As Millennials approach middle age, they’re facing the same challenges as the generations that came before them, but they’re approaching them differently. As they look to their future, they’re finding their own footing amid new responsibilities and opportunities, and are ultimately discovering their own truths about money and investing. Sampling 8.550 Millennials in 22 countries with $100,000 in investable assets or more, Natixis Global Survey reveals key truths about Millenials as investors.

Algorithms can’t answer every financial question

Conventional wisdom says Millennials will manage all their finances from their phones. To some extent they do. For example, in the US, nine out of ten rely on mobile banking apps. Many expected the digital wave would also lead to automated investment advice, but to date, it hasn’t.

Results show robo-advisors have captured only a small share of Millennial portfolios to date. Two-thirds of those surveyed rely on some sort of advice. But where 40% work with a financial professional, only 7% rely solely on automated advice, while another 19% use some combination of the two.

The common misperception may be that automated advice is used more by those with lower asset levels, as these solutions generally have lower investment minimums. Data shows that high net worth Millennials ($1 million +) are actually the most likely to use any form of advice (84%), including automated advice (8%), a financial professional (46%), or some combination of the two (30%).

Many may be surprised by data that shows that Millennials are more likely to work with a traditional financial professional. This may also be a surprise to Millennials themselves, as 53% of those surveyed say they actually prefer digital advice over in-person advice.

More complicated finances. More personal advice.

The turn to personal advice may be related to where Millennials are in life. Demographic trends had indicated that fewer Millennials were getting married than generations before. But results of the survey suggest they are getting married – just at a later age. And those between age 33 and 40 are more likely to be married (69%) than those between ages 25 and 32 (47%).

This is a life stage that often triggers other key financial events such as buying a home and starting a family. In turn, this can trigger demand for everything from education savings to estate plans and wills. In essence, Millennial finances are becoming more complicated and it stands to reason that this drives demand for personal advice. Data on where they’ve earned their wealth also adds to a more complicated picture. In fact, half of Millennials surveyed say they have multiple sources of wealth including employment (78%), business ownership/ self-employment (31%), investments (37%) and allowance/inheritance (17%). High net worth Millennials have even greater diversity in their wealth with 70% citing employment, 65% business ownership or selfemployment, 47% investments, and 20% inheritance Financial planning matters most to Millennials.

Given a complex picture of wealth, it’s no wonder that 51% of Millennials say they are interested in financial planning services. In fact, 34% of those surveyed list financial planning with their family as one of the most important facets of their relationship with a professional. Beyond a comprehensive plan, Millennials want direct help with managing their assets. Four in ten say help with navigating volatility (40%) is an important part of their advisory relationship. The same number also say it is important to get investments that match their personal values, while 37% want their advisor to help them with tax issues. In many ways, recent events have reinforced the value of personal advice with Millennials. In considering how their financial professional best helped them during the pandemic, almost half (48%) of Millennials said it came down to advice that provided them with a comprehensive understanding of their complete financial picture. Another 43% relied on timely market updates that set context for financial news. Perhaps most telling is the 40% of Millennials who said the best thing their professionals did for them was to help them avoid emotional decisions.

Advice Millennials can trust.

In general, it appears that financial professionals have delivered for Millennials and as a result have earned a high level of trust. In fact, almost nine in ten (88%) trust their financial professional when making financial decisions – nearly the exact number who say they trust themselves (90%). When it comes to these big decisions, fewer (81%) Millennials say they trust their family and fewer still (68%) say they trust close friends.

Overall Millennials are more likely to place their trust in people than in digital solutions. Less than half (48%) trust the algorithms that are the engines of automated advice. Less than one-quarter (24%) trust social media to do the job. It would seem the digital generation that is willing to crowd-fund new ideas is not 100% willing to Yelp an investment recommendation for their investment.

Risk is real when there’s more on the line

After the pandemic market rally, risk may be the furthest thing from the minds of Millennials. But now as they experience one of the biggest bouts of volatility they’ve seen as investors, Millennials may need to recalculate their return expectations and reassess their risk tolerances. As expected younger investors, Millennials appear to be “risk-on.”

