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Are you ignoring the largest segment of affluent investors?

For advisers, 2015 is a magical year. It's when the leading edge of the Gen Y generation turns 35 years old.

For advisers, 2015 is a magical year. It’s when the leading edge of the Gen Y generation turns 35 years old.
Why should advisers care about a generation of shredders on snowboards who don’t have any money?
Because that generalization – like much of what you think you know about Gen Y – isn’t true.
Let me show you the numbers.
We all know about the 76 million Baby Boomers. But did you know that Gen Y – broadly, those born between 1980 and 2000 – number 77 million? And if you add the 54 million in Gen X (generally, those born between 1965 and 1980), that’s 131 million people, or a market that’s one and three-quarters the size of the Boomers.
But what about income and wealth? Here’s the surprise: Gen X and Gen Y have the same amount of spendable power today as the Boomers – about $2.5 trillion a year – and they’re going to inherit the Boomers’ wealth tomorrow!

To read the free MFS E-book, “Getting the Digital Generation to ‘Like’ the Market,” click here »

So if Gen X and Gen Y are more numerous than Boomers and just as wealthy, why not keep doing what most advisers are successfully doing right now and simply add more Gen X and Gen Y clients?
The answer is that the younger investors are different from Boomers in their mindset, experience and expectations, and must be approached differently. Over the next several blog posts we’ll be exploring these differences and how advisers can address them, but let’s start with one of the biggest and most important: the conservative and fearful mindset of today’s younger investors.

A Fearful Group

Younger investors are worried. They’ve seen their parents lose their jobs and they themselves have seen how hard it is to find and keep a job. They know that Social Security and Medicare may run out of money taking care of Boomers, which makes them anxious about their own retirement – even if that is 30 years away.
They’re also worried about inflation. Even though the official numbers are low, younger investors see rising fuel prices and the higher cost of health care and believe the prices are going to keep rising.
You’d think that with their longer time horizon and concern about inflation, younger investors would naturally gravitate to stocks. But that’s not the case.
Unlike Baby Boomers who rode into their adult years on a bull market in equities, younger investors have seen only booms and busts in the stock market. In fact, based on their experience, rising stock prices are only a fleeting interlude followed by losses. For them, a go-nowhere decade is normal.

Attitudes toward equities

The results of our latest MFS Investment Sentiment Survey bear this out. When asked whether they agree with the statement, “I will never feel comfortable investing in the stock market,” just 26% of Boomers agreed, while 29% of Gen X investors and 37% of Gen Y investors agreed.
Because they are turned off by equities and are anxious, younger investors are sitting on lots of cash. Gen Y investors, in fact, have a third of their investable assets in cash – more than any other asset category (they have just 27% of their money in U.S. stocks and stock funds). Gen X isn’t far behind, with 27% in cash and 36% in domestic equities and equity funds.
Surprisingly, advisers believe that Gen X/Gen Y investors have just 11% of their assets in cash and 49% in U.S. stocks and stock funds.
Why do Gen X and Gen Y investors have so much of their assets tied up in cash? How can advisers address that mismatch between younger investors’ concern for the future and their desire for safety?
We’ll touch on that next.

About the series

Financial advisers seeking to expand their business may not be aware of the potential afforded by Gen X and Gen Y investors. Wealthier than most advisers realize, these younger investors want help. But their expectations of advisers are different from those of Baby Boomers. Using data from his firm’s extensive Investing Sentiment Survey, William Finnegan, Senior Managing Director of Global Retail Marketing at MFS Investment Management, offers insights into tapping this huge, underserved market through a series of six articles.

About the survey

MFS, through Research Collaborative, an independent research firm, sponsors a regular online survey among individual investors with $100k+ in household investable assets and who make or share in making financial decisions for their households. Generation Y investors are those under the age of 33; Generation X is defined as investors between the ages of 33 and 47.

About MFS

MFS is a premier global money management firm with investment offices in Boston, Hong Kong, London, Mexico City, São Paulo, Singapore, Sydney, Tokyo and Toronto. The firm’s history dates to March 21, 1924, and the establishment of the first US “open-end” mutual fund. MFS manages $293.4 billion in assets on behalf of individual and institutional investors worldwide, as of August 31, 2012.
Please visit MFS.com/InvestingPulse for more information.