Millennials Display Outsized Return Expectations, Desire for Advice

Millennials are now the largest demographic in the U.S., and also the least likely to have access to a defined benefit pension plan. 

By John Manganaro | April 20, 2017
Page 1 of 2

“Advisers should focus on the opportunity to build relationships with the Millennial generation of investors and have open, ongoing dialog in an effort to manage their expectations,” urges Jeffrey Cerutti, CEO of AMG Funds.

A new survey report from the firm identifies a number of ways Millennials in general make good candidates for advice. They are eager to start investing and just coming into their prime earning years, yet they are also fairly uninformed about the best strategies for planning the long-term financial future.

Case in point, Millennials with money already in the markets often display overly conservative allocations—but they speak of higher return expectations at the same time, compared with older counterparts.

“Millennial investors appear to be more conservative than older generations of investors in their asset allocation, allocating 30% on average toward equities, lower by nearly one-third than older generations, who allocate 46% to the asset class,” AMG Funds reports. “On the other hand, Millennials allocate nearly three times as much of their portfolios toward alternatives (17%) than older investors do (6%).”

Important to note, the Millennials surveyed here already have significant assets saved—$250,000 at a minimum. Far outstripping the projections of sober-minded asset managers, this group expects to earn an average annual return of 13.7% in the years ahead. Boomers, who as a group anticipate 7.7% annual returns for the foreseeable future, are a little closer to matching the expectations of the vast majority of money management professionals, which stand in the mid- to low-single digits.

“Millennials also maintain a higher average cash allocation than their Boomer counterparts (25% vs. 17%),” AMG Funds observes. “In order to meet the Millennial investor’s average annual return expectation and also overcome the drag generated by the higher cash allocation in the average Millennial’s portfolio, the remaining asset classes would need to generate an average annualized return of 18.3%, considerably higher than the 9.8% average annualized return of the S&P 500 Index over the past 15 years.”

NEXT: Education and advice sorely needed