In fact, two-thirds (66%) go so far as to say they’re comfortable taking risk in order to get ahead. In most younger models, it’s assumed that younger investors can take on this risk for the simple reason that they have more time to recover any potential losses.

In reality, Millennials are much more worried about risk than they let on. In fact, more Millennials are focused on risk management (48%) when selecting investments than even a fund’s ability to beat the benchmarks (26%).

While it’s good to have a healthy respect for risk, many Millennials are genuinely conflicted between risk and their return expectations. This kind of conflict is especially challenging when markets are volatile as in early 2022.

Millennials may be falling victim to recency bias

Millennials have reaped the rewards of the recent market run-up. Overall, they report returns of 14.3% above inflation during the first wave of the pandemic in 2020. Halfway through 2021, they predicted the bull market would keep running and expected returns of 14.6% above inflation for the year. Good fortune was with them and markets delivered.

Going into 2022, hopes were even higher with Millennials expecting long-term returns of 16.3% above inflation. Their optimism may be driven in part by outsized returns over the past few years as the S&P delivered returns of 28.88% in 2019, 16.26% in 2020 and 26.89% in 2021.2 This was a historic time for investors. But history suggests it’s likely that they will experience a reversion to the mean. In fact the returns generated over the past three years run two to three times the 4.57% average annual price return the S&P delivered over the 20 years between 2000 and 2020.

Millennials will want to keep this in mind in 2022

The year opened with an uptick in volatility as investors contemplated the first significant jump in inflation seen in 40 years and predictions of the first substantial interest rate hikes in more than a decade. That volatility has only been compounded by market reactions to Russia’s invasion of Ukraine. The level of sustained volatility may prove to be the ultimate pressure test on Millennials’ risk tolerances.

This may be a bigger test than many imagine. On the surface, Millennials seem to understand that volatility is a fact of life for investors. In fact, 65% recognize that market swings of 10% or more are a normal occurrence. Seven in ten go so far as to say they believe that volatility creates investment opportunity. Underneath it all, Millennials find cause for concern, as six in ten believe volatility undermines their ability to meet their savings and investment goals. This may explain why 72% of Millennials say that given the choice, they would take safety over investment performance.

What is the real risk for Millennials?

To help understand the different ways that investors and investment professionals perceive risk, we ask them for their definition. Most frequently, Millennials define it as exposure (24%). Almost the same number (22%) define it as losing wealth. But what is the real risk investors face over the long term? Professionals may see volatility as risk, but they are equally likely to say risk comes down to one thing: failing to meet your goals. In fact, professionals are twice as likely to define risk in terms of missed goals (24%) as Millennials are (11%). When it comes down to it, Millennials who are pursuing 16.3% returns above inflation are likely to have been caught by surprise, as their biggest investment concern has been realized in the higher levels of volatility seen in the early weeks of 2022.

Bad assumptions could compound market volatility

Millennials have come to investing at a time when passive investments like index funds have become top sellers based on a basic proposition: delivering market returns at a lower fee. But those who are overly dependent on passive investments in their portfolio strategy may be doubly shocked by first-quarter account statements.

To some degree, Millennials understand that value proposition for passive. Seven in ten understand passive will give them market returns. But the full message may not be getting through, as fewer (57%) say passive investments are less expensive.

The bigger problem for Millennial investors in today’s market may not be failing to understand what passive investments are. Instead, it’s likely to be making wrong assumptions about what they can do. For example, more than six in ten (66%) think passive funds are less risky. They can’t be less risky if they don’t have built-in risk management.

Two-thirds also think passive funds will help them minimize losses. In truth, they won’t. Passive delivers market returns and market losses in equal measure. And the same number think passive investments will help them access the best opportunities in the market. That’s only half true. Index funds invest in all the companies in an index, so investors get exposure to the bottom performers right alongside the top.

