Gen Y Likes Risky Business
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Younger investors, we were told, lost their taste for equities after getting beaten up by two recessions in the past 10 years. But new data from Vanguard suggest that Gen Y's aversion to risk may be overstated. The company found that in the defined contribution retirement plans that it administers, the average equity allocation of the youngest investors in the plans, at age 20, actually rose from 40.7 percent in 2003 to 84.7 percent in 2010. The pattern also generally held for investors younger than 30, Vanguard says in its report, Generations: Key Drivers of Investor Behavior.
The reason says less about the mindset of younger investors than it does about the growing trend of default investing. When they're hired, younger people are often automatically enrolled in DC retirement plans by their employers and their contributions go into target-date funds. Those funds carry a larger allocation of equities for younger employees. By the end of last year, DC participants age 35 and younger who owned target date funds had 8.5 percentage points more in equities than holders of other funds.
“At least when it comes to DC plans, there is no evidence of a ‘lost generation’ of younger investors,” says Vanguard.
