Millennial experiences affect investment strategies

Wealth Management & Estate Planning

Over the next 40 years, North American baby boomers are expected to pass an estimated $30 trillion in assets down to their children, many of whom are in the millennial generation, according to Accenture PLC.

As that staggering level of intergenerational wealth transfer begins, financial advisors are observing how millennials are choosing to invest.

Kramer

Alex Kramer, Milwaukee market leader and senior vice president at U.S. Bank Private Wealth Management, spent a good portion of 2017 studying wealth transfer, and said the wave has not yet started to crest.

“The demographics say that it’s going to happen, but when I think about the transfer in our own client base, it’s still between traditionalists and boomers,” Kramer said.

He also found there’s a dichotomy between affluent and less wealthy millennials. Some are saddled with crushing college debt, and some have the means not to have any. That can change someone’s investment attitude.

“Their overall financial profiles are dramatically different,” Kramer said. “We saw that in the research and we see that in our own clients.”

Wealthier millennials are more likely to own a house, have lower levels of student debt and invest in the stock market, he said.

Less affluent millennials, on the other hand, have seen two recessions in their formative years that in some cases meant their parents were in danger of losing their jobs or had difficulty paying bills. They have more debt and are more conservative in their investments.

“Importantly, it’s less about their age and it’s more about the circumstances that they grew up in,” Kramer said. “That’s a little bit of an un-American perspective. It’s almost like some of them don’t feel like they’ve got a chance. If you compare them to Gen Xers, for example, Gen Xers were kind of the first generation to delay house buying, so it’s a little hard to say whether it’s truly unique or if this is more a trend now.”

Kramer said U.S. Bank works to educate less affluent investors about the results of holding assets in cash over the long-term, and the merits of investing in stocks.

“We want people to be educated on the risk and rewards of long-term investing,” he said. “An all-cash portfolio is unlikely to keep up with inflation over time. Young investors definitely need to be aware of the trade they could be making if they don’t participate in riskier assets.”

Johnson

Steve Johnson, regional president for northern states at BMO Wealth Management, also closely studies the investing habits of different generations.

Since many millennials exit college with student loan debt, and many of them entered the workforce during the Great Recession, they tend to be more cautious, according to a BMO Wealth Management study from October. Many are weighted to exchange traded funds and mutual funds, rather than stocks, Johnson said.

“The job market was a little touchy in 2007 and 2008, wages were probably not where they are today just because companies were coming back, so there was a lot of pressure in the job market,” Johnson said. “Because of that, we feel they’ve been more conservative when it comes to investing.”

Millennials also tend to make decisions collaboratively via social media, rather than through introspection, which can impact their investment choices, he said.

Their saving habits also differ, he said, with many renting apartments longer and buying homes later. They save money not necessarily for retirement, but for a honeymoon, a car loan or a vacation, the survey showed.

“They’re really looking at things more in the immediate than in the future,” Johnson said. “They’re going to live a little life first and then they’ll start thinking about the long-term plans of buying a house.”

Rodenbaugh

Michael Rodenbaugh, founder of Delafield-based Boardwalk Financial Strategies Inc., said the millennials he’s advised tend to be aggressive. 

“Depending on how you define the millennial generation, the oldest would have been in college during the bursting of the tech bubble and only in their late 20s when the Great Recession hit,” he said. “Having not yet amassed a fortune by that age, most probably didn’t directly suffer the extreme losses their parents did. On the contrary, most of their investing lifetime has coincided with a bull market of incredible magnitude and duration.”

Rodenbaugh pointed out millennials also take risks in other areas, since they “seem more interested in entrepreneurial pursuits, or at least getting in on the ground floor of a company with growth potential, which could also be considered risk-taking.”

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Molly Dill, former BizTimes Milwaukee managing editor.

Millennial experiences affect investment strategies

Over the next 40 years, North American baby boomers are expected to pass an estimated $30 trillion in assets down to their children, many of whom are in the millennial generation, according to Accenture PLC.

As that staggering level of intergenerational wealth transfer begins, financial advisors are observing how millennials are choosing to invest.

Kramer

Alex Kramer, Milwaukee market leader and senior vice president at U.S. Bank Private Wealth Management, spent a good portion of 2017 studying wealth transfer, and said the wave has not yet started to crest.

“The demographics say that it’s going to happen, but when I think about the transfer in our own client base, it’s still between traditionalists and boomers,” Kramer said.

He also found there’s a dichotomy between affluent and less wealthy millennials. Some are saddled with crushing college debt, and some have the means not to have any. That can change someone’s investment attitude.

“Their overall financial profiles are dramatically different,” Kramer said. “We saw that in the research and we see that in our own clients.”

Wealthier millennials are more likely to own a house, have lower levels of student debt and invest in the stock market, he said.

Less affluent millennials, on the other hand, have seen two recessions in their formative years that in some cases meant their parents were in danger of losing their jobs or had difficulty paying bills. They have more debt and are more conservative in their investments.

“Importantly, it’s less about their age and it’s more about the circumstances that they grew up in,” Kramer said. “That’s a little bit of an un-American perspective. It’s almost like some of them don’t feel like they’ve got a chance. If you compare them to Gen Xers, for example, Gen Xers were kind of the first generation to delay house buying, so it’s a little hard to say whether it’s truly unique or if this is more a trend now.”

Kramer said U.S. Bank works to educate less affluent investors about the results of holding assets in cash over the long-term, and the merits of investing in stocks.

“We want people to be educated on the risk and rewards of long-term investing,” he said. “An all-cash portfolio is unlikely to keep up with inflation over time. Young investors definitely need to be aware of the trade they could be making if they don’t participate in riskier assets.”

Johnson

Steve Johnson, regional president for northern states at BMO Wealth Management, also closely studies the investing habits of different generations.

Since many millennials exit college with student loan debt, and many of them entered the workforce during the Great Recession, they tend to be more cautious, according to a BMO Wealth Management study from October. Many are weighted to exchange traded funds and mutual funds, rather than stocks, Johnson said.

“The job market was a little touchy in 2007 and 2008, wages were probably not where they are today just because companies were coming back, so there was a lot of pressure in the job market,” Johnson said. “Because of that, we feel they’ve been more conservative when it comes to investing.”

Millennials also tend to make decisions collaboratively via social media, rather than through introspection, which can impact their investment choices, he said.

Their saving habits also differ, he said, with many renting apartments longer and buying homes later. They save money not necessarily for retirement, but for a honeymoon, a car loan or a vacation, the survey showed.

“They’re really looking at things more in the immediate than in the future,” Johnson said. “They’re going to live a little life first and then they’ll start thinking about the long-term plans of buying a house.”

Rodenbaugh

Michael Rodenbaugh, founder of Delafield-based Boardwalk Financial Strategies Inc., said the millennials he’s advised tend to be aggressive. 

“Depending on how you define the millennial generation, the oldest would have been in college during the bursting of the tech bubble and only in their late 20s when the Great Recession hit,” he said. “Having not yet amassed a fortune by that age, most probably didn’t directly suffer the extreme losses their parents did. On the contrary, most of their investing lifetime has coincided with a bull market of incredible magnitude and duration.”

Rodenbaugh pointed out millennials also take risks in other areas, since they “seem more interested in entrepreneurial pursuits, or at least getting in on the ground floor of a company with growth potential, which could also be considered risk-taking.”

Sign up for BizTimes Daily Alerts

Stay up-to-date on the people, companies and issues that impact business in Milwaukee and Southeast Wisconsin

Molly Dill, former BizTimes Milwaukee managing editor.