The Caution of the Young

We've talked recently about the outflows of assets from mutual funds, and a recent study from Merrill Lynch shows one reason for this: Younger investors, who have traditionally taken on the most risk in their portfolios, have become spooked by this market and this economy. Among the affluent, 52 percent of those aged 18 to 34 describe their risk tolerance as low. That's a higher figure than either the 35- to 50-year-olds (45 percent of whom have low risk tolerance) or 51- to 64-year-olds (46 percent). Only those over age 65 are more cautious than the young.

And this risk-aversion is growing. Among that younger group, 56 percent describe themselves as more conservative than they were a year ago, as opposed to only 46 percent of all affluent individuals.

One wonders what the long-term effects of this risk aversion will be. If people are wary of putting their money in the market at the age of 25, when they have 40 years to save before retirement, what will their investment decisions be like when they're 55?