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Millennials afraid to seek out stocks

– Portfolio manager Patrick O’Shaughnessy was talking with friends last year when he told them he invests only in stocks.

“They thought that this was an incredibly risky proposition,” said O’Shaughnessy, 29, of O’Shaughnessy Asset Management in Stamford, Connecticut, which has about $7 billion under management. “I found pretty universal skepticism.”

While investing in equities has dropped across the board since the recession, millennials born after 1980 have continued to forsake the market even as it rebounds, according to a Gallup poll taken April 3 through April 6. Just 27 percent of 18- to 29-year-olds reported owning shares outright or in funds, down from 33 percent in April 2008, the survey found.

The aversion means the group is missing out as major indexes reach records, potentially imperiling their future financial security, especially at a time when these Americans are also shunning investments such as real estate. Instead of plunging into stocks, which can provide better returns over the long run, young people are stashing savings in bank accounts and securities that pay near-zero interest.

“We call them recession babies,” said William Finnegan, a senior managing director at MFS Investment Management in Boston, drawing a parallel to “Depression babies” who avoided banks and investing after the 1929 crash.

“If the cumulative return of the past five years didn’t convince you that the stock market might be an OK place to be for a long-term investor, I’m not sure what else is going to,” he said. “These folks have been scarred.”

As the oldest millennials approached college graduation in 2002, they witnessed a 78 percent plunge in the Nasdaq index as the bubble in technology shares burst. As they reached their mid-twenties in 2008, the Standard & Poor’s 500 Index dropped 38.5 percent, the worst single-year performance since 1937. The gauge dropped 57 percent from October 2007 through March 2009.

“It’s not as bad as the Great Depression, but if it’s your first adult experience, it’s making you cautious,” said Jeff Scott, head of market research for UBS Wealth Management Americas in Weehawken, New Jersey. “I don’t think there will be a complete jump-back moment. It’s a permanent mind shift.”

About 46 percent of millennials with more than $100,000 to invest say they will never be comfortable in the stock market, according to a survey MFS released in February.

Affluent millennials hold 52 percent of their money in cash and 28 percent in stocks, compared with 23 percent and 46 percent for older people, according to a UBS survey released in the first quarter. The study focused on 21- to 29-year-olds with $75,000 in income or $50,000 in investable cash, and 30- to 36-year-olds with $100,000 in income or assets.

“They are risk-averse, so they have the most conservative portfolio profile of any age bracket under 65,” said Neil Howe, founding partner of LifeCourse Associates, a consulting service for generational marketing and workforce issues.

“They look at the stock market and they see nothing but danger,” said Howe – who is credited with coining the term “millennial.”

But older groups have begun to make a turnaround.

Among 30- to 49-year-olds, about 67 percent hold stocks this year, up from 58 percent in 2013, said Frank Newport, Gallup’s editor-in-chief.

For those younger than 30, comprised solely of millennials, ownership was unchanged at 27 percent.

There is probably more at play than just squeamishness over equities. Unemployment, heavy student-debt loads and the effects of the housing crisis are probably also restraining young people.

The share of 25- to 34-year-olds who were employed in April was 75.5 percent. That ratio hovered between 78 percent and 80 percent in the three years leading to the recession that began in December 2007, according to Labor Department data.

Almost 45 percent of 25-year-olds had student debt at the end of 2013, up from 25 percent in 2003, based on New York Fed data. Their average student loan balance reached $20,926, according to Meta Brown, a senior economist with the research and statistics group. It was about $11,000 a decade ago.

“Wealth accumulation, building a nest egg, takes time,” said Richard Fry, an associate at Pew Research Center in Washington. “You need a high-enough income to basically begin saving. Millennials, by delaying their entry into the workforce, are deferring building their nest egg.”

The longer it takes, though, the less wealth will be accumulated.

There’s still hope for today’s youngest investors because more employers are automatically enrolling workers in retirement plans, Fry said. What’s more, housing is a more important wealth builder, he said.

Even here, the news isn’t positive.

Census figures show homeownership among America’s youngest buyers has also dropped, and private data show that contributions to retirement plans such as 401(k)s have also shifted away from stocks since the recession. In 2013, 20- to 29-year-olds had 41.1 percent of their defined contribution plan assets in equities, down from 62.4 percent in 2007, based on figures from Aon Hewitt, a global retirement and human resources business in Lincolnshire, Illinois.

For millennials, their conservative portfolios are one symptom of a wide-ranging fear of risk, demographer and economist Howe said. The generation was marked by a drop in teen pregnancies, teen drunken driving – and now that they’re adults, fewer move away from their families or buy houses.

“Millennials were risk-averse before, and now they’re becoming more so,” Howe said. “It’s fair to say that the Great Recession has totally dominated their view of the economy.”