It’s a well-known financial adage: young people should invest more aggressively because they have more time to recover from short-term losses and more time to reap the benefits of long-term gains. Yet in the aftermath of the recession, Americans in their 30s are either investing too conservatively or aren’t investing at all.
Despite looming concerns over entitlement cuts, the percentage of workers between the ages of 25 and 35 who say they’ve saved for retirement has fallen by 22 percent in the last decade, according to the Employee Benefit Research Institute. And those who are investing are now less willing to take risks than their parents. The Investment Company Institute found that only 22 percent of people under 35 are willing to take above-average investment risk today, compared with 26 percent of people ages 35 to 49. “Our generation has already been burned twice,” says Cathy Pareto, a 38-year-old financial adviser in Florida. “We’re not as naive as we were in our 20s, but sometimes we’re too conservative.”
Despite the improved stock market, young investors continue to put their money in the safety of low-yield bonds. Instead, experts say, 30-somethings should invest more heavily in stocks through passive low-cost funds, 401(k)s, or Roth IRAs; taking the conservative route could delay retirement for a decade. “We aren’t like our parents or grandparents,” says Pareto. “There’s no gold watch at the end of 30 years.”