Younger investors at risk of being 'Depression generation': Krawcheck

Young people may have absorbed some damaging, and perhaps lasting, lessons from the financial crisis. About half of the youngest group of wealthy American investors, with an average age of 30, said they are now about as risk tolerant as — get this — a retiree. And these youngsters are getting more risk-averse as time goes by, according to a new survey from Bank of America Corp. Over half of younger people said they are less risk-tolerant than they were a year ago That's the highest percentage among all age groups surveyed, including middle-age people (35 to 50), pre-retirees (51 to 64) and the 65-plus retiree population. In comparison, only 40% of retirees said they are less risk-tolerant now than they were a year ago. This conservative streak among the youngest investors may be a lasting phenomenon, said Sallie Krawcheck, president of Bank of America's Global Wealth and Investment Management unit, who spoke on a conference call held to discuss the survey findings. She warned that the growing risk aversion among the young may damage their ability to save for retirement as interest rates go higher and cashlike investments become even less attractive, “We are spending quite a bit of time thinking through this issue,” Ms. Krawcheck said. “One certainly expects after a downturn to see increased conservatism, but the risk with this group is that this conservatism is embedded. This could be a Depression generation.” Perhaps in response to dwindling expectations for returns, more survey respondents said they expect to work longer. Almost half, or 45%, of respondents in this quarterly survey said they will have to retire later, up from 29% in the survey released in January, Bank of America said. “That is really a significant increase,” Ms. Krawcheck noted, adding that based on anecdotal evidence from Merrill Lynch & Co. Inc. advisers, the reasons include concerns about the economy and volatile markets. This survey, conducted in early June, was just a month after the “flash crash” of May 6, Ms. Krawcheck said, when the Dow Jones Industrial Average suddenly dropped 1,000 points. The survey also showed that more people have become concerned about rising health care costs and expenses, as well as preserving and ensuring retirement assets to last throughout their lifetime. A separate survey released today echoed the gloomy outlook of the American rich. The Spectrem Affluent Investor Confidence Index declined in July to the lowest level since August 2009, Spectrem Group said. The index measures the investment outlook of households with $500,000 or more in investible assets and was based on 250 monthly interviews. The Merrill Lynch Wealth Management Affluent Insights Quarterly is based on phone interviews with 1,000 people who have investible assets of $250,000 or more. It was conducted for Bank of America by Braun Research Inc. from June 11 to 29.