A nine-year bull market hasn’t convinced many millennials to invest in the stock market. When it comes to long-term investment, millennials favor cash, according to a Bankrate.com report published on Wednesday.
Thirty percent of millennials (between 18 years old and 37 years old) said cash is the best place to park money they won’t need for over 10 years. For those who are over the age of 37, the stock market is a top investment choice: 33% said they would invest in the market compared with just 23% of millennials.
Another survey on high-net-worth investors from Bank of America’s U.S. Trust also reveals that the younger generation tends to have a cautious attitude towards the stock market. Even wealthy millennials with at least $3 million in investable assets continue to have the lowest asset allocation in stocks, just 46% compared to Generation X (54%), Baby Boomers (56%), and the silent generation, those older than 75, (61%).
The most recent financial crisis has made millennials more careful with their money, said Greg McBride, Bankrate.com’s chief financial analyst. For older millennials, it was the second time they saw a market meltdown, he said, recalling the dot-com bubble burst in 2000. “A recession and stock market meltdown left them squeamish about investing in the stock market. That stand is going to be very detrimental for their long-term financial health,” he said.
Having lived through several economic cycles, older generations better understand that the market is not a straight line.
“They’ve seen that if you hang out and continue investing, even if the market is down, it’ll ultimately reward your patience,” said McBride.The stock market usually moves in line with the economic cycle with ups and downs, but the S&P 500 has shown a steady gain over a longer period of time. Warren Buffett, one of the biggest bulls in the U.S .stock market, has repeatedly shared his magic story about how he turned $114 into $400,000. All he did was invest in the S&P 500 and wait for 76 years.
Millennials are about to face the biggest retirement savings burden in history. Their lifespan will be longer, health care costs will be higher, and pension and social security funds are diminishing. McBride said the urgency is even greater for them to learn to invest in riskier assets for long-term needs, because “you cannot save enough to accumulate the amount you need with retirement without benefiting from the power of compounding.”
Cash, instead, only makes sense to be used for the short-term, such as emergency funds, according to McBride. Over a long period, holding cash bears a lot of risks of inflation. He also notes now that the economy is doing well, it’s a good time for people to beef up their investments.
Krystal Hu covers technology and economy for Yahoo Finance. Follow her on Twitter.