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The accepted narrative when it comes to millennials and investing is that they just don't get it. They're too likely to hunker down in cash, too scared of stocks, and just too conservative for their own good.

But recent research, including a new report based on how millennials actually invest their money for retirement, suggests the conventional wisdom is wrong.

The Myth

You don't have to look too hard to find evidence that supports the notion that millennials are wary about the stock market. When millennials were asked by researchers about the best way to invest money they wouldn't need for 10 years or more, stocks ranked a distant fourth behind real estate, cash, and gold, according to a recent Bankrate.com survey.

Other surveys have shown a similar tendency on the part of millennials to gravitate toward less volatile investments like cash while avoiding stocks.

According to BlackRock's 2017 Annual Global Investor Pulse Survey, young investors estimated that they held 65% of their investment portfolio in cash on average, while a Legg Mason Global Asset Management survey earlier this year reported that millennials had just 15% of their investment holdings equities. That's in large part because of "the long shadow of the 2008 global financial crisis, with memories still acute despite the markets' ongoing recovery."

Translation: Young investors are still so freaked out by the near-60% drop in stock prices between the market's October 2007 high and its March 2009 low that they're afraid to wade into what they see as the treacherous waters of the stock market.

The Reality

But two recent reports based on hard data — examining how investors' money is actually invested as opposed to the estimates people give to survey takers — tell a very different story.

For example, a report from the Employee Benefit Research Institute released earlier this month that looks at how more than 26 million 401(k) participants of different ages divvy up their savings among a variety of investments shows that the stock exposure of different age groups is pretty much what you'd expect.

The allocation to stocks is lowest for people in their 60s (55% on average) and then rises steadily as you go down the age ladder, with the percentage in equities topping out with people in their 20s and 30s, who have roughly 80% of their 401(k) savings in stocks.

One could argue, I suppose, that people just starting out in their careers who are investing for a retirement that's a good 30 to 40 years away should devote an even larger percentage of their 401(k) stash to stocks. Indeed, some target-date retirement funds designed for people in their 20s and 30s allocate upwards of 90% or more of their assets to equities.

But 80% is certainly represents a reasonable exposure to stocks, and in any case hardly indicates that Millennials are quavering with fear when it comes to investing their retirement money.

A second analysis released this month, this one from the Wells Fargo Investment Institute, has similar findings.

In this case, Wells Fargo looked at how clients of different generations (The "silent generation," baby boomers, generation X, and millennials) divvied up their holdings in some 900,000 investment accounts. As in the EBRI report, the firm found that younger investors (Gen X and millennials) tended to devote higher percentages of their portfolios to equities, with stocks accounting for roughly 68% on average of the portfolios of both groups.

Granted, that 68% figure represents less exposure to stocks than the 80% in EBRI's report. But that doesn't necessarily mean that the Wells Fargo's millennial clients are more risk-averse.

Why? Well, the EBRI figures represent money that's being put away solely for retirement, while the Wells Fargo clients are investing for a variety of reasons, which would include short-term goals such as saving for a house downpayment or squirreling away money to provide a cushion in the event of a financial setback.

The main point, though, is that neither report supports the widely reported notion that millennials are so shell-shocked by the financial crisis that they're failing to take advantage of the long-term gains that the stock market has historically offered.

Yet More Evidence

There's another reason to be skeptical of the "millennials are traumatized by the financial crisis" narrative.

In an analysis also released this month, the Investment Company Institute compared the asset allocations in the 401(k) accounts of today's twentysomethings to those of the twentysomethings of two decades ago — i.e., people who were in their 20s in 1996.

What the researchers found was that although there were differences in way the two groups got their exposure to equities (among other things today's young investors rely less on traditional stock funds and more on target-date funds), overall the two groups allocate very similar shares of their portfolios to stocks: 80% for people now in their twenties vs. 77% for the twentysomethings of roughly 20 years ago.

Which raises the question: If "the long shadow" of the financial crisis is making millennials so skittish about the stock market, why are their stock holdings nearly identical to those of their mid-90s predecessors who came of age in the midst of a major stock market boom?

Of course, some millennials are gun-shy when it comes to stocks. All of these studies are citing averages for large numbers of people. So naturally they're going to include a lot of variation, including many young investors who may very well be funneling less into stocks than they should when it comes to long-term goals like retirement.

Then again, it's also important to remember that age alone shouldn't dictate your investing strategy.

Other factors, including risk tolerance and how soon you'll need to tap your investments, also come into play. Which is why I recommend that millennials, as well as other investors, go to a tool like Vanguard's risk tolerance-asset allocation questionnaire (which you can access in the Investing section of my Retirement Toolbox) for guidance about how to build a portfolio that's consistent with their appetite for risk and financial goals.

The bottom line, though, is that I believe Millennials are getting a bad rap when it comes to their investing habits. If you look at data showing where they actually put their investment dollars, as opposed to survey responses, then, to borrow a line from The Who (the 1970s rock group that famously complained that its generation was misunderstood by oldsters), "The kids are alright."

Walter Updegrave is the editor of RealDealRetirement.com. If you have a question you would like Walter to answer online, send it to him at walter@realdealretirement.com.

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