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Millennials take conservative investing approach

Growing up amid economic turmoil and financial scandal, wary millennials have taken a cautious approach to investing that hearkens back to the Great Depression

From left to right: Kelsey Raycroft, 30; Josh Freedman, 27; and Will McMahon, 25

Jason Nettle (left photo); Lane Turner/Globe Staff

From left to right: Kelsey Raycroft, 30, works as a personal trainer as she attends law school. She considers herself more of a saver than an investor. Josh Freedman, 27 does marketing and sales for his family’s jewelry business. He’s preparing to invest in property, which he believes would be a more stable option than stocks. Will McMahon, 25 attended business school, but left, in part, because of the distrust he developed for the financial industry. He plans to become an elementary school teacher.

Will McMahon, 25, attended business school, so he has a good understanding of financial markets. But his investment portfolio consists of three low-risk stocks that he picks based on the following criteria: the company has a boring, established business; pays dividends; and experiences only small fluctuations in its share price.

McMahon’s investment philosophy may seem overly cautious, especially for a member of a generation that quickly adopts the latest technology, embraces entrepreneurship of all types, and calls for rapid political change. But coming of age amid a global financial crisis, historic recession, and the collapse of the biggest Ponzi scheme in history, has made McMahon not only wary of stocks, but also of financial companies that profit from them.

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“Growing up with fraud scandals and the larger market crash due to the behavior of these institutions,” he said, “it becomes hard to trust an industry so brazenly breaking laws.”

McMahon is among the “recession babies,” an age cohort generally defined as between 25 and 34 that has lost faith in the market and taken a far more conservative approach to investing than baby boomers and Generation Xers, preceding generations that rode the bull markets of the ’80s and ’90s. Shaped instead by the dot-com bust, massive fraud by the likes of Enron and Bernie Madoff, another market crash in 2008, and the worst recession in 70 years, the generation known as millennials is exhibiting behavior that closely resembles that of “Depression babies,” who lived through the Great Depression and viewed the stock market as too risky, analysts said.

A recent survey by the Boston mutual fund company MFS Investment Management, found that nearly half of millennials said they “never feel comfortable investing in the stock market.” The survey also showed millennials keep more of their assets in cash, less in stocks, and have a shorter time horizon — less than five years — for their investments than boomers or Gen Xers.

“We look at what this age group has gone through, and they’re scarred by the Great Recession,” said Bill Finnegan, managing director at MFS.

If millennials’ attitudes and behaviors persist, it could have a long-lasting impact on the market and financial industry, analysts said. Fewer participants can mean more frequent and dramatic swings in the market, which in turn could further erode trust in stocks.

And this lack of faith could deter millennials, who are unlikely to find traditional pensions, from making the long-term investments needed to finance retirement, analysts said.

In a 2013 study by Accenture, a multinational consulting firm, 43 percent of millennials identified themselves as conservative investors, compared with 27 percent for Gen X and 31 percent for boomers. The survey also found high levels of mistrust among millennials for financial institutions and a greater reliance on the Internet, social media, and personal networks for financial advice.

As a result, major financial companies that sell advice are scrambling to adjust and close this trust gap, analyst said.

“Many in the industry are taking a look and hoping it’s premature to come to a conclusion, that it may become a transitional thing,” said Alex Pigliucci, who specializes in asset management and digital services at Accenture.

Kelsey Raycroft, 30, lives in the North End and works as a personal trainer as she attends law school. She considers herself more of a saver than an investor, putting her money in bank accounts. After witnessing the two market crashes since 2000, she said she remains wary of stocks and investment firms.

When she needs financial advice, she said, she turns to friends, family, and even her financially savvy personal training clients.

“The personal connection is important to me, especially with money stuff,” Raycroft said. “When I see these commercials with big companies, I’d rather go to somebody I trust.”

As a way to appeal to younger investors, big financial companies are rolling out a more Internet-focused approach, using social media to try to connect with them. Silicon Valley is awash with new financial planning startups that rely on algorithms rather than investment pros to manage an investor’s assets.

Particularly worrisome to some financial advisers is a statistic showing more than 40 percent of millennials consider a “long-term investment” to be less than five years, meaning retirement saving is not in the picture. It also means that millennials willing to wade into the market may be more prone to pulling out after only a few years.

Josh Freedman, 27, works for his family’s jewelry business in downtown Boston doing marketing and sales. Although he has started saving for retirement in a Roth account, he said his eye is primarily on the short term, and what he sees is a stock market that is too volatile for him to risk his money. He’s preparing to invest in property, which he believes would be a more stable option than the stocks.

“Obviously, I want to grow my money and think about the future,” Freedman said. “So I think about both long term and short term, but I would say I mostly focus on five-year goals.”

It makes sense, of course, that this younger generation is focused on the short term. Many must pay off crushing college loans, while others are setting aside money for a first car, first home, or first child. Eric Roberge, a financial planner who focuses on younger investors, said millennials, unlikely to get pensions and skeptical of ever receiving Social Security benefits, view the long term differently than older generations, expecting to have to work longer before they can retire.

“People used to live linearly, work their butts off, get a pension,” Roberge said. “Younger people see they have 30, 40 years. They think there has to be some way I can live today and still plan for tomorrow.”

As they plan, many remain wary of the financial markets and the industry that profits from them. McMahon developed such distaste and distrust of the financial industry that he left business school and now has plans to become an elementary school teacher.

It’s a career that means modest salaries, and that makes him more worried about risking his money in the stock market and less likely to pay for professional investment advice. For now, McMahon said, he would continue to rely on the opinion of his father, who continues to suggest boring, low-risk investments.

“Unless there’s a radical change, I’m not going to be paid well,” McMahon said. “And I don’t want to be losing a lot when the next downturn hits.”

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