Millennials have been labeled many things: lazy, entitled, narcissistic among other unflattering terms. They have also been accused of being highly risk-averse, preferring flashy investments like crypto over slow-n-steady ones like stocks and bonds.
Yet, millennials are proving some of these platitudes wrong.
This demographic of young adults born between 1981 and 1996 is proving to be savvy stockpickers, managing to outperform more seasoned investors.
But for how much longer can millennials trounce the market?
Millennial Stock Picks Beating The Market
Apex Clearing recently published its Q4 2019 Millennial 100 Report. The report analyzed more than 734,000 stock portfolios by US-based millennials with an average age of just over 31.
Young adults have been known to let their tastes largely dictate their investments, with many favoring the next big thing--mostly young and sexy tech stocks. Yet, this gung ho attitude towards investing seems to be serving them right.
As you might expect, the list of preferred stocks by millennials is FAANG heavy, which comes as no one’s surprise given that many companies in the group have proven to be the quintessential momo plays. Apple and Amazon emerged as the top picks making up 13.5% and 11.2% of their overall holdings. Other heavily favored names include Tesla, Facebook and Microsoft, in that order.
Interestingly, Berkshire Hathaway, the multinational holding conglomerate that you would normally associate with older investors, also makes the cut as the 6th most common stock making up 3.1% of millennial holdings. Maybe it has something to do with its charismatic leader, Warren Buffett, Berkshire Hathaway’s peerless CEO and founder who’s widely considered an investing genius.
Meanwhile, Google’s parent company, Alphabet, is the only FAANG stock missing out in the top 10 though it still manages to chip in at a respectable 12th. Walt Disney is another surprising pick considering millennials’ aversion to pay-TV and affinity for skinny bundles. Walt Disney though did launch the Disney+ streaming service in the fourth quarter that goes for $6.99/month or $69.99/year. Roku, another video streaming giant, comes in at #26 on the list. But perhaps the most interesting part of that report is that the majority of these stocks are solid picks that have been trouncing the market. The weighted average return of the top 10 stock picks by US millennials in 2019 clocked in at 59.6% vs. 30.43% return by the S&P 500.
12-Month Stock Returns
Advanced Micro Devices
Weighted Average Return
The top 10 stocks made up 52.4% of millennial portfolios. Assuming the other 47.6% only managed to garner half the market average return, millennials would still finish comfortably ahead of the market with a 38.48% annual return.
Hannah Shaw Grove, Apex CMO, had this to say about millennial investing trends:
”One thing is for certain — millennials are investing in the future. Their fingers are always on the pulse of tech trends, innovation, and those companies which are in a position to influence the way we live and conduct business, and this quarter was no exception.”
Aversion to Risk
Nonetheless, it would be a stretch to say that all is well in the millennial investing universe despite these rosy stats.
By and large, millennials continue being averse to investing in the stock markets. These young adults appear to have acquired an intense fear of stock markets since the dotcom crash and the 2008 financial crisis--and the memories still rankle. According to a Gallup Poll, only 49% of millennials (ages 23 to 38) held stock directly or through ETFs, mutual funds or retirement plans such as 401(k)s at any given time over the last two years. Although that’s an improvement from 33% who did so in 2013/2014, it’s still considerably lower than the 55% who invested in stocks at the turn of the century.
To be fair, the proportion of older demographics investing in equities has also declined over the timeframe though not quite as markedly as with younger generations.
Loss aversion is a well-understood concept in behavioral finance where it’s thought that the pain of losing has an adverse psychological effect twice as powerful as the pleasure of gaining. It appears the effect is even more pronounced in younger investors.
But that’s just part of the problem.
Some analysts now contend that millennials will one day have hell to pay for their carpe diem attitude towards investing.
David Lafferty, senior vice president and chief market strategist at Natixis Investment Managers, says millennials who started investing during the decade-long bull market have no clue about risk and should brace for a bucket of cold water as far as their investments go.
That certainly seems to ring true, considering how millennials seem to have a soft spot for momentum stocks. The US stock Market has provided 14.4% annualized returns since the financial crisis ended in March 2009, which can give a false sense of security for anybody who does not know any better.
Unfortunately, millennials could be in for some hard lessons before they learn the importance of diversification and weatherproofing a portfolio.
By Alex Kimani for SafeHaven.com
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