Investment

Young, wealthy investors are flocking to alternative investments, study shows

Published

2 years ago

October 13, 2022

Younger, wealthy investors are looking beyond the stock market for higher returns.

Some 75% of high-net-worth investors between the ages of 21 and 42, compared to 32% of investors over 43-years-old, don’t expect “above-average returns” solely from traditional stocks and bonds, according to a Bank of America Private Bank study released Tuesday. The firm polled 1,052 high-net-worth investors with at least $3 million in investable assets from May to June 2022.

What’s more, 80% of those young investors are turning to so-called alternative investments, which fall outside of traditional asset classes, the study found. Younger investors are allocating three times more to alternative assets and half as much to stocks than other generations.

More advisors are using alternative investments

Alternative investments typically fall into four categories: hedge funds, private equity, “real assets” such as real estate or commodities and prepackaged investments known as “structured products.”

Amid double-digit losses in the stock and bond markets this year, there’s been an uptick in advisors turning to alternative investments, as planners seek further diversification, according to a recent survey from Cerulli Associates.

The top reasons for alternative allocations were to “reduce exposure to public markets,” “volatility dampening” and “downside risk protection,” the Cerulli survey respondents said.

Scott Bishop, a certified financial planner and executive director of wealth solutions at Houston-based Avidian Wealth Solutions, said some clients use a portion of their portfolios to educate their adult children about investing. And these younger investors are increasingly eyeing alternative assets.

“I think everybody’s very worried about the stock market, and if they’re in their 40s, they’ve probably been burned a couple of times,” he said.

‘Know what you own and why you own it’

With more interest in alternative investments, experts say it’s important to understand the risks — as well as the products themselves — before shifting portfolio allocations.

“First and foremost, know what you own and why you own it,” said Ashton Lawrence, a CFP and partner at Goldfinch Wealth Management in Greenville, South Carolina.

There’s a growing range of products falling under the umbrella of alternative investments, and it’s critical to understand how an asset could perform through different market conditions, he said.

First and foremost, know what you own and why you own it.

Ashton Lawrence

partner at Goldfinch Wealth Management

“It’s not really fair to compare a sports car to a minivan and question why the minivan isn’t keeping up,” Lawrence said. Of course, alternative investments may be the minivan or the sports car in that analogy, depending on the economic climate.

For client allocations, Lawrence uses stock alternatives to boost returns while reducing risk, and on the bond side, alternatives may provide a “stabilizer” for the portfolio.

“I don’t have to outperform on the upside,” he said. “But when that market pulls back, I don’t want to incur the full breadth of that pullback.”

For high-net-worth investors, alternative allocations may vary by portfolio size, goals and risk tolerance. However, a larger allocation may be riskier for do-it-yourself investors without professional guidance.

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Economy

S&P/TSX composite down more than 200 points, U.S. stock markets also fall

Published

1 week ago

September 6, 2024

Anne Joseph

TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.

The S&P/TSX composite index was down 239.24 points at 22,749.04.

In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.

The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.

The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.

The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.

This report by The Canadian Press was first published Sept. 6, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX composite up more than 150 points, U.S. stock markets also higher

Published

2 weeks ago

August 29, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.

The S&P/TSX composite index was up 171.41 points at 23,298.39.

In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.

The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.

The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.

The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.

This report by The Canadian Press was first published Aug. 29, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Investment

Crypto Market Bloodbath Amid Broader Economic Concerns

Published

1 month ago

August 5, 2024

Harry Miller

The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.

The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.

Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.

The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.

Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.

Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.

Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.

Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.

The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.