Millennials Like Cash as a Long-Term Investment. Why?

millennials_prefer_cashCash is king, as the saying goes. That’s a concept that can apply to businesses, and to our own lives as well in many cases. Having money in hand offers less risk, on many dimensions, than having promise or hope for money in the future.

Pay me $100 today, or give me a promise to pay $100 next year, and I’ll take the former. To take money in the future instead of today, there needs to be a premium involved. Loaning $100 can perhaps get me $105 next year – well, not if I give it to the bank in the form of a checking account! Maybe peer lending could offer this and then some. There is risk involved, not to mention inflation.

This can apply to investments in other asset classes too, and one that jumps out is stocks. Sure, there is volatility – and if you need the money soon, stocks might not be the best holding spot if that risk bothers you. And stock returns don’t always beat inflation as one might believe, when you examine the data.

However,  stocks still do offer returns better than stuffing money under a mattress.   Over the long-term, you’ll generally do much better by investing in stocks than holding cash – based on historical performance.

Nevertheless, not everyone feels that way. An interesting study by Bankrate, summarized in a recent write-up on Yahoo!, showed that there are quite a few people that prefer cash as a long-term investment. In fact, according the study, nearly 40% of those between 18 to 29 years of age indicated that cash is their top choice for how to invest money that they won’t need for 10 or more years.

This is interesting, as it seems to be a real difference compared to how others might have seen stocks during that same age range. As a Gen-X person myself, I was squarely focused on stocks as they way to invest for the long-term. It’s definitely worked about better than had I kept all the money in cash.

I wonder why there is such a difference with those that are Millennials. Is it student loan debt, a shaky job market, seeing parents go through issues with jobs? Perhaps the recent housing crisis was a big influence. Or, maybe the market volatility of the 2008-2009 timeframe made a big impression.

There could be a number of reasons.

In some ways, I see a positive here. If people are now entering their working years with a more conservative approach to money, maybe that will mean an evolving attitude toward debt? Goodness knows that the U.S national debt isn’t a model for how people should run personal finance.   So conservatism with money can be a good thing.

Nevertheless, cash simply underperforms stocks over the long run. Let’s just take an example of a 30 year time frame, and say that stocks earned 7% annually on average. We’ll assume 0% earnings on cash. Let’s also assume a $100,000 initial investment in each, and ignore inflation just for this exercise.

After those 30 years, that $100,000 investment in stocks (with compounding) would be worth over $760,000. Holding that $100,000 in straight-up cash would clearly leave you without that $660,000 increase. Yes, rate of return is important for financial success.

So as I see it, I can see why people might be getting more cautious with money – but would rather see this applied to debt instead of long-term investment choices.

My Questions for You

What are your thoughts on this interest in cash as a long-term investment?

Do you agree with my focus on stocks and other investments, or do you like cash long-term?

Also, I’ve given some of my reasons as to why I think there might be a flight to cash by Millennials, but I’m interested in what you think – whether or not you’re a Millennial yourself!


  1. says

    I think many Millennials have witnessed their parents’ retirements postponed or cancelled altogether by the combination of housing value and stock value crashes in 2008. In short, they’re wary. Further, exposure of Wall Street’s ongoing shenanigans makes thinking persons hesitate before entrusting their retirement savings to “professional” money managers.

    Sure, stock market returns have been, over the long term, appealing historically. But Wall Street’s foremost mission is not to help “retail investors” retire; it’s to enrich Wall Street at the expense of retail investors (i.e., you and me).

    • Squirrelers says

      Good points, Kurt. There are some good reasons for younger people to be cautious based on what they’ve experienced. I wonder if we’ll see this group anchored in this thought process over the long-term, or if the group will lose some caution down the road.

  2. says

    This study is a little misleading. It doesn’t take into account the amount of cash, for instance if I have a big purchase coming up in 11 years I would most likely use my emergency/opportunity fund instead of opening up a new investment account.

    Also 10+ years is a huge margin. For a millennial it could mean by age 35 or by age 85. The way the question was worded implies closer to 10 years rather than 50 years. This would sway answers toward cash. Had the question asked about their choice for retirement monies the answer would likely not be cash.

    • Squirrelers says

      As with any market research type of study, the results are only as good as the questions. I agree with that overall concept. Now, I don’t have a copy of the actual survey, but if 10+ years is the timeframe, then cash being #1 still seems like a good indicator of a conservative nature. Don’t you think?

  3. says

    I’m not a Millennial, so maybe my POV is slightly different. I think cash investments should only be a small part of a person’s investment portfolio. Stocks, mutual funds, and bonds out perform cash in the long run. Perhaps Millennials are leaning towards a more conservative POV b/c of the recession. Each generation’s concept towards money and finance is somewhat defined by what was happening during their childhood/teenage years.

    • Squirrelers says

      That’s probably the case, I agree with you that our points of view are probably shaped by childhood years. I know some baby boomer types that only want new houses and new cars – perhaps they grew up in a time of great prosperity? Not generalizing (a small sample) but situationally that could explain it.

  4. says

    I think you need some cash on hand in form of e-fund, vacation fund etc. but prefer investing for retirement (long term savings) I want to be able to maximize my wealth as I save and believe investing is the best ay to do that. The younger you are the more risk you can take as you have more years to recover if things go south.

  5. says

    As you sort of worked around, cash underperforms the market but it also overperforms debt. Perhaps Millenials see the middle ground as sort of the best of both worlds.

    I also think that at a certain point, when cash accumulates for this group, the allure of investments will increase, and the issue will work itself out.

    • Squirrelers says

      It should be interesting to see if that actually happens. Perhaps there is some element of being naturally risk-averse when just getting started?

  6. Nan says

    I’m a Millenial and I would definitely prefer investing in a house or something other than depositing the money in bank. After I have enough investments ,I would then only go for keeping cash, as I feel this would help me more in future.

  7. says

    Cash is obviously a very poor way to hold your wealth because over time it will be decimated by inflation. I like the idea of investing in stocks, but looking at the market now, stock prices have been pumped up by free money around the world (every major economy is diluting the value of its currency by flooding the market with QE cash), and it’s screaming over-bought on every level. Property sounds more interesting to me (everyone needs a place to live) but you’re taking a risk whatever you put your money into, aren’t you? Property values go up and down, mortgage rates rise and fall, and taxes… well, they only increase, so I suppose we should be grateful we’ve got one thing we can be sure of :)

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