Millennials put stock in the future: how the generations invest

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Accustomed to algorithms that anticipate their needs for shopping, travel and content, millennials appear to be adopting a contrarian approach to investing, preferring a more hands-on strategy.

New research from TD Ameritrade and Wells Fargo finds that millennials' portfolios tend to be better diversified than those of older generations. "They skew a little more to individual stocks," says Nicole Sherrod, managing director of the trader group at TD Ameritrade. "They are pickers. They're tremendously conscious when it comes to brand."

Complementary findings by Wells Fargo, in examining 401(k) plans it administers, indicate that 82 percent of millennials' plans meet the Wells Fargo definition of a diversified portfolio, with at least two equity funds, a fixed-income fund and employer stock comprising no more than 20 percent of the asset allotment.

Millennials also take better advantage of types of retirement accounts, according to the Wells Fargo data: Twelve percent of millennials contribute to a Roth 401(k) account – 50 percent more than four years ago. By comparison, 11 percent of Generation X and 7 percent of baby boomer investors use Roths, which enable account holders to contribute in after-tax dollars and withdraw funds tax-free after retiring.

Sherrod says millennials (those ages 25 to 34) have taken the classic investing advice of "buy what you know" to a new level. Their favorite investing brands are Apple, with 13 percent holding the technology stock in some form. Older generations love Apple, too, making it the "No. 1 investment on any given day in 2014," Sherrod says.

Millennials also prefer eco-conscious equities, such as Tesla, and are enthusiastic about international stocks, such as Alibaba. Amazon is one of the top picks for Gen Xers who are in their busy midlife phase and are likely to be using it nearly daily, Sherrod says.

In a finding that will not surprise any grandma anywhere, Facebook is the No. 3 most popular stock for younger boomers. (Facebook may be on the screens of retirees and older boomers but it is less likely to be in their portfolios.)

As of mid-May, the most widely held stocks across all generations, according to TD Ameritrade, were Apple, Berkshire Hathaway (B shares), General Electric, Microsoft and Bank of America.

Millennials were the only generation with Disney in their top 10 stock holdings, while Verizon and Johnson & Johnson were equally popular only with retirees age 65 and older. In general, older boomers preferred consumer goods stocks less than older generations.

Swarn Chatterjee, an associate professor in the University of Georgia's Department of Financial Planning, Housing & Consumer Economics, says that like other generations, millennials buy what they know, but what they know tends to be technology stocks and related services.

"Their investment choices are based on what they are more familiar with, which differs from baby boomers," Chatterjee says. Accustomed to having algorithms curate their choices in movies, friends, content, travel and shopping, millennials are conversant in researching stocks and in gathering input from friends via online channels, he adds.

What can the generations learn from each other?

In Chatterjee's opinion, millennials "probably are overlooking some blue-chip stocks." This generation also needs to be careful to not underestimate volatility, he adds.

Millennials are engaged in saving and investing, agrees Joe Ready, head of Wells Fargo Institutional Retirement and Trust, but they need to be sure that they don't assume that the market performance of the past five years will continue uninterrupted.

"Don't think that the market will win the day for you. Work on your savings rate. Inch it up 1 percent a year. When you combine that with the allocation decisions they make, they've got something," Ready says.

Meanwhile, boomers have become risk-adverse, he adds, especially those nearing retirement who are wary of having much – or any – money in stocks.

A Wells Fargo-sponsored survey released last fall, which surveyed more than 1,000 middle-class Americans, found that 71 percent of non-retirees ages 50 to 59 were not confident they will have saved enough to "to live the lifestyle they want" in retirement.

"They've done the right things, and they're close to the finish line. They've gotten conservative," Ready says. "It's important to keep in mind that you'll have a long time in retirement. You have to manage risk but you also have to have a reasonable exposure to it. If you get too conservative, inflation and overall, over time, may erode your purchasing power if you're not adequately diversified."

Copyright 2015 U.S. News & World Report

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