A growing generational divide in investment preferences is emerging as younger investors increasingly favor alternative assets over traditional stocks and bonds, according to a recent study by Bank of America Private Bank. The survey, which polled over 1,000 wealthy Americans with at least $3 million in investable assets, revealed stark differences in how younger and older generations view investment opportunities.
The study found that older investors, those aged 44 and above, remain steadfast in their commitment to traditional equities, particularly domestic and international stocks. Their investment priorities reflect a deep-rooted confidence in the stock market, with domestic equities ranking as their top choice for growth, followed by real estate and emerging market equities.
However, the younger generation, aged 21 to 43, is charting a different course. They rank six alternative investments—including real estate, cryptocurrency, private equity, and direct investments in companies—above stocks. This shift reflects a growing skepticism among younger investors about the potential for above-average returns from traditional assets.
“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.'”
This divergence in investment strategies is also linked to differing perceptions of risk. While older investors see traditional stocks and bonds as relatively safe and reliable, younger investors are increasingly viewing alternative assets as less risky, despite the inherent volatility associated with some of these investments, such as cryptocurrencies.
The financial experiences of millennials, who were born between 1981 and 1996, have been shaped by significant market disruptions, including the dot-com bubble of 2000 and the Great Recession of 2008-2009. These events have left a lasting impact on their investment choices. “I think the great financial crisis, particularly for this generation, was really formational,” said Mike Sullivant, head of investor relations at Aspen Funds.
One area where this generational shift is most evident is in the growing popularity of cryptocurrency among younger investors. “Everybody knows someone who’s become a crypto millionaire,” said Craig J. Ferrantino, president of Craig James Financial Services in Melville, New York. Despite its volatile nature, crypto has gained traction as an appealing investment option for many millennials and Gen Z investors.
However, the enthusiasm for cryptocurrencies and other alternative investments is not without caution. Financial advisers continue to warn that these investments carry significant risks. “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.
The study also highlighted differences in how younger and older investors consume financial information. Younger investors are more likely to rely on social media, podcasts, and online videos for investment advice, while older generations prefer traditional sources like newspapers, online articles, and television.
As alternative investments continue to gain popularity, technology has played a crucial role in lowering the barriers to entry. Private equity funds, once accessible only to multimillionaires, are now available with buy-ins as low as $25,000, making them more accessible to a broader range of investors.
This generational divide in investment preferences underscores the evolving landscape of wealth management. As younger investors continue to explore and embrace alternative assets, financial institutions may need to adapt their offerings and advice to meet the changing needs and expectations of this new wave of investors.
