NEW YORK (MainStreet) – They've been kicked around by the recession, saddled with debt and slow to recover, but cautious Millennial investors are giving companies in emerging markets the breaks they didn't get.
According to a survey by E*Trade, investors ages 25 to 34 are three times more interested in investing in companies in emerging markets than their counterparts over age 55. They're also three times more likely to have increased emerging markets' place in their portfolio and four times more likely to believe that the shape of markets outside the U.S. makes investing abroad a great idea right now.
“Conventional wisdom on the health of international markets remains fairly gloomy,” said Lena Haas, senior vice president of retirement, investing and savings at E*Trade. “At the same time, U.S. equities account for less than half of all the equities in the world, and there are myriad opportunities for investors who want to act independently of the crowd.”
There are two competing forces that make Millennials' creep into investment in emerging markets odd, but ultimately well within character. For one, Millennials as a whole tend to hate a risky investment. They don't trust banks, they'd sooner go to mom and dad for investment advice than a financial advisor and they don't have a whole lot of tolerance for risk. Bob Glovsky, vice chairman and senior financial counselor at The Colony Group in Boston, has worked with Millennial investors and knows just how cautiously they tend to approach their financial planning.
“They have been set back,” he says. “They were slow into the job market, with lower pay, and have not seen a major rise in wages. As a result, they tend to be more conservative, sometimes, even with retirement money.”
All that said, they're also among the more optimistic investors out there. They don't see their debt or setbacks as a life sentence. New methods and points of view don't make them recoil in horror. More importantly, especially when it comes to investing in emerging economies, their strong sense of economic and social responsibility is unmatched by their Generation X and Baby Boomer predecessors.
“Whether it’s the Internet connecting them to the world at large, or the Bill and Melinda Gates Foundation pushing to have an impact across the globe, this is a generation whose experience of the world has led them to be heavily motivated by meaning and purpose,” John Diehl, senior vice president for strategic markets at Hartford Funds. “The result is that this generation isn’t one just looking for pure return on investment, but they’re looking for the meaning behind their investments and the impact it’s having on the world at large.”
That also means putting some of their money into seeing parts of the world affected by their investments. According to the E*Trade survey, 57% percent of investors age 25 to 34 agree that the value of foreign currencies relative to the U.S. dollar makes them more likely to travel abroad this year, compared with only 33% percent of investors over 55. For a generation that came into a largely nonexistent U.S. job market and faced the choice of working for minimum wage, going into further debt on education or — since they were going to be in debt anyway — seeing the world while they could.
That's influenced them as investors, even if events here in the U.S. have them more focused on saving for the near future than investing for retirement.
“You think about the experience of the recession and the challenge Millennials watched play out before their eyes — it left a great impact on the way they approach their finances,” Diehl says. “They experienced not only what some would argue were the worst market conditions since the Great Depression, but they also experienced the general distrust of Wall Street through events like Occupy Wall Street and the Madoff scandal. The result is a sense of distrust, and a feeling that maybe the markets might be 'rigged' – which leads them to be highly risk-averse and less likely to invest in risk-based assets at an age when their financial advisor might be telling them to consider it.”
But emerging markets present a unique opportunity: to work beyond that "rigged" U.S. system and help a growing economy that may need it. Financial advisors say there's no disputing the social impact and moral implications of such investment, but warn that in many ways it's just as dangerous as the market they're avoiding. They suggest investing in developed international markets, domestic equities and bonds to diversify their holdings a bit, but acknowledge that nontraditional assets such as real estate may also be worth looking into.
"Investing in the emerging markets can be quite rewarding, but is also the most volatile and aggressive sector," The Colony Group's Glovsky says. "We would advise any millennial who wishes to invest in the emerging markets, but still does not want to be overly aggressive, to temper the investment with a more diversified portfolio."
— Written by Jason Notte in Portland, Ore., for MainStreet
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