Younger and Older Investors Use Conservative Allocations
Retirement investment styles are not differing by age group, according to a survey of nearly 600 higher education employees by Fidelity Investments. The firm found that Generation Y (ages 21 to 32) and Generation X (ages 33 to 46) are nearly as conservative with their retirement portfolios as are baby boomers (ages 47 to 65).
Nearly half of respondents from all groups described their retirement investing style as “conservative,” including 47% of those in Generation X and Generation Y. In terms of portfolio allocations, there was very little difference among the three age groups. Baby boomers allocated 20% of their portfolios to bonds and bond funds and 14% to cash. Generation Y members allocated 20% bonds and bond funds and 15% to cash, while Generation X members allocated 22% and 16%, respectively. Stock and stock fund allocations were 47% for baby boomers, 50% for Generation Y and 49% for Generation X.
The two younger groups held this more conservative allocation even though the majority plan to retire in their 60s. (Just 41% of Generation Y and 43% of Generation X respondents said they plan to delay retirement or never retire.) These numbers show a disconnect between retirement goals and the historical performance of stocks and bonds. If the two younger generations want to retire in their 60s, they will need a significantly larger allocation to stocks.
The conservative stance by the younger investors shown in this survey echoes the findings of other surveys. One likely reason is the performance of the stock market and the economy. Members of Generation Y have not experienced a lasting bull market, while members of Generation X only have limited experience with bull markets. Plus, over the last 10 years, they have witnessed two bear markets, and this negatively impacts their view of stocks.
Another reason may be a lack of knowledge about the long-term performance of various asset classes and what a proper portfolio allocation strategy is. A good place to find this information is AAII’s Asset Allocation page (www.aaii.com/asset-allocation), which shows three allocation models as well as long-term risk and return data for various types of stocks and bonds.
Source: “Fidelity Investments Higher Education Generational Survey: Executive Summary of Key Findings,” November 2011.