Generation Y Doesn't Trust The Stock Market, But Is Heavily Invested In Stocks

Generation Y's Surprising Stock Market Disconnect

Growing up during America's "lost decade" has certainly taken a toll on Generation Y, which has lived through the tech bust in 2000 and the financial catastrophe of 2008.

Forty percent of Gen Yers -- 18- to 30-year-olds -- say they will "never feel comfortable investing in the stock market," according to a study from MFS Investment Management that was reported in The Wall Street Journal on Sunday.

Yet for all that pessimism, Gen Y is heavily invested in the market, as Journal columnist Carolyn T. Geer points out. Thanks to a six-year-old law that offers companies incentives for automatically enrolling employees in 401(k) plans, the number of twenty-somethings who are investing in stocks has grown.

The law, signed by President George W. Bush in 2006, most affected workers who were newest to the workforce, often Gen Yers. According to the Investment Company Institute and Employee Benefit Research Institute, which examined the portfolios of 23 million individuals with 401(k)s, the percentage of twenty-somethings with 80 percent or more of their 401(k) funds in the stock market grew from 55.3 percent in 2000 to 60 percent in 2010.

Generation Y encompasses 77 million Americans who have combined earning power of $1 trillion, according to MFS Investment Management. Saving is currently not a priority for a large portion of Gen Yers -- 38 percent say they live from paycheck to paycheck.

Investing young, however, is key. Reuters reports:

According to data from Baltimore-based fund shop T. Rowe Price, if one saver puts away $500 a month from ages 21 to 30 and enjoys a 7 percent annual return, she will end up with almost a million bucks at age 65. That handily beats another saver who waits for that level of return until age 31 yet contributes all the way to 65, despite putting up $150,000 more than the first investor.

"Whether wealth is transferred to Gen Y from older generations or they generate it themselves, it is a demographic imperative that the financial services industry embraces younger investors," William Finnegan, senior managing director of U.S. retail marketing for MFS, stated in the MFS study.

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