Young, wealthy investors don’t want their parents’ investments.
If you’re between the ages of 21 and 43 and have at least $3 million in investable assets, your preferred investments likely aren’t your traditional mix of stocks and bonds, according to new research from Bank of America.
Nearly one-third of young, wealthy investors’ portfolios are in alternative assets like hedge funds, private equity, and crypto and digital assets, according to Mike Pelzar, head of investments at Bank of America Private Bank.
Meanwhile, less than half of their portfolios are in traditional stocks and bonds.
Where wealthy investors ages 21 to 43 see greatest opportunities for growth
Real estate investments, 31%
Crypto/digital assets, 28%
Private equity, 26%
Personal company/brand, 24%
Direct investments in companies, 22%
Companies focused on positive impact, 21%Source: Bank of America
That’s in contrast to wealthy investors ages 44 and up, who have about three-quarters of their portfolios allocated to stocks and bonds, and only about 5% in alternative assets like hedge funds, private equity and real estate, he noted.
“The two different cohorts think very differently about what the greatest opportunities are for growth with their investments,” Pelzar said.
Younger investors’ appetite for alternatives isn’t expected to let up, with 93% indicating they plan to use more of those investments in the next few years, Bank of America’s research found.
Why younger investors have a different outlook
Much of the difference between younger and older wealthy investors’ outlook comes down to what kind of investments they grew up with, Pelzar explained.
“This younger generation has enjoyed much greater access to a broader set of asset classes than the older generation did as they were growing up,” Pelzar said.
The younger generation may also have less trust in traditional stocks and bonds after having lived through the financial crisis and dot-com bust. More recently, the increased correlation between equities and fixed income may be prompting them to diversify their assets.
“They’re looking to spread around the risk,” Pelzar said.
Where wealthy investors ages 44 and up see greatest opportunities for growth
Domestic equities, 41%
Real estate investments, 32%
Emerging market equities, 25%
International equities, 18%
Private equity, 15%
Direct investments in companies, 15%
Source: Bank of America
At the same time, younger, wealthy investors also have higher cash allocations, the research found. Some experts worry having more cash can lead to missing out on bigger market returns, even as today’s elevated rates guarantee the highest interest on cash in more than a decade.
“Underinvesting is a risk, and it’s one that I think more younger investors are susceptible to,” Callie Cox, chief market strategist at Ritholtz Wealth Management, recently told CNBC.com.
But higher cash allocations may make sense for younger, wealthy investors who have a lot of their net worth tied up in alternative investments that tend to be more illiquid, or who are planning to make big purchases, like buying a home, Pelzar said.
What to consider when planning
Another reason why young, wealthy investors may be turning to alternatives is because they have more choices.
“There’s never been a bigger menu of opportunities to put your money into,” said Douglas Boneparth, a certified financial planner and president of Bone Fide Wealth, a wealth management firm based in New York City.
When diversifying to alternatives, it’s important to be aware of the potential costs involved, said Boneparth, who is also a member of the CNBC FA Council.
Alternative investments may require your money to be locked up for a certain period of time, he said.
Alternatives may also come with unique costs, such as the 2 and 20 fee structure. It’s a fee arrangement that is standard in the hedge fund industry, and is also common in venture capital and private equity, where an annual management fee of 2% is charged for managing assets and a 20% standard performance or incentive fee applies to profits made by the fund above a certain predefined benchmark.
Expense ratios — management fees charged by investment funds — may also be higher for alternatives, Boneparth noted.
If you’re invested in an area like collectibles, the bid-ask spread — or the difference between quoted prices for a sale and purchase — may be larger or more unpredictable, he said.
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.
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.
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.
