By Sameepa Shetty
FORTUNE--The 2008 financial crisis drove many U.S. investors, especially young ones, out of the stock market. Investors between the ages of 20 and 29 slashed exposure to stock funds in their retirement accounts by nearly half from 2007 to 2012, according to data from mutual fund giant Fidelity Investments.
This prompted surveys and newspaper headlines warning that so-called millennials would abandon stock investing, just as millions did a few generations earlier after the crash of 1929. "We're at risk of losing an entire generation of investors," John Thiel, who heads the U.S. wealth management and private banking and investment group at Merrill Lynch Global Wealth management, told an investor conference in the spring of 2012.
But the fear of "the young and the riskless" hasn't materialized. A survey of more than 4,000 households, released by the Investment Company Institute in its 2013 Fact Book, found that 26% of households below the age of 35 were again willing to take on "substantial investment risk," compared with a low of 18% who said they were willing in 2011. Retail brokerage companies such as Charles Schwab (SCHW) say they've been seeing young investors return to equities over the past year.
Rising stock markets are driving this increased risk appetite among the young, says Russ Koesterich, Global Chief Investment Strategist at BlackRock. "Market momentum influences retail investor behavior," says Koesterich, adding that it is typical behavior for people to be more willing to take on investment risk when the potential for reward seems high.
But with stock markets growing more volatile by the day, is now the best time to embrace risk?
For young investors, as for anybody, Koesterich warns that trying to time the markets is a fool's game. "If your investment horizon is anywhere over three-to-five years, short-term market fluctuations do not matter," he says.
It's tough for young investors to keep away from stocks and still fulfill their long-term financial goals, says Koesterich, who is also author of the portfolio management book, The Ten Trillion Dollar Gamble. Money managers agree that it's very difficult, if not impossible, to meet those goals by just staying in cash and bonds. (In spite of the market rally, stock-market valuations remain reasonable, Koesterich contends.)
"Seeing the strength of both the housing and the stock markets may be goading young investors to take on more investment risk," says David McSpadden, a senior vice president of Global Advisory Services at Franklin Templeton Investments. Despite that, McSpadden is optimistic about young investors returning to stocks.
"The willingness to take on more investment risk, among young investors, is a healthy sign that people are more confident in the economy," says McSpadden.
As some prices overshoot in the downward direction, as they inevitably do, investors will come across opportunities that they previously could only hope for.
By Mohamed A. El-Erian
FORTUNE -- Liquidity shocks, like the one currently cascading through global financial markets, are unpleasant, and frustrating. They can be indiscriminate in their impact, as is the case today. They are hard to explain rationally and, as such, can become incapacitating. Yet, they MOREJun 12, 2013 5:00 AM ET
Volatility is on the rise, liquidity is getting tougher in certain places, and anxiety is on the rise.
By Mohamed A. El-Erian
FORTUNE -- Those trading in many market segments would have noticed a subtle change last week: Volatility is on the rise, liquidity is getting tougher in certain places, correlations are morphing, and anxiety has increased. Moreover, rather than impact all market segments simultaneously, such dislocations seem to be cascading MOREJun 3, 2013 5:00 AM ET
Products designed to track volatility may offer investors a way to profit if stocks fall. But there can be hidden risks.
By Janice Revell, contributor
FORTUNE -- Now that the S&P 500 index has racked up its best first-quarter performance since 1998 -- a 12% gain -- many prognosticators are warning that a nasty correction is looming. The good news is that there are new ways to hedge against a market MOREMay 14, 2012 5:00 AM ET
Critics say the popular funds are causing stocks to swing wildly together. Finding proof is another matter.
FORTUNE -- Are exchange-traded funds a prime culprit in one of the signature afflictions of the markets today -- the tendency of huge swaths of stocks or other assets to swing dramatically up or down at the same time? Critics are pointing their fingers at ETFs. But evidence for their nefarious role is lacking.
There's MOREScott Cendrowski, writer-reporter - Jan 27, 2012 5:00 AM ET
Don't give in to the financial industry's fear fetish.
Everyone agrees 2011 will be a volatile one for the markets. Halting economic growth, towering debt loads and a tidal wave of free money could make for thundering swings in the prices of stocks, bonds and commodities.
But as nerve-wracking as the ride may get, ignore the temptation to sample the securities industry's latest snake oil: the exchange-traded funds and notes that track MOREColin Barr - Jan 6, 2011 6:25 AM ET
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