In the past two years, an average of 49% of millennials held stock directly or through mutual funds, exchange-traded funds or retirement plans such as 401(k)s at any given time, according to Gallup polling data.
That's down from an average 61% of Americans in the same age range -- 23 to 38 -- in the 2001-2008 period, before markets were hammered by the recession of 2008-09.
Millennials, now entering their prime earnings period, hold vastly less wealth than generations that preceded them. And the wealth gap between older and younger generations is widening. An analysis by the St. Louis Federal Reserve showed that in 1989, the median wealth of households led by people ages 65 to 75 was nearly eight times as large as the wealth of families headed by people ages 25 to 35. By 2016 the median baby boomer-led household had nearly 13 times as much wealth as the typical millennial household.
"They've been tarnished by the damage that Wall Street did 10 years ago, and it's in their psyche," said Steve Nielander, a San Diego State finance lecturer and a partner at wealth management firm Cerity Partners.
As a result, they missed the market's best performance in six years and the 11th year of the ongoing bull market that followed the recession. Investors bid up prices despite the ongoing U.S.-China trade war, political turmoil and fears of an economic slowdown.
Investors instead focused on the economy's continued expansion, rising corporate earnings, low unemployment, low inflation and the Federal Reserve's decision to cut short-term interest rates three times in 2019.
Though stocks are risky investments, millennials who steer clear of them are missing potentially sizable gains during their peak earnings years. The average return -- price gains and dividends -- of the S&P 500 index historically is about 10% a year, though its annual movements vary widely, as shown this year. Keeping money in cash, such as a savings account or money market fund, is safer. But the value and purchasing power of cash are eroded by inflation.
That's one reason mutual funds and exchange-traded funds that mimic stock indexes such as the S&P 500 are popular among investors. They provide a passive way to invest in the broader market, often with less risk than trading individual stocks. But that distinction made little difference during the recession that millennials witnessed, when all manner of stock investing was devastated. In 2008, for instance, the S&P 500 plunged more than 38%.
At 27, Nick de Leon knows firsthand about the gulf between millennials and Wall Street.
De Leon graduated this year from University of California, Berkeley with bachelor's degrees in political science and rhetoric with plans to start law school soon, and he has an internship with a Superior Court judge in his hometown of San Bernardino. He's also intrigued by the stock market.
But De Leon won't be investing in equities any time soon. Saddled with $1,400 in monthly payments for student loans and for credit card debt from a failed business startup, along with living expenses including food, his phone bill and car insurance, he's temporarily living with his parents and working at Costco to make ends meet.
"There's really no money for it right now," De Leon said of the stock market. "I just don't have the cash to even think about it."
Katherine Lovinger, 36, a North Hollywood biostatistician for a medical-devices maker, said she mainly invests in a diversified basket of exchange-traded funds, rather than individual stocks. She keeps the majority of her cash in savings accounts, in part because she's worried about the stock market's outlook.
"I understand growth is very small with [savings] compared with the stock market, but I don't trust that the growth in the market is going to continue," she said. "My best guess is that within the next six to nine months we're going to see, if not a full crash, at least a guaranteed slowdown."
A stock-market dive could be a blessing for young people who have a long-term investment horizon: It would create an opportunity to plow money into stocks when prices are low.
But many analysts say high prices alone shouldn't be a barrier to buying stocks. One technique for investing without being afraid of entering at a peak is to use dollar-cost averaging: buying the same dollar value of the same set of stocks at regular intervals, on an ongoing basis, regardless of where the market stands. That way the investor ends up buying more shares when prices are low and fewer when they're high.
It's not just millennials who are less enamored with stocks than before the recession; Americans in general have been less invested in equities since then. Over the last two years, 55% on average of the adult population owned stocks directly or indirectly, down from 62% before the crisis, said Jeff Jones, a Gallup research analyst.
In the 18-29 age group alone, stock ownership averaged 37% the last two years, down from 42% before the recession, he said.
In response, the nation's major online brokerages and some digital trading upstarts are making a push to attract younger clients.
Charles Schwab Corp. said in October that it was eliminating trading commissions, and others such as E-Trade Financial Corp. and TD Ameritrade Corp. did the same. In November, Schwab announced that it was acquiring TD Ameritrade for $26 billion in stock.
Schwab also announced in October that it would let investors buy and sell fractions of stock. That enables younger investors in particular to trade a piece of, say, Amazon.com Inc., even if they can't afford to buy full shares of the company, which closed Monday at $1,846.89 each.
Competitors such as online brokerage firm Robinhood Markets Inc. likewise offer zero commissions, fractional ownership and mobile apps. Robinhood says it now has 10 million customer accounts.
Business on 12/31/2019