Alternatives Are In, Stocks Are Out
Young, wealthy investors swing for the fences with alts.
Bank of America released its 2024 Private Bank Study of Wealthy Americans, which included 1,000 individuals with at least $3M in assets. It opens a tiny window into the minds of the few that have ‘made it’, at least according to the crude metrics of our material culture.
The most interesting observation is the chasm of difference in opinions between seasoned and young wealthy investors. Surprise, surprise, the younger generations (Millennial & Gen Z) have figured out what their parents could not: the stock market is for bland people with no taste.
The cool kids know where the action is and it’s not in publicly traded stocks. Ew. Only 14% of respondents in the age 21-43 category identify stocks as a “great” opportunity for growth whereas 84% of respondents age 44+ name US or international stocks as a good source for growth opportunity.
Have millennials been asleep while US markets ripped? Fact: If parents invested the cost of having their millennial child in an S&P 500 index fund instead of having the child, they could afford seven times as many entitled children today, adjusted for inflation of course.
It seems next-gen’s appetite for ‘artisan’ and ‘small batch’ doesn’t stop at bourbon and coffee. It also includes investments. The investment list below would be right at home on the menu of an overpriced trendy metropolitan café. These are the top ideas for growth, according to younger people with $3M+:
1. Real estate (31 percent)
2. Crypto/digital assets (28 percent)
3. Private equity (26 percent)
4. Personal company/brand (24 percent)
5. Direct investments into companies (22 percent))
6. Companies focused on positive impact (21 percent)
At the bottom of the list, after bonds, we find stocks at 14%. Perhaps they are just too mainstream and don’t offer the unique flavor profile these young, wealthy investors crave.
As a millennial, I am very familiar with Mark Zuckerberg’s rise from college dorm room to Forbes top 5. He did it using number 4. We also watched OG Bitcoin investors ride the mother of all waves from $0.01 to $60,0000+. And it seems everyone is getting rich flipping property and running Airbnbs.
I’m noticing a trend here…
I guess the broad stock market just doesn’t offer returns so explosive they feel tangible. Younger generations want a lot of money, they want it quick, preferably easy, and they want it to mean something. I think someone didn’t spend enough time on grandpa’s leg.
Money typically comes slowly and deliberately. The older you are, the more likely you are to have more of it.
To be fair, all the investment categories mentioned, save number 6, are valid options especially as portfolio diversifiers. They benefit, and suffer, from unsystematic risks that have the potential for outsized returns. But this also means they have a higher potential for total loss through malinvestment.
Like with most games, skill and expertise matter at winning. Not everyone is cut out for real estate property management, PE due diligence, and managing secure cold storage wallets. Not to mention most of these alternative assets are illiquid and require long multi-year commitments.
Don’t get me started on next gen’s obsession with investing in companies focused on ‘positive impact’ (i.e. ESG). This is not investing. This is called philanthropy, which is something I endorse as a spending goal.
Chances are, if you invest in a stock because of some arbitrarily defined ESG profile, you have bought into a marketing campaign. Returns are generally the only positive impact most investors care about. Otherwise, it’s not investing. At least not in the traditional sense.
So, in summary, this millennial, who happens to be a financial professional, is still a fan of stocks. I just must not be cool anymore. Nobody says you need to be cool to manage money well.
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