The Bakersfield Californian
December 22, 2014
A precocious 9-year-old sat next to me at a recent family dinner. Our exchange taught me some things about the fragile nature of our environment, as well as why many of my millennial clients care.
The young girl recently had “adopted” an endangered orangutan housed on Sumatra, an Indonesian island.
But the orangutan population is rapidly declining — 50 percent in the past 60 years in Borneo and 80 percent in the past 75 years in Sumatra. The conversion of vast areas of the tropical forests to palm oil plantations has caused these declines.
In protest, the girl is boycotting palm oil, a common ingredient in cooking, cosmetic, mechanical and biodiesel products. Good luck to her and others attempting to rid their diets and lifestyles of palm oil.
Like the young girl, an increasing number of my millennial clients are basing their investment decisions on their perception of companies’ performances that go beyond the financial bottom line.
The good news is that millennial workers — those born after 1979 — are taking saving for retirement more seriously than the Generation X and Baby Boomers. Millennials who have jobs — and that is estimated to be about 74 percent of this age group — are beginning to save for their retirements. They are getting an earlier start on retirement savings than their parents and grandparents.
According to a report released this summer by the Transamerica Center for Retirement Studies, about 71 percent of the millennials invited to participate in company retirement savings plans, such as 401(k) plans, are doing so. And the beginning age of these savers is just 22 years.
There are two reasons for this high rate of participation: widespread adoption of 401(k) automatic enrollment of workers and automatic contribution increases.
The retirement studies center estimates millennials have amassed an average of $32,000 in their 401(k) accounts. And unlike older generations, they are relying heavily on professional advice to invest their money.
But this generation is not without its challenges. Millennials entered the workplace during a record-setting recession, leaving many struggling to find jobs and others settling for lower paying ones. While this generation is the most educated and technically savvy, it is also the most burdened by student loan debt.
Millennial clients seeking my advice are first urged to pay off their student loans. The interest rate on the cheapest federal student loan is about 4.6 percent. Other loans hover above 7 percent. If you pay down just $1,000 of a student loan, you earn a return of 7 percent, which rivals many other investments.
But some of my millennial clients do not have debt, or are making real progress on paying down their debt. They also are expecting to inherit money from parents and grandparents. They want to put their money to work, with many looking for socially and environmentally responsible investments. They want to consider how a company treats its employees, customers, business partners and the environment. They want to invest in “good corporate citizens.”
The socially responsible investment segment of money management, which has existed since the 1970s, has exploded today. Mutual funds and plans are promising investment in only the “saints” of the corporate world. But one investor’s saint may be another’s sinner, depending on the standards used to judge companies.
Sound investing must be based on more than a perception of corporate behavior. It requires research and the guidance of professional financial managers. I counsel my clients to strike a balance; be realistic. Don’t fall prey to false promises of corporate purity. And remember that the ultimate goal of investing must be to achieve retirement security.