Millennials are making a costly investing mistake by sitting on cash

Most millennials putting
aside money for the future are sitting on cash, according to a
Bankrate.com report.
REUTERS/Lucy
Nicholson

• 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.

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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.”

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.

“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.