Given their concerns about volatility, Millennials may be shocked when they open their first quarter investment account statements for 2022 and see how far off the mark they are in chasing down returns of 16.3% above inflation.

You don’t have to sell out to be a capitalist

From Occupy Wall Street to climate change to social justice, Millennials want to take action on key societal issues.

While they want to align their assets to support these causes, this generation of investors has a particularly pragmatic view on sustainable investing: Millennials may be pursuing societal change, but they also want returns.

Overall, Millennials tell us they see their wealth as an extension of their values. Almost eight in ten (78%) consider investing a way of making an impact. Another six in ten (63%) go so far as to say they have a responsibility to help fix societal issues through their investments. Eight in ten also believe companies also have that responsibility. If companies fail to live up to that responsibility, Millennials are ready to take action. More than half (56%) say they believe the best way to send a message to a company is to sell its stock. Four in ten (43%) say they have actually sold an investment because of a company’s poor performance on environmental, social, and governance issues (ESG).

But activism is not the only lens Millennials apply to ESG investing.

In fact, only 36% say they ask their financial professional for ESG by identifying companies they don’t want to invest in because they conflict with their personal values. Instead, Millennials speak in terms of including analysis of ESG factors alongside fundamental analysis of financial factors (52%), or more simply ESG integration. They speak in terms of investing in companies that are solving big global issues (45%) and identifying companies that actually reflect their personal values (44%).

But even with these clear ideas on what they want from their investments, only 27% say they are currently invested in ESG funds. Among those invested, one-quarter say they made their first investment between 2020 and 2021. Another third say they increased their investment during the same time frame.

Where only 27% are currently invested, almost twice as many (52%) say that even though they have yet to make their first ESG investment, they are interested – a trend that is playing out in different degrees around the world.

From ESG interest to ESG investment What keeps so many from investing?

For most, it comes down to one factor: They simply don’t know enough about them (41%). Others may be skeptical about whether these funds make a difference (20%) or concerned that they’ll have to sacrifice returns. But a growing number are learning what they need to know about ESG investments, and it is motivating them to invest.

Why do so many Millennials have ESG investments? Even as they look to make a personal impact with their assets, Millennials are split in their motivations. They are equally likely to say they make ESG investments to help support the environment (37%) as they are to say it’s a better way to invest (36%) or make a better world (36%) or to access new investment opportunity (35%).

What’s most telling in these motivations is the number of Millennials who think ESG is simply a better way of investing. Even as far back as our 2018 investor survey, Millennials were keen to tell us that they would invest in ESG, but not at the cost of lower investment returns (52%).

Four years later, they recognize the opportunity to pursue returns while investing in companies that are transitioning to a more sustainable business model – something 43% say is important. Sustainability is a key consideration for Millennial investors. Three-quarters (73%) claim they would be more likely to buy a fund with a better carbon footprint.

Millennials even pay attention to how ESG is implemented by those investing their money. Eight in ten (78%) believe fund managers should look at more than the financial aspects of a company. They also think the manager’s ESG activities should include active ownership of the securities in their portfolio, and 72% believe portfolio managers should vote with their shares.

When it comes down to it, Millennials are savvy consumers. They have clear reasons to invest in ESG funds. Clear needs on what it will take to get them to invest – or invest more. They have clear expectations for fund managers. And they have a clear understanding of how their assets should be invested, as two-thirds believe that controversial sectors such as coal, tobacco, and weapons should be excluded from ESG products.

Millennials facing up to 40

So, as Millennials begin to contemplate the big 4-0, they have much on their minds. They are grappling with many of the same challenges as generations that came before them, but they are finding their own truths about investing and finances. And the biggest takeaway is that as they see a future that’s more complicated by new responsibilities, new opportunities, and a new financial reality, they are setting a new standard for investing.

Natixis Global Survey of Millennials Investors

Source: Natixis Global Survey of Individual Investors

Natixis Global Survey of Millennials Investors