About 35 years ago, when I was new to the corporate world and fired with ambition, but not the least bit fired-up about staying with my big corporate employer, I had a series of bewildering conversations with colleagues, many even younger than I.
See, the place where I worked had long been the number one name in its field, and that status conferred a certain sense of stability. So when I talked with co-workers about what job they expected to jump to next, where they intended to go professionally, and what bold new career worlds they hoped to explore, many responded in very clear terms that they had no intention to go anywhere.
“There is such a feeling of security I get from having a job with an industry leader, ” I was assured by one 21-year-old with nearly a half century of career ahead of her. “If I left this company and went someplace else, I’d be throwing away the security that I always, always would have a job.”
This comment would prove akin to someone in the port of Southampton in 1912 reporting, “Traveling across the Atlantic on most vessels is risky. So I’m setting sail on this one — this unsinkable Titanic!” But the irony in my co-worker’s pronouncement wouldn’t be fully evident until quite a bit later.
One to two decades after the preceding discussion, this household-name employer fumbled away its number one status in its industry and became an also-ran. Today, with another two decades of water under the bridge, the company has become a punch line. It is a shadow of its former self and frequently turns up on the lists of once-mighty corporate giants predicted to pass from the scene within the next 12 months. The department to which I was assigned was eliminated at least a generation ago, along with all the employees who once toiled by my side. Some of my ex-colleagues had been promoted out of that department by the time it was shuttered. But at last check, even the most diehard had moved on to new employment opportunities with companies that aren’t corporate cadavers.
Shred the security blanket
The example underscores the fact that seeming Rocks of Gibraltar can crumble, and other entities that appear ephemeral have a way of growing huge and powerful and lasting. More, spending your 20-something years counting on the world never changing will likely leave you very unhappy and may also consign you to the poorhouse.
That’s why I don’t recommend anyone in their 20s with decades ahead of them be conservative and security-minded. Too much can change over your lifetime; and if there’s any life stage where you want to take on some risk, it’s when you have the luxury of four decades to undo any damage your youthful moves inflict. Sure, study savings account rates and seek a high-yield savings account, but also research and invest in higher-risk, higher-return instruments.
Evidence that this wisdom hasn’t been absorbed by today’s generation of 20- and 30-somethings arrived recently in a survey by Fidelity Investments. It found that those born between 1978 and 1988, known as Generation Y or Millennials, appear to select cash as a favored long-term investment. That’s a concern because Fidelity found that the largest projected gap between what they will have and what they will need in retirement is experienced by Millennials.
The survey discovered Baby Boomers born from 1946 to 1964 are on track to reach 81 percent of their retirement income needs, by and large. That percentage falls to only 71 percent for Generation-Xers born from 1965 to 1977. Millennials are projected to have the largest income gap at 62 percent, Fidelity found.
Regardless of the generation, Americans aren’t saving enough, Fidelity learned. As a whole, 40 percent of those surveyed saved less than 6 percent of their work income, a number far lower than the 10 to 15 percent recommended by financial experts. But for Millennials, the percentage saving less than 6 percent isn’t 40 percent. It’s 51 percent.
The survey also revealed that younger people are taking far too cautious an approach to investing. Of Millennials surveyed, half said they had less than 50 percent of their investment assets in the stock market. In reporting the survey, Fidelity noted that the rule of thumb is for 30-year-olds to have up to 90 percent of their portfolios in the asset class of stocks.
Evidently, Millennials are eschewing the market. That despite the fact that if they’d checked, they’d notice the S&P 500 has gained 17 percent over the last 12 months, while most cash investment yields are south of one percent.
And that’s also despite the fact that if they’d been paying attention, they would have noticed that virtually every expert advises young people to be in the market. After all, they have the time horizon to weather the stock market’s ups and downs. What’s more, over time, inflation will chew up and spit out their meager earnings in CDs and similar cash investments.
Risk in pursuit of security
Perhaps I should restate my observation of above. Your 20-something years are not the time to forget the goal of security and stability; rather, it is the time to be embracing a reasonable degree of risk as a way to ultimately achieve security and stability.
Of course, it’s possible you might be afraid of the stock market, and consider cash much safer.
It’s also possible a traveler in May 1937, looking to avoid the fate of Titanic passengers years earlier, assured friends and family he’d chosen a much safer mode of trans-Atlantic travel — the Hindenburg.
I think millennials need to understand that the stock market does drop and always does drop, but it also rises over the long-term. The more you can focus on the long-term, the better off you will be. It all goes back to education and understanding that what we saw in 2008 happens, but that the market comes back.
Its good to think in terms of embracing a reasonable amount of risk. You will need to take some risk in order to achieve the long term goals of security. But, you can’t go crazy with the amount of risk involved.