Gen Z, Millennial High-Net-Worth Investors Abandon Traditional Investments

The 2024 Bank of America Private Bank Study of Wealthy Americans reveals that Generation Z and Millennial investors are increasingly turning to alternative investments, moving away from traditional stocks and bonds.

The study, which surveyed 1,007 U.S. high-net-worth individuals with at least $3 million in investable assets, found that 72% of investors aged 21-43 believe it’s no longer feasible to achieve above-average returns solely through traditional equities and bonds, according to planadviser. This contrasts sharply with only 28% of investors over 44 who share this view.

Younger investors have significantly lower exposure to stocks and bonds (47%) compared to their older counterparts (74%). Instead, they allocate 17% of their portfolios to alternatives, versus just 5% for older investors. An overwhelming 93% of younger investors plan to increase their alternative investments in the coming years.

The survey highlights diverse interests among younger investors:

• 49% already hold cryptocurrencies, with 38% interested in acquiring them
• Real estate investments are seen as offering the best growth prospects
• 45% physically hold gold, with another 45% interested in doing so

Aaron Filbeck, managing director and head of Unifi by CAIA Association, attributes this trend to recent market volatility and the growing opportunity in private markets. He notes that venture-backed companies are staying private longer, and banks are retreating from small and medium-sized business lending, creating new investment opportunities.

The CAIA’s report, “Crossing the Threshold,” suggests a “second phase of democratization” in alternative investments, with improved technology and access points enabling a wider range of investors to participate in private market products.

However, Filbeck cautions plan sponsors and advisers to carefully consider the implementation of alternatives, especially in 401(k) plans, due to liquidity, fee, and complexity issues. He encourages an open-minded approach, particularly for younger investors far from retirement, while emphasizing the importance of risk management and due diligence.

The growing interest in alternatives among younger high-net-worth investors signals a potential shift in long-term investment strategies and portfolio construction, something advisors should pay close attention to.

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