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Somewhere down the line, the young adults known as millennials are going to have to get their act together as investors.

Right now, the strong preference for saving money rather than investing makes good sense. Having money stored safely in a high-interest savings account can be a big asset for a generation that may reach life’s milestones of adulthood on a different schedule than boomers and Gen Xers.

An Abacus Data survey of 2,000 people born between 1980 and 2000 found that 75 per cent had money in their savings accounts, but only 41 per cent had money invested directly or indirectly in stocks, bonds and guaranteed investments.

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Millennials who save are serious about it. Abacus found that one in five had up to $5,000 saved and 13 per cent had between $10,000 and $50,000, which is pretty good for a generation that is often thought to have serious debt issues.

This may not actually be the case, however. Abacus found that 38 per cent of people in its survey had zero non-mortgage debt, and 33 per cent had debts of less than $10,000. It’s possible to conclude from these numbers that millennials aren’t commonly using their savings to pay down debt. If they wanted, they could invest. So, why don’t they?

Abacus analyst Devlyn Lalonde says that older millennials were jolted by the stock-market crash of 2008, which we’ve been reminded of recently thanks to the market decline this fall. But Mr. Lalonde also believes there’s a general lack of knowledge about stocks in this generation.

“They might be somewhat scarred by the market crash, but when it really comes down to it, millennials just don’t know about the stock market,” he said. “They haven’t been taught and they don’t have confidence in it.”

In the Abacus survey, 57 per cent of participants said they regard stocks as risky investments. A substantial number of those age 28 and higher thought they had a better chance of getting their money back from a lottery ticket than from investments in the stock market. Younger millennials were less suspicious of stocks, but the overall trend for this generation is aversion to an asset that they will absolutely need to meet their long-term financial goals.

For now, though, the emphasis on saving instead of investing makes sense. Millennials have a lot of financial choices to make in the near term that reflect a different life path than previous generations. Millennials talk of wanting to step out of the work force temporarily, something like a sabbatical for travel or upgrading education. There’s also a subgroup of adherents to something called FIRE, for financial independence, retire early.

Millennials also want to own homes. It remains to be seen how this goal meshes with the desire for freedom to temporarily or permanently drop out of the work force, but never mind that. If you want to buy a house in many cities these days, you need lots of cash for a down payment.

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In fact, many of the short- and medium-term options that millennials are looking at are best served by having a big whack of cash in a high-interest savings account with a return that is more or less in line with a current inflation rate in the low 2-per-cent range (head to Cannex.com to find these accounts). Saving money in a high-interest account won’t work for retirement, though.

For that, millennials are going to need to put money in stocks and let it ride for a few decades. Multiple stock-market crashes are baked into the annualized total return of 7.9 per cent for the S&P/TSX Composite Index over the 30 years to Nov. 30 (includes dividends plus share-price gains). It’s brutal losing money in a short-term market decline, but stocks always come back for investors who keep a long-term perspective.

That means five years at the very least and preferably 10 years. For all financial goals you want to achieve in five years or less, keep your money safe in a savings account.

Millennials looking warily at stocks should consider a measured approach. Try a diversified portfolio with a mix of exchange-traded or mutual funds that invest in stocks and bonds, or have a robo-adviser build one for you at low cost. Picking individual stocks adds risk because you’re not diversified.

For their efforts in saving, millennials should be praised. But millennials also need encouragement to harness the stock market’s long-term investment potential. A savings account is not an effective retirement savings tool.

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