How have young investors reacted to COVID-19?

The pandemic-lead economic downturn has spooked already cautious millennial investors – but anecdotal evidence suggests that many are sticking to their investment objectives and goals

Mike Viola 14 April, 2020 | 1:39AM

Youth at cafe

Editor's note: Read the latest on how the coronavirus is rattling the markets and what you can do to navigate it.

The over a decade-long bull market meant that until recently, many young investors had only seen smooth sailing in the financial markets. Now faced with the volatility of the COVID-19 market downturn and the economic slowdowns associated with social distancing, many millennials are changing how they look at the market and the risks they face as investors.

Millennials: The suspicious generation?
This isn’t to say that all early-career investors were big fans of risk before the virus hit markets.

A few years ago, a friend who worked at a consulting firm told me that she preferred to put all her savings in a (presumably low interest) savings account, fearing what she had seen in the stock market during the global financial crisis. Another contact in his late twenties keeps himself constantly apprised of market news, but in fear of the downside of stocks and active management, will only invest in fixed-income index funds from Vanguard.

It seems like for many, the Great Recession loomed large, despite the fact that few had personal stakes in the market at the time. Its legacy made many young savers already suspicious of investing in risk assets, even if the fear was more abstract. Many of these young investors are now reckoning with the hard part of going the distance as they watch their savings decline and fluctuate.

When traditional advice falls short
“I believe in buy and hold, but it is so painful right now,” remarked a 28-year-old Morningstar coworker with five years in the financial industry. Despite many years to retirement and half a decade of sticking to traditional advice – buying broadly diversified investments and holding them through thick and thin – he still found himself uncomfortable with the market turbulence. Though he didn’t actively change his investment positioning as a result of the volatility, he chose to enroll in a managed portfolio program in his retirement account to avoid having to make tough decisions by himself when the market goes south.

This has even taken a toll on some family dynamics. One friend works as a freelance web designer for nonprofits, making her income stream somewhat unpredictable, but she recognizes the importance of investing and has held on through the downturn. Nevertheless, her father (who speaks limited English) was planning to retire this year and is concerned at the percentage loss that he sees in his portfolio. It is difficult enough for young investors to find the knowledge and bandwidth to manage their own portfolios, and now some may have to help older relatives through a sell-off, including parents with immediate cashflow needs, no investing education, or a poorly balanced portfolio.

All these worried reactions come after a boom in investor education for young people. A proliferation of finance-focused websites, a notable "subreddit" for personal finance, and mainstream news outlets have all served as invaluable resources for people early in their careers who wish to handle their finances independently, which has been made easier still with the launch of several roboadvisors. But this crises, both sudden and largely unexpected in that it was caused by a pandemic and not standalone economic woes, has made even these many channels of advice seem insufficient when emotions take over.

Staying the Course
Some have managed to stick to their guns, despite their nerves. A friend in marketing at a major bank reached out for a sanity check, noting that her portfolio looked “smaller” (proof that even those in the investment industry may have trouble stomaching losses). Nevertheless, she was staying diversified and refraining from selling anything. Yet another noted that she kept the same target allocation but actually increased the amount she was investing to take advantage of lower equity prices, adjusting her retirement account contributions to the annual maximum, while moving away from individual stocks toward equity mutual funds.

For those a long way from retirement, sticking to your target allocation like these young investors did allows both stocks and fixed-income to do their job, allowing you to move from less risky assets in favor of higher-volatility assets. Staying reasonably diversified at an appropriate risk level, investing frequently while holding through rough patches, and remembering that the market has consistently risen over the long term remain pillars of a solid strategy for young investors worried about the direction economic conditions will go in.

About Author

Mike Viola  Mike Viola is an associate analyst, fixed-income strategies, for Morningstar. Prior to his current role, Viola was a data content researcher at Morningstar, specializing in ESG and Morningstar’s Brazilian and Chilean fund databases.

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