Cash is king, except when it isn’t.
A new survey from Bankrate.com found that 30 percent of millennials think cash is the best long-term investment.
Millennials however, aren’t getting returns that will fund their retirement dreams. According to Bankrate.com, they have the lowest propensity of any generation to be earning more than 1.5 percent on their savings.
Financial experts say depending on cash for retirement savings is a bad idea.
“It is almost impossible to save enough for retirement with cash as your predominant asset class,” says Alexander Lowry, a professor of finance at Gordon College in Wenham, Massachusetts.
Cash is a wonderful asset to hold during times of crisis. It’s also great for a short-term goal, such as keeping money safe for a house down payment to be made within a couple years.
But cash is not a long-term investing strategy, he says. It doesn't earn a high enough return that can get compounded over time to grow into a good-sized nest egg. "Compounding is the safe road, the sure road, and fortunately, anybody can do it," he says.
There's a reason for young people's caution, Lowry says: “Millennials grew up watching their parents lose tremendous value in their savings during the financial crisis … . So, it makes sense they’re risk averse."
What should they do instead of cash?
Adopt a better strategy
Millennials (and young Gen Xers) should have most of their investments in the stock market — and should do so intelligently, says Timothy Wiedman, an associate professor of management and human resources at Doane College in Crete, Nebraska.
He recommends millennials devote the bulk of their money to low-cost index mutual funds or ETFs that mirror the market as a whole. Ten percent could go to a low-cost bond fund, or perhaps to "laddered" CDs — that is, CDs that mature in sequence over time — that offer solid interest rates.