF'” which tracks the S&P 500. “I say, ‘well, what are you investing in with the S&P 500?’ They don’t understand that the 10 largest stocks make up 80% of the index and that their diversification isn’t as great as they think.Four of the callers have become clients.

Despite the end of the three-year bull market, many young investors have their own money – and will soon have even more.

Nearly one in four millennials aged 24 to 41 had saved at least $100,000 by winter 2020, according Bank of America. Millennial households will inherit more than $27 trillion by 2045, much of the ‘great wealth transfer’ that will shift $84 trillion in assets from older to younger generations by this year -the, according Cerulli Associates.

Advisors with young clients say those who avoid financial planners aren’t slacktivists who eat avocado toast, a meme that emerged in 2017, when an Australian property mogul told ’60 Minutes’, “when I was trying to buy my first house, I wasn’t buying a smashed avocado for $19 and four coffees for $4 each.”

Young investors are criticized for their fancy food preferences, but many have accumulated considerable savings.

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Richard Cooke, principal owner of 2Point0 Financial in Fishers, Indiana, said his young clients view investing as a long-term game with short-term swings.

“Most witnessed the great financial crisis from behind the scenes, and while we saw how scary it was, we saw the market recover from it,” he said, referring to the global financial crisis of 2007-09.

If the current market downturn isn’t enough, advisers are hoping that the coming influx of money, combined with the financial complexity that being older brings – paying for college, buying or selling a home , renewing 401(k) retirement plans, helping older parents downsize, decide what to do when they’re no longer working – will entice do-it-yourselfers to turn to planners.

Maybe, said Godbole, a graduate of Northwestern University: “Hm, I haven’t really thought about it, but maybe. It depends if I decide to combine finances with a spouse etc.

The Trojan Horse
For its part, Wall Street thinks the Trojan horse in the portfolios of high-performing young investors could be their parents. What Morgan Stanley Wealth Management Senior Vice President Lori Sackler called ‘the two M-words: Millennials and money’ happened in 2020 Publish aimed at older, well-heeled clients — a mainstay of Wall Street brokerages — with millennial kids.

“Many successful people in their own profession or career believe that their intelligence and expertise in an area gives them the knowledge and wisdom they need to do their own financial planning,” she wrote, adding that was a mistake.

Godbole, who said he first learned about investing from his father, is a counterpoint to popular narratives that associate Gen Z investors with hype on the Reddit forum r/WallStreetBets, day trading on Robinhood and the actions even. She said she avoided the mistake her father made that she now regrets: day trading in the 2000s.

“It’s not money I plan on getting for the next decade, at least,” she said.

But James Crider, CEO of IntentionalLivingFP in New Braunfels, Texas, warned that many millennials have a “false sense of market elasticity” that markets will rebound quickly. “Their experience of what it looks like to ‘buy the dip’ was a market drop followed by a relatively quick rebound,” he said, “reinforcing the idea that the market is only going up , even in the short term.

Experience matters
Older millennials are old enough to remember the dot-com bubble burst in 2000 or the trauma of job hunting during the Great Recession, said Ryan Graces, president of Bemiston Asset Management in Webster Groves, Missouri.

“They witnessed a lot of market volatility ahead of their early years of asset accumulation, which shaped their market expectations,” he said.

James Marquez, 29, a wealth adviser at Capstone Wealth Advisors in Downers Grove, Ill., said many younger clients have called in recent weeks asking what they should do. Marquez said he showed them data on what happens after market pullbacks and “got them in the mindset” that they need to be prepared for the potential for losses at any time. “You may not have experienced volatility in your life, but it’s a thing.”

Godbole said she and her friends “just played the long game and held it all and bought the dip, knowing that over time the market would balance out.”

But lessons learned by each generation don’t automatically transfer to the next, said Neel Ganu, co-founder of Finch, a credit card and savings app for millennials and Gen Z. “Whether it’s 25, 45 or 65,” he said. , “every age realizes things they wish they had known earlier.”