Last Thursday, January 4, 2018, the Dow Jones Industrial Average closed above 25,000 for the first time – setting yet another all-time high during the virtually unprecedented nine-year bull market. However, the specter of the 2008 financial crisis looms large, as many retail investors have hesitated to put their money into the capitalist machine.
Foremost among the holdouts: millennials.
In a slightly tongue-in-cheek headline last year, The New York Times mused, "Grandpa Had a Pension. This Generation Has Cryptocurrency." But perhaps, that's not so far from the truth.
According to an October 2017 online survey by venture capital company Blockchain Capital, 30 percent of respondents ages 18-34 reported that they would prefer to own $1,000 worth of bitcoin rather than $1,000 in government bonds (total respondents: 2,112). And staggeringly, 38 percent of male millennials reported that they would rather own $1,000 of bitcoin rather than $1,000 of stocks.
Right about now, that bet would be looking pretty nice. A thousand dollars gambled on bitcoin in mid-October 2017 would be worth approximately $3,000 today. By comparison, $1,000 invested in the S&P 500 in October 2017 would be worth $1,077 (still, a remarkable return measured against historical performance).
Bitcoin has offered a fascinating opportunity for risk-loving millennials. In an age when tuition is skyrocketing and salaries feel like they're cratering, bitcoin has been a saving grace. (One of my friends, for instance, recently decided to take his bitcoin gains to make a down payment on a house.)
Now, it appears, brokerages like TD Ameritrade are becoming wise to the cryptocurrency fervor, as evidenced by comments from TD Ameritrade's Chief Market Strategist, JJ Kinahan.
"People complain that we haven't gotten millennials to trade," he assessed candidly in a Monday interview. "Maybe [cryptocurrency] isn't the product I'd like people to start with, but this is the greatest opportunity we've had in the market to get people who weren't traditionally interested in the market."
Notably, in December 2017, TD Ameritrade started allowing qualified customers to trade CBOE's bitcoin futures (ticker: XBT). Not surprisingly, Kinahan began his career as a CBOE market maker in 1985 – long before bitcoin, of course.
What might be a little disconcerting is that the risk tolerance of millennial investors seems, as financial professionals say, a little out of whack.
Given the lack of insurance and sometimes outright fraud in the cryptocurrency industry, running away from stocks into the arms of cryptocurrency makes little sense on paper – until you see those fantastic returns!
After all, there's nothing as disruptive to the psyche as to see your friend make a fortune, while you stand by idly. Perhaps though, Kinahan suggested, the millennial interest in cryptocurrency might spur interest in the broader market.
For now, Kinahan noted that while TD Ameritrade advises clients to reserve 10 percent of their portfolio for speculation, millennials are apparently clamoring for a greater percentage, angling to bet as much as 90 percent on speculative opportunities.
"Do I agree with that?" he asked. "No, not necessarily, but for us to say 'you're wrong' is silly."
Instead, Kinahan said, let's ask investors, "'What are you comfortable investing in the stock market?' Let's start from there."