Trading Places: Baby Boomers More Aggressive Than Millennials in Retirement Goals

Popular investing wisdom states that the younger you are, the more time you have to ride out market cycles and therefore the more aggressive and growth-oriented you can be in your investment choices. But that is not how individuals surveyed recently are thinking or behaving with regard to their retirement investments.

In fact, the new study sponsored by MFS Investment Management suggests that Baby Boomers take a more aggressive approach to retirement investing than the much younger Millennials — those who are 18 to 33 years old. Further, each group’s selected asset allocation is inconsistent with what financial professionals would consider to be their target asset allocation, given their age and investment time horizon.

For example, Baby Boomers, on average, reported holding retirement portfolio asset allocations of 40% equities, 14% bonds, and 21% cash, while Millennials allocated less than 30% of their retirement assets to equities, and had larger allocations to bonds and cash than their much older counterparts — 17% and 23% respectively.

Further, when asked about their retirement savings priorities, 32% of Baby Boomers cited “maximizing growth” as the most important objective, while two-thirds of Millennials cited conservative objectives for their retirement assets — specifically, 31% said “generating income” was a top concern and 29% cited “protecting capital” as their main retirement savings goal.

Perception Is Reality

The study’s sponsors infer that the seemingly out-of-synch responses from survey participants reflect each group’s reactions — and perhaps overreactions — to the recent financial crisis. For Baby Boomers, the loss of retirement assets brought on by the Great Recession has made them more aggressive in their attempts to earn back what they lost. Fully half of this group reported being concerned about being able to retire when they originally planned. For Millennials, the Great Recession was a wake-up call that investing presents real risks — and their approach is to take steps to avoid falling foul to that risk even though they have decades of investing ahead of them.

Educating Investors: An Opportunity for Advisors

The study’s findings suggest that there is a considerable opportunity for advisors to dispel fears and misperceptions by educating investors of all ages about the importance of creating and maintaining an asset allocation and retirement planning philosophy that is appropriate for their investor profile.

If you have any questions or concerns about asset allocation, retirement and financial planning or investment management, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.

Shouldn’t gas prices be going up?

Iraq is one of the world’s largest oil producers, so when the ISIS militants rolled in from Syria and took over Iraq’s largest oil refinery, global oil traders and gas companies braced for a sharp spike in prices.  Consumers expected to see higher prices at the pump in short order.

Instead, oil and gasoline prices are lower than they were a year ago.  As you can see from the chart below, “regular” grade gasoline prices in different parts of the U.S. fell during the winter and have risen again in the summer months.  If you happen to live on the West Coast and suspected that you paid more for gas than the rest of the country, well, this chart confirms it; the prices in California and the West Coast generally are more than 50 cents a gallon higher than the cost at the pump along the Gulf Coast, where the U.S. has the bulk of its refineries.  People in the Northeast, Mid-Atlantic and Southern states generally fill up their tanks at cheaper prices.

If you want a longer-term view, review charts that show the cost of “regular” grade gasoline since 1990.  They show prices hovering around a dollar a gallon for most of the 1990s. (The good old days!)  Since then, the price has gradually crept upwards, with greater volatility and a deep price drop during the Great Recession.  Since the beginning of this decade, prices have remained fairly level, and indeed today’s gasoline prices are almost exactly what they were in early 2008.

Prices have held steady despite the turmoil in the Middle East, in part because most of the Iraqi oil fields are located in the southern part of the country, a safe distance (so far) from the ISIS insurgency.   The other main oil fields are located in Kurdish-controlled areas in the northern part of the country, and the Kurds have managed to protect their ethnic border with great effectiveness.  Add to that a recent agreement in Libya between the central government and a regional militia that will add 150,000 barrels a day to that country’s crude oil exports.

The moderation in prices, from $4.00 at the pump two years ago to roughly less than $3.00 today, is acting as a kind of stealth stimulus for the U.S. economy.  U.S. drivers are expected to use roughly 133 billion gallons of gasoline this year, so the price break adds $53 billion of savings to peoples’ balance sheets.  This, added to the lower costs for factories, airlines and electric power plants, could add half a percentage point to U.S. economic growth in 2014.

If you have any questions or concerns about financial planning or investment management, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.

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