The investment trend that could ruin your retirement

Harvey Barnes of Leicester City reacts after missing a chance during the Premier League match between Tottenham Hotspur and Leicester City at Wembley Stadium on February 10, 2019 in London, United Kingdom. Image: Getty

Optimism is generally considered a good, if not naive, trait to possess.

But too much optimism can be a bad thing, and millennial investors could be about to learn that lesson the hard way, global asset management firm Legg Mason has warned today.

“It is possible that a lack of experience is behind the optimistic viewpoint that the millennials have as they are too young to have been materially impacted by bear markets such as the GFC, tech wreck or Asian currency crisis,” Legg Mason Australia and New Zealand managing director, Andy Sowerby said.

“Their belief that they understand investment markets and have expertise has yet to be tested in a bear market or a recessionary period.”

This same optimism means three-quarters of millennial investors believe they will have enough money for retirement, compared to 62 per cent of baby boomers, the latest Legg Mason Global Investment Survey revealed.

But millennials may not actually be creating enough income and growth from their investments to achieve a comfortable retirement, Sowerby warned.

“When we look at the asset allocation they are using as a model for their investment portfolios, millennials are not embracing growth assets enough to justify their confidence for securing a comfortable retirement,” he said.

Millennials have an average 21 per cent of their investment portfolios in equities.

“Put bluntly, they need to save more and embrace higher-risk asset classes if they are to meet their longer-term investment goals.”

However, while they may not embrace enough risk in their current asset allocation, millennial investors actually have a higher risk appetite than Baby Boomer investors.

In fact, 15 per cent of millennial investors say they’re more likely to invest in higher-risk investments like equities in the event of a major global stock market crash, than baby boomers, with only 5 per cent indicating they would invest in this way.

“The desire by millennials to ‘time the market’ and invest in downturns versus baby boomers risk-averse attitudes is a sensible precaution,” Sowerby said.

“Baby boomer investment horizons will inevitably be shorter, and de-risking investment strategies will make greater sense than for millennials, who should be thinking long term and focusing on growth assets.”

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