A third of Americans (32 percent) say the stock market is the best investment for money they won’t need for a decade, according to a new Bankrate survey, while less than a quarter (24 percent) say no-risk cash is their top preference.
“For investment horizons of longer than 10 years, the stock market is an entirely appropriate investment,” says Greg McBride, CFA, Bankrate chief financial analyst. “Cash is not, and especially if you’re not seeking out the most competitive returns.”
This is the first time in four years respondents didn’t favor real estate, which registered 22 percent in this survey. Gold, bonds and bitcoin rounded out the top six, with cryptocurrencies receiving just 2 percent.
Real estate is in a bit of a slump. Sales of previously owned homes declined 2.2 percent in June compared with a year prior, according to the National Association of Realtors, despite an improving economy. New home constructions and mortgage applications have also fallen, as prices have risen.
That’s because homes have risen a lot.
The median existing-home price was $276,000 in June, according to NAR, up 5.2 percent over the past 12 months. Home values have increased on a year-over-year basis for 76 straight months. Meanwhile, the average 30-year fixed-rate mortgage sits at 4.68 percent as of July 18, according to Bankrate, up from 4.11 percent a year ago.
Millennials’ second-most desired investment, though, is the stock market, while about a fifth of everyone else selected cash.
Millennials would lose out in a spectacular fashion if they acted on this bias. For the sake of simplicity, let’s assume you’re a 22-year-old worker planning to retire at 67 and you save 10 percent of your $50,000 salary in your 401(k).
If you invested in a money market fund yielding 2 percent, you’d end up with about $359,000 by the time you retire. If instead you contribute to a balanced fund of stocks and bonds which yielded 8 percent annually (similar to Vanguard Wellington’s performance over the past 15 years), you’d have $1.9 million.
Do millennials really hate stocks?
Thanks to the introduction of auto-enrollment into target-date funds—which are mutual funds made up almost entirely of stocks when you’re young and then slowly shifting to bonds as you get older–millennials have a ton of exposure to the stock market.
Three-quarters of the retirement portfolios for those in their 20s comprised stock funds or target-date funds, according to an Employment Benefit Research Institute report. Meanwhile, those in their 30s owned more stock than those in their 40s, who owned more stock than those in their 50s, and so on.
Cash investments made up just 1 percent of the portfolio for younger millennials and 2 percent for those in their 30s.
Millennials are putting off starting a family due to record levels of student loan debt and the high housing costs, leaving them less margin for error. With little hope for a pension that half of those over 60 enjoy, 41 percent of millennials have no retirement savings, and just a quarter feel as if their savings are on track for a secure retirement.
Given that anxiety, millennials may say they prefer cash because it’s hard to imagine owning funds you won’t need in a decade.
Just 6 percent of respondents said they’re earning more than 2 percent on their cash, equivalent to the upper limit of the Fed’s short-term interest rate target. More than a quarter did not know what their receiving, while another 13 percent aren’t getting any interest at all.
Millennials were the least likely to receive more than 1.5 percent, thanks to their paltry holdings, while boomers were the most likely.
Americans in search of higher yields need only consult their internet browser. Online banks, per Bankrate data, are much quicker to pass along higher yields to consumers after the Fed raises interest rates than traditional brick-and-mortar outfits.
Most view a change as not worth their time, with 36 percent comfortable with their current bank and another 31 percent desiring access to a local branch.
Nearly a fifth of Americans, though, didn’t know such accounts existed.
“Top-yielding, nationally available bank savings accounts and money market deposit accounts can be found with very low minimum deposits, and in some cases no minimum deposit at all – making these accounts literally available to every American household,” McBride says.
Source: Bankrate survey