Millennials’ preferred investment is a loser

When it comes to making sound investments, millennials are going about it in exactly the wrong way.

Unlike older generations, Americans between 18 and 37 years of age prefer to plant money that they won’t need for at least another 10 years in cash instruments like savings accounts and certificates of deposits. The results of a survey out Wednesday found 30 percent of millennials believe cash to be the best place for their money, choosing that option more than any other.

Their disinclination to invest in the stock market is “a byproduct of the financial crisis coming during their financially formative years, and for older millennials who’ve seen the bust first, then the Great Recession a few years later,” Greg McBride,’s chief financial analyst, told CBS MoneyWatch. “They’ve been adverse to the stock market right from the get-go.”

“Especially for a longer-term goal like retirement, millennials need to be in the stock market,” said McBride, who advised against waiting to have extra money to invest. “If you’re saving for emergencies or retirement, you have to save right off the top, and automatically, to force yourself to live on less than you make.”

Millennials, he added, are going to bear the biggest burden in terms of longer life spans and higher health care costs. “The power of compounding is what’s going to do the heavy lifting,” he said. “For today’s 20-somethings, every $1,000 you put away could be $15,000 by the time you retire. But if you’re hunkering down in safe havens, you’ll be lucky if that $1,000 gets to $2,000.”

The stock market is the top investment vehicle for those 38 and older, with 37 percent of this age group picking equities, versus 23 percent of millennials, according to the study of 1,000 interviews conducted online in early July. Grouping all adults together, 32 percent favored investing in equities, 24 percent listed cash investments and 22 percent liked real estate. Another 9 percent chose gold or other precious metals, 8 percent pointed to bonds and 2 percent opted for cryptocurrencies such as bitcoin. 

One might think millennials are favoring cash with an eye on rising interest rates and earning a competitive return. Unfortunately, that’s not the case. The survey found millennials least likely of any generation to be earning more than 1.5 percent on their savings. They’re also the most likely to be earning zero interest or to not know what rate they’re earning. 

Baby boomers are the mostly likely to be earning more than 1.5 percent, and just 18 percent of U.S. adults are earning more than 1.5 percent on their savings, at a time when the top-yielding nationally available savings and money market accounts are yielding 2 percent or more.

The main reasons Americans give for not opening an online bank account that pays a higher rate include their comfort level with their current financial institution, a factor cited by 36 percent. A preference for a local branch was given by 31 percent of respondents. Twenty-three percent said they didn’t have enough savings to make it worth their while. Twenty-two percent worried about the security of their money, and 19 percent didn’t know such accounts existed. (Respondents could select more than one reason.)

“For investment horizons of longer than 10 years, the stock market is an entirely appropriate investment. Cash is not, and especially if you’re not seeking out the most competitive returns,” said McBride.”Top-yielding, nationally available bank savings accounts and money market deposit accounts can be found with very low minimum deposits, and in some cases no minimum deposit at all — making these accounts literally available to every American household.”

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