Millennials’ expectations and risk tolerance mismatched- Legg Mason

Added 13th June 2016

Millennials expect an 11% average rate of return per year on their portfolios, despite allocating the lion’s share to cash, according to the Legg Mason Global Investment Survey.

Millennials’ expectations and risk tolerance mismatched- Legg Mason

US millennials have the most ambitious expectations at 14% per year on average, while those in Europe expect less than 8%, according to the survey of 1267 millennials in 19 countries. The global investment survey polled more than 5,370 high-net worth investors in total.

In spite of their high expectations, the average millennial’s largest asset allocation entering 2016 was cash (24%), followed by equities (19%), real estate (18%) and fixed income (17%).

A majority of US millennials, 78%, said they were conservative investors, while the global average was at 61%. Meanwhile, close to half of millennial investors in Asia (46%), considered themselves aggressive.

What's more, over three-quarters (78%) of millennials admitted they have become more risk averse now than one year ago. “Millennials are clearly conservative investors and we wonder if history isn’t the reason why,” said Matthew Schiffman, managing director and head of global marketing for Legg Mason.

“My generation came of age as investors during the risk-on environment of the 1980s when we were rewarded for taking risk. However, my parents were depression-era kids whose memories left them extremely cautious investors," he added. "Today, at least in the US, millennials have come of age as investors during a tumultuous period – from the dot com bust to the Great Recession.

Like my parents’ generation, perhaps millennials’ conservative approach to investing has been defined by the history of their lives.” Moreover, 35% of millennials would define a long-term investment horizon as two years or less; 26% said 2-5 years, 25% said 5-10 years, and only 13% said more than 10 years.

“The question we have to ask is, ‘with longevity increasing and all the attendant costs associated with it, by not investing in more growth-oriented assets where risk and return are commensurate, are millennials putting themselves at risk downstream in terms of capital formation?’,” continued Schiffman. 

To enjoy a comfortable life, save for childrens education and building a retirement "nest egg" were listed as the top three investment goals by respondents. Considerably more US millennials (45%) said their goal was to retire early or quit their job versus the global average of 28%.

Nearly nine in ten millennials said they invested 24% of their portfolios outside of their countries on average, and 83% said they would focus more on international investments in 2016 than last year.

China, Russia, US, Japan and Mexico are viewed as the top five countries with the most risk, and ETFs are very popular among this age group. An overwhelming majority (91%) of millenials globally have equity investments in ETFs - US has the highest at 97% and Australia ranks lowest with 82%.

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