Experts: Sonoma County millennials need to start saving for the future

John Gallo has observed firsthand how his fellow millennials can take a conservative approach to investing. 'People will ask me, 'What's not going to lose any money?' ' said Gallo, 25, a Casa Grande high grad who works and resides in San Francisco as an independent financial adviser. His answer to younger workers: 'An annuity's probably not the right thing for you at this age.'

Millennials, those born between 1982 and 2000, have developed a reputation for being cautious investors and for valuing companies that not only make a profit but do so in a way that is socially and environmentally responsible.

'They really care about doing good,' said Lena Rizkallah, a retirement strategist with J.P. Morgan Asset Management. 'They're very interested in social good.'

But having lived through the worst economic downturn since the Great Depression, millennials have adopted a more conservative approach with their savings. A 2014 USB study found that workers age 21 to 36 on average held 52 percent of their assets in cash, versus 23 percent for all other adults.

Only 31 percent of Americans set aside money for retirement this year, according to a study from Bank of America and Merrill Edge. Among millennials, 27 percent did so.

Both investment experts and government leaders are trying to get more workers to start saving.

To that end, the Treasury Department this month launched a new type of Roth IRA, the 'myRA.' It allows savers to automatically place even a few dollars in a fund that invests in U.S. retirement savings bonds. The investment last year returned 2.31 percent in interest.

The push to turn younger workers into investors results partly from the financial prognosis for their elder years. Pensions have become a rare feature of company retirement plans, and future Social Security and Medicare benefits are expected to be less significant for millennials than for their parents.

'They don't have the backstop' available to current retirees, Rizkallah said.

As with each generation, some younger workers have gotten off to a better start than others in planning for the future. Jonathan Graves, 33, is a commercial banker for First Community Bank in Santa Rosa. His wife, Courtney, 30, teaches for the Rincon Valley school district and is an adjunct instructor at Sonoma State University.

The Graveses have two young sons and are expecting a third child next spring.

Along with investing in Jonathan Graves' 401(k) retirement plan, the couple has purchased a home in Santa Rosa and rental houses in Windsor and Susanville.

The Graveses, who met at SSU, want to give their children the chance for higher education and other opportunities, Jonathan Graves said. They also want enough financial independence to have choices later in life, including when to retire.

'I want to work because I want to work,' he said.

An important goal is to instill in their children values they received from parents about the wise and careful use of savings.

'We don't waste money,' Jonathan Graves said. 'We worked for that.'

Millennials belong to the most educated generation in history, with nearly half having obtained some type of post-secondary degree, according to figures compiled by J.P. Morgan. But they also are more encumbered by student debt, with 60 percent of those with bachelor's degrees in 2013 carrying an average debt of $27,3000.

Younger workers also are less likely today to own homes, from which past generations have benefited from tax breaks and, often, from price appreciation.

Also, a quarter of millennials may never marry, according to J.P. Morgan. That may result in missing out on the aid of dual household incomes and two Social Security benefits that have 'served past generations well in retirement,' Rizkallah said.

Today's younger workers tend to be cautious about making major purchases, said Matthew Hunstock, a private wealth adviser in Santa Rosa with Ameriprise Financial.

Developing strategies

A new Ameriprise study found that for boomers, their most risky financial decision would be a major investment in the stock market. For millennials, it was buying a home.

'Seeing your parents go through two recessions in a decade definitely has an effect,' Hunstock said.

The two downturns were the 2001 dot-com technology bust and the Great Recession of 2007 to 2009. The latter included both a stock market and housing crash where at least one in 10 residential properties in Sonoma County was lost to foreclosures or short sales.

For workers interested in saving more, Redwood Credit Union offers these suggestions: Develop a 'spending plan' (what older Americans called a budget); use available mobile apps and other means to develop a system to monitor expenses; pay yourself first with a savings plan that starts with a rainy day fund and expands to other savings and investments; and find someone in the financial world you can trust for advice.

Others suggested setting up automatic paycheck withdrawals that can take the emotion out of investing and can provide the benefit of dollar-cost averaging, a technique where a fixed dollar amount buys more shares when prices are lower and fewer shares when prices rise. Also, investors suggested asking friends and relatives for their stories of investments that succeeded or failed to live up to expectations.

Younger workers have a key advantage over older ones: time. That can allow the power of compound interest to greatly increase the value of their investments over the decades. Also, millennials haven't had years to build up bad spending habits, which can 'haunt' older workers nearing retirement, said Lee Alderman, an assistant vice president for Redwood Credit Union.

He implored younger workers not to bypass investing in a 401(k) if an employer will match their contribution.

'That's just giving away free money,' Alderman said. 'You should never pass up that opportunity unless there's no way around it.'

Social concerns

As consumers, millennials are much more likely than their parents to purchase a product based on its social and environmental impacts, said Dale Wannen, who operates Sustainvest Asset Management in Petaluma. As a generation, they will take the same approach to investing, and the Internet will help them get educated about those impacts.

'They have access to information that their parents didn't have 20 or 30 years ago,' Wannen said.

Here, he said, are the kinds of questions younger investors already are asking: How many women sit on the board of IBM? What percent of the power that Apple uses comes from renewable energy? Are the cups at Starbucks compostable?

Pushing for change

Wannen also is an advocate for placing shareholder proposals on companies' annual proxy ballots, including one he advanced this spring calling on Dunkin' Donuts to use more cage-free eggs within five years. (The company opposed his ballot item, but later made an announcement with the Humane Society of the U.S. to commit to have cage-free eggs in 10 percent of its breakfast sandwiches by the end of 2016.)

Wannen maintained millennials will back such efforts because they want to leave a planet with finite resources 'in decent shape' for the next generation.

William Yeager, a Petaluma resident and one of Wannen's clients, supports such efforts.

An electrical engineer for SunPower solar energy company in Richmond, Yeager maintained that as the owners of publicly traded companies, shareholders have 'a moral liability' to direct how their money is used. He further supports Wannen's efforts for shareholder proposals that call on companies to act more responsibly.

'It's not going to make me rich,' he said, 'but it tickles me in the right place.'

For his own future, Yeager is putting money in his 401(k) and in investments with Wannen. He also has worked to reduce debt and to forgo some 'toys' today so that he can 'take any extra pennies and put them away where hopefully they can appreciate.'

His thinking, he said, is simple: 'I don't want to work forever.'

You can reach Staff Writer Robert Digitale at 521-5285 or robert.digitale@pressdemocrat.com. On Twitter @rdigit