As the Baby Boomers prepare to spend down their retirement savings, their children and grandchildren remain unwilling to trust anything more risky than cash.
Despite all the age-based allocation advice, members of Generation X and Y hold 27% of their liquid assets in cash, according to the latest generational numbers from MFS.
That indicates a vast amount of money on what many advisors would consider "the sidelines."
And the percentage gets bigger as investors get younger, indicating that members of Generation Y in particular were deeply scarred by the 2008-9 credit crisis.
These investors might easily have 20 to 30 years ahead of them before they reach tradititional retirement age, so in theory there is plenty of time for their portfolios to overcome a few bad years in the stock market now and then.
If not, then we are in a "new normal" environment and a lot of the core assumptions that financial planning is built on need to be reworked anyway.
So the long-term challenge is getting younger investors to realize that stocks and even bonds still make sense for their time horizon.
That means simulations, Monte Carlo, and hard reminders that if stocks and bonds both fail over the next 30 years, your clients -- and the rest of us -- will have a lot to worry about even if their cash is in FDIC accounts yielding nothing.
But it also means coming up with new products and new marketing angles to allow you to work with their risk aversion until they come around, if they ever do.
These clients actually look a lot like the Boomers in terms of risk aversion. They might be able to handle a bad run in the market, but they are terrified of that happening and are convinced that it will. Respect that.
They like the idea of reliable income products. Respect with that and work with it.
Think of them as near-retirees with extremely long time horizons and willingness to keep working another 20, 30 or 50 years. Retirement has changed, and not just on the older end of the country.