Confusion Leads Gen X/Y Investors to be Conservative

November 10, 2010 ( - According to a recent survey by MFS Investment Management, Generation X and Y (Gen X/Y) investors have a surprisingly conservative approach coming out of the recession.

Gen X/Y investors appear to recognize the potential opportunities they have, but they seem unsure about how to take advantage, leading to confusion, MFS contends. By more than two to one (49% to 22%), Gen X/Y reported that “now is a great time to invest in the stock market,” but almost two to one responded that “I am overwhelmed by all the different choices available to me” and have nearly an even split (27% to 28%) agreeing and disagreeing that “government bonds are the best place to put your money right now.”   

According to a press release, Gen X/Y appear to be more gun shy about the stock market than other groups, with 35% agreeing with the statement: “After what has happened in the markets the past few years, I’ll never feel comfortable investing in the stock market.” Older groups surveyed agreed with this statement at about a rate of one in four.  

Thirty percent of Gen X/Y reported that generating income is the most important investment objective today, compared to approximately 20% for older generations surveyed. Gen X/Y also reported that protecting principal is more important today at 28% vs. 18% before the recession. 

As a group, Gen X/Y reported a higher incidence of increasing debt compared to older generations. While nearly 20% of investors surveyed reported a net increase in debt since the downturn, 31% of Gen X/Y investors surveyed said that they had a net increase in debt. That is nearly double the rate for older investors at 15%. In contrast, Boomers have worked to decrease their debt levels, with 42% reporting a net decline in their debt vs. 23% for Gen X/Y.   

“Gen X/Y doesn’t show strong confidence as investors. They seem scared of equities, confused about government bonds, more focused on income, and have increased their debt,” said Bill Finnegan, director of Global Retail Marketing for MFS, in the press release. “This potentially stacks the deck against them to meet long-term goals and points to a need for financial advice regarding the establishment of a long-term financial plan, investing basics, and budgeting.”

Retirement Concerns  

The MFS survey found that even though they have more time on their side, Gen X/Y are just as concerned about retirement as Boomers, with 58% of both Boomers and Gen X/Y reporting to be more concerned than ever about being able to retire when they thought. And at 48% for each, they both admit to having lowered their expectations about what life will be like in retirement as well.   

Furthermore, 48% of Gen X/Y have no idea how much of a nest egg they'll need to retire, and 48% of them had no idea what the average annual return was over the long term for the stock market. While 35% are confident, 28% are not confident they could save enough to retire.   

On the bright side, the press release said, Gen X/Y investors are more likely to have increased their retirement contributions since the downturn (30%) than to have decreased (14%). When asked which action they were most likely to take to increase their chances of meeting their retirement savings goal, Gen X/Y typically said they would increase contributions to a tax-deferred account (35%) while Boomers were more likely to say they would put off retirement (32%).  

MFS surveyed investors with at least $100,000 to invest and asked them to compare their attitudes and behaviors about investing today with those before the recent economic downturn and recession.  

The survey also found misperceptions regarding asset allocation and retirement readiness (see Investors Saying One Thing, Doing Another).