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Millennials are making what could be one of the costliest investing mistakes in history

Jul 25, 2018, 20:23 IST

REUTERS/Lucy Nicholson

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  • Millennials, more than any other age group, prefer to use cash investments to set aside money they don't plan to touch for 10 or more years, according to a Bankrate.com report.
  • But the stock market is a better long-term option to grow money.
  • Millennials are set to have the greatest retirement-savings burden in history, said Greg McBride, Bankrate.com's chief financial analyst.

Cash is king for millennials who are setting money aside for the future, according to a new Bankrate.com report.

The problem is this is one of the worst ways to earn any returns. And it doesn't rhyme with millennials' expected longer lifespans, rising medical costs, and uncertainty about social security.

"Millennials are going to have the biggest retirement-savings burden in history," Greg McBride, Bankrate.com's chief financial analyst, told Business Insider.

"The nest egg that they're going to have to accumulate on their own is going to be bigger than any other generation."

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The survey found that 30% of 18-to-37-year olds thought cash investments were the best place to park money they didn't plan to access for 10 or more years, compared to 21% of those 38 and older.

However, the majority of people in all age groups (32%) thought the stock market was best, versus 23% of millennials. Just 2% of people would've opted for bitcoin or other cryptocurrencies.

"For investment horizons of longer than 10 years, the stock market is an entirely appropriate investment," McBride said. "Cash is not, and especially if you're not seeking out the most competitive returns."

When asked, most Americans weren't aware of the interest rates they were earning on their savings accounts. The survey found 27% - the majority - didn't know or refused to say. A quarter of respondents said they earned less than 1%, even as the top savings and money-market accounts nationally yield more than 2% in interest.

Many millennials came of age around the 2008 financial crisis, and some were old enough to be scarred by the 2000 dotcom bust. This partly explains why they're now wary of the stock market - but it could end up being a costly reason many years from now.

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"Millennials are saving for retirement at an earlier age than their predecessors and putting a higher priority on emergency savings," McBride said. "It's just that how that money is invested over longer horizons is out of whack."

Millennials aren't the only ones who've parked too much cash for the long-term.

"Our clients - and investors in general - are sitting on very high levels of cash," said Ida Liu, the global market manager, metro New York, at Citi Private Bank, which caters to ultra-high-net-worth individuals. Right after the recession, roughly a quarter of clients' portfolios was in cash, Liu said. It's now at 22%, which is still "really high," she added.

A recent study by NerdWallet also found that the average American is holding more than $32,000 in cash.

"Put your cash to work because cash is an underperforming asset," Liu said.

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