Nov 3, 2022
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The stock market has long been the go-to choice for people looking to invest their money. But that could be about to change as a younger generation — with a preference for alternative investments outside the shaky stock market — enters the scene.
According to a recent survey from Bank of America, individuals aged 21 to 42 with at least $3 million in assets only have 25% of their portfolio invested in stocks — compared to 55% for wealthy investors over age 43.
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The younger generation of investors increasingly believes that “a traditional portfolio of stock and bonds is not going to deliver above-average returns over time,” according to Jeff Busconi, chief operating officer at Bank of America Private Bank.
So what assets do rich millennials favor?
More: Want to invest your spare change but don't know where to start? There's an app for that
Cryptocurrency
Once considered a niche asset, cryptocurrency has now entered the mainstream. A study from the CFA Institute earlier this year showed that 94% of state and government pension plans have invested in cryptocurrencies.
Of course, many investors learned about cryptocurrencies’ volatility the hard way through this year’s massive pullback. But some wealthy millennials still believe in the asset class.
In the Bank of America survey, 29% of younger people said crypto offers great opportunities for growth, while only 7% of the older group agreed.
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Unsurprisingly, younger folks also have a lot more exposure to crypto (average allocation of 15% of their portfolio) than the older generation (average allocation of 2% of their portfolio).
It’s easy to get in on the action — there are plenty of platforms that allow you to invest in crypto. Just be aware of fees: many exchanges charge up to 4% in commission fees just to buy and sell crypto. But some investing apps charge 0%.
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Real estate
Real estate has been a popular asset class as of late — perhaps because it’s a well-known hedge against inflation.
As the price of raw materials and labor goes up, new properties are more expensive to build. And that drives up the price of existing real estate.
Well-chosen properties can provide more than just price appreciation. Investors also get to earn a steady stream of rental income.
It’s no surprise that high-net-worth individuals — regardless of their age — see opportunity in this asset.
In the Bank of America survey, 28% of younger people said real estate presents great growth potential. 31% of the older group held the same opinion.
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But you don’t need to be a landlord to start investing in real estate. There are plenty of real estate investment trusts (REITs) as well as crowdfunding platforms that can get you started on becoming a real estate mogul.
Private equity
Private equity refers to investments in companies that are not publicly traded on a stock exchange.
A private equity fund takes money from the fund’s investors, invests the money into the companies — usually by taking controlling stakes — and works with the companies’ management teams to make their businesses more valuable. The goal is to sell their portfolio companies later — hopefully for a decent profit.
While private equity funds are generally not open to small investors, they’ve been gaining popularity among the wealthy.
In 2021, private equity buyouts doubled from 2020 to $1.1 trillion according to Bain & Company.
It has also received the attention of high-net-worth millennials.
The Bank of America survey suggested that 25% of individuals aged 21 to 42 with at least $3 million in assets identified private equity as one of the greatest growth opportunities, compared to 15% for those who are older.
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Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
