Millennial investors most comfortable with market volatility, study shows

Americans are at their peak in feeling experienced with investing, and for the first time, millennials are emerging as the generation that is the most comfortable with market volatility, according to a Hearts & Wallets study on consumer attitudinal trends for 2024.

These are among the consumer attitudinal trends for 2024, according to the Hearts & Wallets’ research report, Attitudes & Sentiment 2023: Driving Corporate Strategy in Response to Changing Consumer Needs

7 investing trends

The seven trends highlighted in the report are:

1. The feeling of being more experienced with investing is at its highest level (31%) since survey tracking began for this attitude in 2011, when it was 18% nationally for U.S. households. Consumers who perceive themselves as experienced with investing are more likely to say they make decisions on their own and use paid investment professionals, the survey said.

2. Millennials are now the generation that is the most comfortable in accepting market volatility, reversing earlier skittishness. In explaining millennials’ comfort in accepting market volatility, Laura Varas, CEO and founder of Hearts &Wallets, said that younger households should theoretically have a higher risk tolerance than older households because younger ones have longer timeframes. However, she added, millennials did not feel and behave in accordance with this theory until this year. The 2008 crisis, which concentrated some of the worst days for the U.S. stock market in decades into a few months, shook millennial confidence in the U.S. stock market.

In 2011, three years after the 2008 crisis, only 16% of millennials were comfortable in accepting market volatility, 5 percentage points lower than Gen X and baby boomers at that time, Varas added. It took until 2014 for millennials to equal baby boomers’ comfort levels with market volatility, even though boomers have a much more condensed timeframe in the market. “Today, millennials are finally behaving as one would expect a group with a longer timeframe in the market. Millennials are now a lot more likely to be comfortable accepting volatility than Gen X or boomers. 46% of millennials are comfortable “accepting volatility in the hope of getting a higher return,” 22 percentage points higher than boomers this year,” she said.

Like millennials were a decade ago, Gen Z has been more shaken by recent economic turmoil (crypto, meme stocks, bank failures, inflation, etc.) than older generations with more years of experience from which to view these disruptions, Varas added. In 2023, Gen Z’s comfort in “accepting volatility in the hope of getting a higher return” declined markedly, dropping from 43% in 2022 to 28%. Conversely in 2022, Gen Z was the generation who were the most comfortable in accepting volatility at 43%, 3 percentage points higher than millennials (40%), Gen X (38%) and boomers (24i%). “So, yes, younger households might be expected to be more comfortable accepting market volatility in the hopes of higher returns. But significant downturns can shake their confidence, in part because they lack the experience with market ups and downs of older generations,” Varas pointed out.

3. Receptivity to financial advice is at its highest level ever, especially among millionaire households. Seeing value in paying for financial advice is now at 32%, which is a high since tracking this attitude began in 2013, nearly doubling from 18%. Investors overall are feeling more experienced with investing, Varas said, in explaining why receptivity to financial advice is so high. They are becoming more engaged and bigger consumers of advice. As a result, advisors should invest in both technology-driven and people-first service models, Varas suggested. They should personalize their messaging to address goals that matter the most to different groups and use investment goals when working with higher-asset households. Lower-asset households are focused on life goals.

In addition, Varas said that advisors should adjust investment product line, positioning, and advice for inflation and the new interest-rate environment. “For example, emphasize solutions that generate current income while reminding customers that capital appreciation is the best hedge against inflation,” she added.

4. Emergency funds are a key part of financial wellness, despite growing competition from other saving and investing goals. Building an emergency fund is the top saving and investing goal for individual investors, cited by 52% of U.S. households nationally. This is occurring even as Americans juggle the demands of more conflicting goals. More households balance multiple goals than they did in the past, with 57% of households saving for 3-plus goals, up from 44% in 2013. Today, 1 in 4 households (24%) has 5-plus goals, according to the report.

5. Inflation is again the #1 concern, cited by 44% of U.S. households. But managing finances while aging is a growing concern for certain Americans. One in 5 households is highly concerned about the ability of loved ones to manage their finances as they age.

6. Having the ability to bank and invest in the same firm is one of the attitudes showing the biggest increases in agreement, year over year. Nationally, 35% of households want to bank and invest at the same firm, which is up from 23% in 2010.

7. Interest in the asset managers behind funds is growing; 36% of households now agree it “is important to me which investment companies manage my mutual funds, regardless of whether I or a financial professional has chosen the funds.”

What do these trends mean for advisors?

All of these trends have major implications for financial advisors. According to Varas, as they work with their clients in 2024, advisors should:

• Recognize the power of advice to connect with different generations and other segments.
• Build and deliver advice experiences that can balance multiple goals.
• Develop financial mental-wellness programs to address and ease anxiety.
• Consider versioning by generation. Gen Z has been more shaken by recent turmoil than older generations. Millennials with $1M+ feel more anxiety than their Gen X and Boomer counterparts with $1M+.
• Strengthen both banking and investing capabilities and the connection between the two.
• Communicate with clients about the asset managers who are behind the funds offered, as consumers want to understand who these firms are.

The Hearts &Wallets research report is drawn from the section of the Hearts & Wallets Investor Quantitative Database, which analyzes consumer attitudes, sentiment, concerns, and goals toward saving and investing. The latest survey wave was fielded from September 11 – October 6, 2023, with 5,846 participants.

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]. 

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