The rate at which stocks have risen since the Great Recession make 25-year-old Rachel Grafman nervous.
"I don't think the markets can stay this high indefinitely," said Grafman, a civil engineer in Denver. "When we contract, it will be big."
Grafman keeps tabs on domestic equities markets and has some knowledge of market history – yet she admits emotions play into her observations.
Though she doesn't remember the dot-com boom-and-bust, she is aware that it took place and it partly colors her investing decisions.
"I am definitely the more conservative investor among my family and friends," Grafman said. "Most people are more comfortable with risk than I am."
Many people misunderstand risk as a concept, said Priya Malani, a founding partner at financial planning firm Stash Wealth, "not just millennials, but everyone."
After the financial crisis, she said, most people's risk tolerance went down. "And after a nine-year year bull market, that holds even truer," Malani said. "The current market is especially scary for the type of investor who is trying to time their entry or exit point, which studies have proven is impossible to do successfully."
Contrary to popular belief, Malani said, many millennials are saving more than adequately for retirement.
The reasons may be due to concerns over Social Security and the daunting amount of money they'll need for retirement.
Millennials are also investing with their morals, according to a recent survey from TD Ameritrade. The brokerage conducted an online survey in March of 1,056 American adult investors with at least $250,000 in investable assets.
"Millennials are purpose-driven," said Lule Demmissie, managing director of investment at TD Ameritrade. They were overwhelmingly the generation that wants to invest according to its beliefs – and the money takes a backseat to social or environmental causes.
"There's a huge spectrum for what socially responsible investing means to individual investors," said Nick Holeman, a certified financial planner with Betterment, the robo-advisor.
Many favor the idea, but individual responses can vary. "For some it's equal pay, women in executive positions," Holeman said. "More common are environmental issues and social issues, such as worker conditions."
Sustainability is an attractive concept to millennials, Demmissie says. Their focus is "more on rewarding behaviors and activities among companies" than it is on subtracting investments from companies they disapprove of.
According to Holeman, there's no such thing as a millennial portfolio. They may be unique in some of their challenges, but they are saving for the same goals as everyone else. They're looking to buy houses, they want to get married and they have the same budget questions.
That's no different than any age group. "Millennials need to focus on building diversified portfolios with low-cost investment fees," Holeman said. They should invest at the right level of risk, taking on more risk for longer-term goals, and less risk for the shorter term, such as a down payment.
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When it comes to choosing funds, be careful about home bias. "It's true of millennials and every generation," Holeman said. "You feel more comfortable with the companies in your own country."
It's natural, since people use these companies every day on social media or when they buy something online, from websites such as Amazon. "You feel more comfortable investing in companies you know, and you fear the companies you don't know," said Holeman.
Jittery about the market? Dumping all your cash in at once can be intimidating, Holeman says.
Instead, know that market ups and downs are completely normal. "If you're new to investing and this makes you nervous, you can use dollar-cost-averaging, which means putting a little bit of money in at a time," Holeman said.
When you make contributions from your paycheck into your company's 401(k) plan, dollar-cost-averaging is exactly what you're doing.
Just because bonds are the safest investment besides Treasurys and cash, doesn't mean they're right for a millennial's situation, Malani says.
"If you're in your mid-30s, only invested in bonds, you're invested like a grandma," she said.
Instead, Malani recommends learning about goals-based investing. That way, you can properly invest your hard-earned dollars based on what you're investing for.
Grafman uses this strategy for her short-term goal of saving enough for a down payment on a house. She settled on a conservative allocation: 35.5 percent equities, 47 percent fixed income and bonds, 15.5 percent cash and 2 percent commodities.
She says her friends who invest are amused at how conservatively she invests for the short term, "but I would be devastated if that money disappeared in any future bear markets," she said.
Grafman's long-term retirement investments are about 90 percent in equities. "I still have faith in the system for the long run," she said.