The retirement planning industry has begun to take notice of millennials. While the 79.8 million members of the US population — the largest living generation right now — are major influencers in the marketplace, their financial behaviors are different than their predecessors. Growing up in an era of credit cards and personal technology, millennials can be quick to swipe their debit cards for online purchases but when it comes to investing, this generation tends to be more risk-averse than their parents.
This risk aversion could stem from experiencing the economic crisis of 2008-09, working to pay off student loans, saving to buy a home or a host of other factors. Regardless of the rationale, it is the reality. And, given the growing size of millennials in today’s workforce, now is a great time to talk to your clients about adding a low-risk investment product to their defined contribution plans — stable value funds.
The coming years will be pivotal for millennial employees, who range in age from 21 to 37 years old, as they start or continue to build a secure nest egg for the future. As you make the case for clients to include stable value fund offerings in their defined contribution plans, consider highlighting how these three unique product benefits can be attractive to millennial employees: capital preservation, liquidity and yield.
Depending on the carrier, a stable value fund’s crediting rate is typically contractually guaranteed and known to participants in advance. The rate is often locked into place every quarter or at least semiannually. Some insurers even guarantee that the crediting rate will never fall below 1%. This level of certainty may be what it takes to reassure millennials their hard-earned savings will be protected.
Explain to clients that millennial plan participants are at an ideal age to capitalize on the guaranteed crediting rate because the longer the fund is invested, the more time the investment has to gradually grow. In most cases, millennials will be working for at least two more decades. This will provide a reasonable timeframe to accrue a sizable sum for retirement.
Stable value funds focus on capital preservation and liquidity that provide constant, guaranteed returns for participants. This has been especially useful during the low-interest rate environment of recent years. Contracts can be issued by banks and insurance companies and are not subject to the U.S. Securities and Exchange Commission regulations.
For millennial participants who may be more risk averse, a secure, predictable investment option that is protected from marketplace volatility may sound appealing. Stable value funds can be the perfect fit to help set risk-averse plan participants on the road to retirement savings with little to lose.
Holding steady through marketplace volatility, stable value funds serve as a low-risk investment vehicle that provides a guaranteed yield — no matter what. The product can provide the liquidity and principal-protection features of money market products but with the higher yields that are comparable with intermediate-term bonds.
Stable value funds are backed by a high-quality, well-diversified portfolio of fixed-income options. These types of diversified investments allow the fund carrier to reduce the impact on plan participants’ returns. Millennial employees may be assured to hear that if we experience another economic crisis, their hard-earned money would not take a hit.
Explaining these potential generational predispositions and identifying how stable value funds can help address these concerns can make a strong case for why clients should include this low-risk investment product in their plan offerings.
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