“Many young adults are establishing their financial self-reliance, starting families, and saving down-payment money for their first homes, often while burdened with student loans,” Arnott writes.
Additionally, Arnott believes that young workers are more likely to lose their jobs in a recession and would not have enough savings outside their paychecks. Between 1990 to mid-2014, workers between the ages of 20 and 24 experienced an average unemployment rate of 10%, compared to those ages 25 to 34 and 35 to 44 with jobless rates of 6% and 5%, respectively.
Consequently, young investors should begin thinking about the level of risk they are comfortable with.
“If young workers have to deal with their volatile young human capital over a long horizon – with a heightened need to cash out when the portfolio values are depressed – then it makes even more sense for young workers to begin with a less risky portfolio,” Arnott added. [Value Drives This Smart Beta ETF]
For more information on investing toward retirement, visit our retirement category.
Max Chen contributed to this article.