Young Millionaires Favor Risky Bets Over Stocks – And Experts Warn Crypto And Alt Assets Are 'Much More Of A Short-Game Mindset'

A generational divide is emerging in the investment strategies of America’s wealthy, with younger millionaires increasingly shunning traditional stock market investments in favor of riskier, alternative assets.

The shift, experts caution, may reflect a short-term mindset that could potentially hinder long-term wealth accumulation.

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According to the 2024 Bank of America Private Bank Study of Wealthy Americans, only 28% of wealthy individuals aged 21 to 43 believe achieving above-average returns with stocks and bonds is possible. That stands in contrast to their older counterparts, with 72% of those 44 and older expressing confidence in classic investing practices.

The study surveyed individuals with at least $3 million in investable assets and found that younger wealthy investors rank stocks behind seven other investment types, including real estate, cryptocurrency and private equity. The preference for alternative investments comes despite the historical performance of the broad U.S. stock market, which has returned an average of 10% annually over the past century when accounting for reinvested dividends.

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Brad Klontz, a certified financial planner and professor of financial psychology at Creighton University, suggests that the divide in investment strategies may be rooted in cognitive biases common among younger investors, regardless of wealth level.

“The desire to push against conventional wisdom is a really important developmental stage,” Klontz explained to CNBC. “Young people on social media tell me that [traditional investing advice] isn’t how it’s done anymore. Everything’s changed. This is something that people have been saying for thousands of years.”

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Klontz said that the allure of cryptocurrencies and other alternative assets often stems from a desire for rapid wealth accumulation. “When it comes to some of the tried-and-true approaches to investing, it really is a long game. And when I hear people talk about crypto and alternative assets, that’s much more of a short-game mindset. They’re probably interested in making money faster.”

Another factor driving young millionaires’ investment choices is the perceived exclusivity of certain assets. Real estate, private equity deals and direct investments into companies all require substantial capital, often beyond the reach of average investors. That barrier to entry can create a false sense of superiority in those investments.

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However, Klontz warns against conflating exclusivity with superior returns. He told CNBC that investors can gain exposure to the S&P 500 for a minimal fee through its exchange-traded fund (ETF), SPDR S&P 500 ETF Trust.

Over the past 30 years, the market index has outperformed the U.S. residential real estate market and it carries less risk.

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The preference for exclusive investments may also come at a cost. According to the report, private equity funds, for instance, often charge fees of 1.5% to 2% of invested assets annually, plus 20% of annual profits above a certain threshold.

“We’re all inherently obsessed with our status. Denying it just tells me that you’re psychologically immature,” Klontz said.

While alternative investments may offer the potential for high returns, they also come with increased risks. Young millionaires will have to balance their desire for novel investment opportunities with the proven track record of traditional market investments.

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