Millennial investing, Part 2
Another foray into stocks and bonds for the younger crowd.
left many distrustful of Wall Street. What’s more, this generation gets tripped up by financial jargon. And they’re not necessarily flush with cash, either, as 34% of Millennials say they have student loan debt to pay off, according to a Wells Fargo study.
They’re also not crazy about losing money if stock prices fall. In an Ameriprise Financial survey, 63% of Millennials said it would be “disturbing ” to invest in stocks and then see the “value drop considerably,” while 37% said they would “regret” not buying shares and watching the “value move higher.”
But there are opportunities to engage these young adults. Experian found that nearly six of 10 Millennials are using apps to manage their finances. Appealing to them means offering investment products they covet. And taking the mystery out of the process with the help of short videos, chatty podcasts and live programming on social media.
Mutual-fund company Fidelity Investments, for example, has a site called MyMoney. It includes sections such as “Money 101” and “Investing & Retirement” with breezy articles like, “The simple thing that helped me save $30,000.” The language is “conversational” and delivered in “bite-sized bits” the way Millennials want it, said Ken Hevert, Fidelity’s senior VP of retirement and college planning.
Financial firms are also working to overcome the myth that “you have to be rich to invest,” said Brandon Kreig, CEO of Stash, an investing app and digital financial adviser that helps Millennials and others learn how to invest and build portfolios using low-cost exchange-traded funds. There are now ways for Millennials to start investing for $1 or even less. Investing apps include:
Acorns. Allows users to round up the cost of their purchases to the nearest dollar and “invest the change” in a portfolio.
Stash. Helps young investors build portfolios with easy-tograsp themes like “Internet Titans” or “Delicious Dividends.” It lets users get started with as little as $5, or about the cost of a Starbucks White Chocolate Mocha.
Robinhood. An app-based broker, it offers free trades and Uber-style ease for handling financial transactions.
Stockpile enables investors to buy fractional shares in a company if they don’t have enough money to buy full ones. (If Facebook is selling for, say, $150 a share, and an investor has only $50 to invest, they can purchase one-third of a share.)
Financial firms must also reassure young investors stocks aren’t as scary as they might think.
“Education is key,” said Francis Kinniry, principal at Vanguard Investment Strategy Group.
Consider Hannah Kronick. The 24-year-old, just two years out of college and working for sports cable network ESPN in New York, said that despite funding her 401(k), she is still not fluent in the language of investing.
“I don’t like putting my money into something that I don’t totally understand,” she said. That discomfort is why Kronick said the 8% of her salary now being deducted from her paycheck is going into a cash account. “I’m just getting started saving and will start investing later when I better know what I am doing,” she said.
Millennials also are big proponents of “socially responsible” or “ethical” investing. They want to align their financial choices with their values by investing in companies perceived as doing good.
“Solar, clean energy and innovative technologies are topics we discuss a lot,” said Tim Sabol, a financial adviser at Ameriprise Financial that caters to wealthy Millennials. Stash offers a “Clean & Green” portfolio that invests in solar, wind and other renewable energy companies.
Arielle O’Shea, analyst with personal finance website NerdWallet, gives high marks to trading apps offered by E-Trade and TD Ameritrade, saying they “mirror a desktop trading platform.” Robinhood was cited as the best free-trading app, and Acorns and Stash were noted as the best for beginning investors.
The digital imperative has also driven demand for so-called robo-adviser services. They allow a user to go online, answer a few questions — such as their age, investment time horizon and their feelings about risk. They then receive a computer-generated recommended portfolio.
Nearly six in 10 Millennials said they were interested in roboadvisers, a BlackRock survey found. Betterment, which has no account minimum, and Wealthfront, which requires $500 to get started, are perhaps the best known. But mutual fund companies such as Fidelity, with its Fidelity Go, and retail-focused broker Charles Schwab, with Schwab Intelligent Portfolios, also provide robo services, although their account minimums start at $5,000.
For Millennials, it’s all about tech. “It is not uncommon for a Millennial to find me on Facebook and ‘friend’ me,” Sabol said. “Or ask for my cellphone number so that they can text me.”