Investing Mistakes: Millennials and Bonds, Episode 359

by | Nov 7, 2023 | Videos

In this video # 359, Casey talks about millennials and bonds.  Specifically, he walks through a discussion where he learned millennials are investing (possibly) too heavily in bonds and fixed income.  Why could this be happening?  The investing rationale for millennials and bonds makes little sense, on paper.

But do millennials and bonds make sense?  It could, depending on specific situations.

But with a potential investing timeline of 20, 30 or even 40 years to go; (to us) it does not seem to make sense to see younger investors investing as heavily – as it appears to be – in fixed income and bonds.  Why is that happening?

It is possible that saving for a home pushes some millennials and bonds together.  They may need a down payment for a home.  And in that case, millennials and bonds may make a good pairing.  But for many in this age bracket, millennials and bonds as an investment, may not add up.

Links for Millennials and Bonds, Episode #359:

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Casey mentioned Ben Carlson and here is a link to Ben’s article

Transcript for Millennials and Bonds, Episode #359:

Should you lock in a five percent rate of return?
Keep watching to find out.

This has been a popular question that we’ve gotten, in the back half of 2023 here.
Should I add allocate more of my investments? Or move all of my investments to cash or fixed income – now that I can actually earn something on it?

It’s true – money market funds, treasury bills, some fixed income products – and even online savings accounts – are offering north of 4%. And probably closer to 5%.

This is a welcome change from earning basically nothing on those types of investments for last decade.

But to move your investments – or to make investment decisions – based on that, is a drastic, drastic change!
So let’s break it down.

It’s been recently reported that millennials (of all people!) have more of their investment accounts allocated towards fixed income and cash!

They have more than even their older generations, the “Gen X’ers” and the “baby boomers.”

Schwab did a study that found the average millennial’s allocation to fixed income is 45%. Basically 50-50 stock/bond, or stock/fixed income split!

And that number is 37% for “Gen X” and 31% for “baby boomers.”
This is backwards from common investing wisdom!

Usually the younger you are the more you have allocated to stocks and the equity side. The older you are, the more year allocated toward fixed income.

So maybe it has something to do with with a tough market environment over the last two years? Or maybe people are becoming aware they can actually “earn something” on their cash.

But generally speaking — and not giving investment advice here — but generally speaking, millennials are in their prime working years. They’re in their late-20’s to early-40’s.

Which means if this is retirement money, you still have an another 30, maybe 40 years to go – until you need this money.

So, to lock in something – some rate of return via fixed income or cash – is not a wise decision, in my opinion.

Ben Carlson wrote about how investing in the stock market is the “opposite” of playing the casino.

With a casino, the longer you’re there, the likely you are to lose money.

In the stock market (the more or), the longer you play in the stock market, the better your odds of success.

Over a “daily” time horizon, your odds of success in the stock market are 56%.

Over one year, it’s three out of four — your odds of a positive investing outcome in the stock market is 75%.

Over five years that number goes to 88%.

Over twenty years, that number is a 100% chance of having a positive investing outcome in the stock market.
A 100% chance.

So that goes to show – if you’re a millennial in your thirties, and you’re averaging into fixed income — you might be doing something wrong.

Again, that’s the stock market, not the bond market, or cash.

The stock market has outperformed both of both fixed income and cash, over longer time horizons.

Also if you’re still in your “accumulation” phase of your investing journey – meaning, you’re adding to your investment accounts – not taking out of your investment accounts.

You want to be sending money in at lower prices, because at lower prices you’re you’re buying (more) shares of whatever you’re investing in, at at lower prices.

Which speaks to the whole “buy low, sell high” thing.
Which is what this is really all about.

Cash can be a great for short term needs. If you need money in the next 1 to 3 years, that money should be in cash. It should be not invested in the stock market, because you will need it. You don’t want it to fluctuate too much.

But for longer term money, you should think about allocating more towards the stock side of your portfolio.

You don’t want to confuse “short term” and “long term” dollars.

If you need help getting your allocations straight, get in touch with us! Everyone’s situation is different.
So if you need help, get in touch with us.

That is going to do it for this week’s episode. Thanks as always for tuning in.


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