The Stock Market Keeps Rising, but Millennials Aren’t Reaping the Benefits

The Wall Street Journal - November 25, 2020



Many millennials, having suffered through two nasty bear markets in the first years of their working lives, are missing out on some of the gains from the rally that brought the Dow Jones Industrial Average to 30,000.

The stock market’s surge in the midst of the pandemic has given investors confidence and helped businesses raise capital. It has also come with big swings, including one of the worst selloffs in history followed by one of the fastest recoveries, with triple-digit point moves in the Dow commonplace. This has made many young investors wary of putting too much of their assets in stocks. About half of millennials—generally defined as people born from about 1981 until 1996, sometimes called Generation Y—are invested in the stock market, roughly the same ratio as members of Generation X were at the same age, according to the Federal Reserve Bank of St. Louis. The difference is that the value of their holdings is nearly a third lower than their counterparts at the same age, according to the St. Louis Fed.

A year of ups and downs in the market re-emphasized to Elizabeth Brozek the importance of a savings cushion, rather than of getting involved in trading. The 28-year-old graphic designer suffered a layoff earlier this year, a setback that pushed her to give priority to paying down high-interest debt and establishing an emergency fund.

“When the pandemic happened, I put my financial plan on hold,” she said. “I’m not looking to invest right now. I’m trying to stay in my lane.”

Ms. Brozek, of Phoenix, said that among her group of friends, investing in the stock market doesn’t represent potential opportunity. Instead, it feels less important than their other financial obligations.

“I don’t have the mental space to think about it,” she said. “Saving is the goal right now. Investing would be like the cherry on top.”

David Hill, 39, said he has been used to seeing dramatic changes in the market since he graduated from business school in 2008.

“The market is like a casino right now,” said Mr. Hill, a marketing professional in Oak Park, Ill. “But my financial security is not tied up in the stock market.”

For him, purchasing a home with his wife was the biggest financial move they have made in several years. The couple’s house is worth less than their retirement accounts, but it has kept their focus on housing rather than stocks. “I’m more worried about the economy than I am about the market,” he said.

The market turned sharply up this year while unemployment remained high and nervous consumers used what cash they had to pay off debt and save rather than invest in stocks. “Those groups who weren’t invested in the first place are not trying to get into the stock market now,” said Kim Parker, director of social trends at the Pew Research Center. “They’re trying to keep their heads above water.”

Since 2008, Gallup found, stock ownership has decreased among Americans overall. Stock ownership was more common between 2001 and 2008, when 62% of U.S. adults said they owned stock, on average. As of June 2020, only 55% of Americans said the same. Investors who owned stocks during the 11-year bull market that ended in March earned significant wealth, and likely were willing to weather a setback. The wealthy have always owned the most stocks, but the gap has widened.

The Federal Reserve’s data show that the top 1% of income earners and the bottom 60% each owned about 20% of total household wealth when the stock market bottomed out in the first quarter of 2009. By the second quarter of 2020, the top 1% of income earners owned about 25% of household wealth, versus 15% for the bottom 60% of earners.

Put differently, the top 1% of households were worth $27.9 trillion in the second quarter, up from about $11 trillion at the time the market bottomed out in the first quarter of 2009. For the bottom 20%, household wealth rose from $2.3 trillion to $3.5 trillion.

The big gains went largely to wealthy, older investors who accumulated years of savings. “The overwhelming value of those stocks are held by white, college-educated, middle-aged and older families,” said Ray Boshara, senior adviser and director of the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis.

Adam Carrico, a 29-year-old nonprofit financial analyst living in Washington, D.C., said even though he has been “one of the lucky ones” able to save more in the coronavirus pandemic, he remains on the sidelines due to the stock market’s volatility.

“I thought about investing, but I’m definitely scared,” he said. “There’s a fear I didn’t have before: ‘You could be unemployed soon.’ And so I’ve seen the stocks go up and down, but I don’t know how much I trust the market, with the pandemic.”

Like most Americans, Mr. Carrico’s exposure to the markets is his retirement savings. He said he has just over $22,000 saved in a 401(k) but hasn’t made significant changes to his contributions since the pandemic.

Bureau of Labor Statistics data show that as of March 2020, 55% of all U.S. civilian workers participated in benefit pension plans or defined-contribution retirement plans, such as a 401(k). That means Social Security—which isn’t tied to the stock market’s ups and downs—remains the major source of retirement income for a large number of future retirees. The Biden administration has announced plans to increase the program’s financing and expand benefits for beneficiaries under financial duress. But unresolved races will determine the future of the Senate, and concrete steps remain uncertain.

Mr. Carrico said he continues to make payroll contributions to his 401(k), but he remains “purposely blind” on his retirement plan’s performance, citing a deep fear of what the future could hold despite the Dow’s continued climb.

“I’m not paying attention to it,” he said. “Today, it could be great. Tomorrow, it could go down and I could get stressed looking at it. Life has enough stressors right now, and this is out of my control.”



By Julia Carpenter

Write to Julia Carpenter at Julia.Carpenter@wsj.com

Dow Jones & Company, Inc.


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