Older investors like stocks. Younger investors prefer "alternatives."
That is the takeaway from a new Study of Wealthy Americans, published in June by Bank of America Private Bank.
The bank surveyed 1,007 Americans with at least $3 million in investable assets. When the survey asked them to rank the investments they considered the “greatest opportunities for growth,” responses varied dramatically by age.
Older Americans, ages 44 and above, chose stocks, stocks and more stocks. Their top-ranked investment was domestic equities. “Emerging market equities” and international stocks ranked third and fourth, behind real estate.
Younger Americans, ages 21 to 43, ranked six alternative investments above stocks. “Alternative,” in this context, means anything other than stocks and bonds, the bread and butter of traditional investing.
Here are the top five investments for Gen Z and millennial investors, according to the Bank of America survey:
The findings suggest wealthy millennials and Gen-Zers have different financial priorities from older investors. Some young millionaires made their money by launching a company or app. Others got in early on cryptocurrency, a movement that paid off exponentially for a small group of mostly young, male investors.
Average net worth by age:See how you compare
The survey also hints at broad disagreement between younger and older investors on a fundamental question of investing: Can you get rich on stocks and bonds alone?
“The survey is asking ‘Where can I get above-average returns?’” said Dustin Wolk, a wealth adviser at Crescent Grove Advisors in Milwaukee. “These individuals are answering, ‘I don’t think it’s in stocks and bonds anymore.’”
The survey asked if it is still possible “to achieve above-average investment returns by investing solely in traditional stocks and bonds.” A majority of older investors, 72%, said yes. An equal share of younger investors said no.
And younger investors are putting their money where their mouth is, at least to a point.
Older investors hold only 5% of their portfolios in alternative investments on average, the survey found. Younger investors have 17% of their holdings in alternatives.
Nearly all younger investors, 93%, said they were likely to allocate more money to alternative investments in the next few years, compared with only 28% of older investors.
Older and younger investors also seem to hold sharply divergent views on what constitutes a risky investment.
Millennials, born between 1981 and 1996, grew up in an era marked by two stock market crashes, the dot-com bubble of 2000 and the Great Recession of 2008 and 2009.
“I think the great financial crisis, particularly for this generation, was really formational,” said Mike Sullivant, 36, head of investor relations at Aspen Funds, a private investment firm in Kansas City, Kansas. “A lot of us were in college or young professionals when all of that happened.”
By contrast, some younger investors have come to view crypto and other alternative investments as “strikingly risk-averse,” the report said − in other words, safe.
Among millennials, “everybody knows someone who’s made money in cryptocurrency. Everybody knows someone who’s become a crypto millionaire,” said Craig J. Ferrantino, president of Craig James Financial Services in Melville, New York.
Even so, many financial advisers consider crypto and other alternative investments inherently risky.
“I would tell someone who is investing in these investments that they are not safe investments,” said Monica Dwyer, a certified financial planner in West Chester, Ohio. “They should not put more into crypto than they are able or willing to lose.”
Older and younger investors differ, too, in where they get their information on investing.
Asked to rank their primary sources of financial content, younger investors put social media first, followed by online articles and videos.
Older investors, for their part, said they get news and tips from more traditional sources: online articles, newspapers and television, in that order.
Pitches for alternative investments proliferate in social media posts, on YouTube videos and on podcasts, many of them catering to a millennial or Gen-Z audience.
“Now, there are avenues out there and there are voices out there saying, ‘Here’s exactly how you can do this,’” Sullivant said.
Rapidly evolving technology has lowered the barrier for entry into alternative investments, he said. Private equity funds, historically the province of multimillionaires, are now on offer for a buy-in as low as $25,000. Cryptocurrency, utterly baffling to many boomers, is second nature to tech-savvy millennials.
Here is a quick primer on crypto and other alternative investments.
Cryptocurrencies are digital currencies. Unlike the cash in your wallet, they aren’t generally backed by a government or bank, nor by any “real” asset. Bitcoin, the best-known cryptocurrency, arrived in 2009.
Crypto investors, who skew young and male, used to buy and sell the currency on crypto exchanges, a potential deal-breaker for those unfamiliar with bitcoin.
“When you look at who gravitated toward crypto, initially, it was a younger group,” said Peter Lazaroff, a certified financial planner in St. Louis. “It was difficult even to understand how to buy it.”
This year, federal regulators cleared the way for ordinary investors to buy and sell bitcoin ETFs, opening it up to the broader investing public.
More:SEC approves bitcoin ETFs, opening up cryptocurrency trading to everyday investors
Private equity funds are pooled investment vehicles, akin to mutual funds, according to Investor.gov. The funds typically buy, manage and sell companies, working to raise their value.
Unlike mutual funds, private equity funds generally work with institutional investors, such as pension funds and university endowments, and with wealthy individuals.
The term “direct investment” has multiple definitions in finance. In the Bank of America survey, the term simply means investing in a company directly, rather than indirectly, as through buying shares of publicly traded stock.
According to Kiplinger, direct investments “enable investors to take stakes in non-public companies whose shares don’t trade on a stock exchange,” such as a local microbrewery or software developer.
For the young investors in the survey, direct investment also could mean they own their own business or have invested in a startup.
“These are just successful people whose sweat equity has paid off,” Lazaroff said.
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