Many millennials, having suffered through two nasty bear
markets in the first years of their working lives, are missing out on some of
the gains from the rally that brought the Dow Jones Industrial Average to
30,000.
The stock market’s surge in the midst of the pandemic has
given investors confidence and helped businesses raise capital. It has also
come with big swings, including one of the worst selloffs in history followed
by one of the fastest recoveries, with triple-digit point moves in the Dow
commonplace.
This has made many young investors wary of putting too much
of their assets in stocks.
About half of millennials—generally defined as people born
from about 1981 until 1996, sometimes called Generation Y—are invested in the
stock market, roughly the same ratio as members of Generation X were at the
same age, according to the Federal Reserve Bank of St. Louis. The difference is
that the value of their holdings is nearly a third lower than their
counterparts at the same age, according to the St. Louis Fed.
A year of ups and downs in the market re-emphasized to
Elizabeth Brozek the importance of a savings cushion, rather than of getting
involved in trading. The 28-year-old graphic designer suffered a layoff earlier
this year, a setback that pushed her to give priority to paying down
high-interest debt and establishing an emergency fund.
“When the pandemic happened, I put my financial plan on
hold,” she said. “I’m not looking to invest right now. I’m trying to stay in my
lane.”
Ms. Brozek, of Phoenix, said that among her group of
friends, investing in the stock market doesn’t represent potential opportunity.
Instead, it feels less important than their other financial obligations.
“I don’t have the mental space to think about it,” she said.
“Saving is the goal right now. Investing would be like the cherry on top.”
David Hill, 39, said he has been used to seeing dramatic
changes in the market since he graduated from business school in 2008.
“The market is like a casino right now,” said Mr. Hill, a
marketing professional in Oak Park, Ill. “But my financial security is not tied
up in the stock market.”
For him, purchasing a home with his wife was the biggest
financial move they have made in several years. The couple’s house is worth
less than their retirement accounts, but it has kept their focus on housing
rather than stocks. “I’m more worried about the economy than I am about the
market,” he said.
The market turned sharply up this year while unemployment
remained high and nervous consumers used what cash they had to pay off debt and
save rather than invest in stocks.
“Those groups who weren’t invested in the first place are
not trying to get into the stock market now,” said Kim Parker, director of
social trends at the Pew Research Center. “They’re trying to keep their heads
above water.”
Since 2008, Gallup found, stock ownership has decreased
among Americans overall. Stock ownership was more common between 2001 and 2008,
when 62% of U.S. adults said they owned stock, on average. As of June 2020,
only 55% of Americans said the same.
Investors who owned stocks during the 11-year bull market
that ended in March earned significant wealth, and likely were willing to
weather a setback. The wealthy have always owned the most stocks, but the gap
has widened.
The Federal Reserve’s data show that the top 1% of income
earners and the bottom 60% each owned about 20% of total household wealth when
the stock market bottomed out in the first quarter of 2009. By the second
quarter of 2020, the top 1% of income earners owned about 25% of household
wealth, versus 15% for the bottom 60% of earners.
Put differently, the top 1% of households were worth $27.9
trillion in the second quarter, up from about $11 trillion at the time the
market bottomed out in the first quarter of 2009. For the bottom 20%, household
wealth rose from $2.3 trillion to $3.5 trillion.
The big gains went largely to wealthy, older investors who
accumulated years of savings. “The overwhelming value of those stocks are held
by white, college-educated, middle-aged and older families,” said Ray Boshara,
senior adviser and director of the Center for Household Financial Stability at
the Federal Reserve Bank of St. Louis.
Adam Carrico, a 29-year-old nonprofit financial analyst
living in Washington, D.C., said even though he has been “one of the lucky
ones” able to save more in the coronavirus pandemic, he remains on the
sidelines due to the stock market’s volatility.
“I thought about investing, but I’m definitely scared,” he
said. “There’s a fear I didn’t have before: ‘You could be unemployed soon.’ And
so I’ve seen the stocks go up and down, but I don’t know how much I trust the
market, with the pandemic.”
Like most Americans, Mr. Carrico’s exposure to the markets
is his retirement savings. He said he has just over $22,000 saved in a 401(k)
but hasn’t made significant changes to his contributions since the pandemic.
Bureau of Labor Statistics data show that as of March 2020,
55% of all U.S. civilian workers participated in benefit pension plans or
defined-contribution retirement plans, such as a 401(k). That means Social Security—which
isn’t tied to the stock market’s ups and downs—remains the major source of
retirement income for a large number of future retirees. The Biden
administration has announced plans to increase the program’s financing and
expand benefits for beneficiaries under financial duress. But unresolved races
will determine the future of the Senate, and concrete steps remain uncertain.
Mr. Carrico said he continues to make payroll contributions
to his 401(k), but he remains “purposely blind” on his retirement plan’s
performance, citing a deep fear of what the future could hold despite the Dow’s
continued climb.
“I’m not paying attention to it,” he said. “Today, it could
be great. Tomorrow, it could go down and I could get stressed looking at it.
Life has enough stressors right now, and this is out of my control.”
Click
here for the original article.