Rich young Americans ditch equities for crypto, real estate and private equity

Individuals aged 21 to 42 years with at least $3m in assets have lost confidence in the stock market as a primary vehicle for creating wealth The young and wealthy prefer assets such as cryptocurrency, real estate and private equity, a survey has found.

Wealthy young Americans have lost confidence in the stock market as a primary vehicle for creating wealth, and are turning increasingly to alternative investments to fund their futures, a Bank of America survey has found. Individuals aged 21 to 42 years with at least $3m in assets have only a quarter of their portfolio in equities, compared with more than half for those who are older, according to the study, which was released on Tuesday.

Wealth managers have traditionally recommended more stock market exposure for young people, given their longer investing window. That’s worked historically, with the benchmark S&P 500 posting an annualised average return of almost 12% from its inception in 1957 to end-2021. Since the beginning of the year, however, the index has tumbled 24% amid turbulent markets and rising inflation.

The lack of faith in equities indicates that younger generations increasingly think “a traditional portfolio of stock and bonds is not going to deliver above-average returns over time”, Jeff Busconi, COO at Bank of America Private Bank, said. “We’ve had a very strong run in the stock market over the last decade and are now living through volatile times. That’s on the front of people's minds.”

The young and wealthy instead see more potential in assets such as cryptocurrency, real estate and private equity. The Bank of America study, which surveyed 1,052 people with investable assets of more than $3m, found that younger people allocated 15% of their portfolio to digital currencies, compared with only 2% for older respondents. “It’s something we’re watching, but exposure to crypto is still relatively low among our client base,” said Busconi.

Baby Boomers will transfer an estimated $84-trillion of their wealth to Generation X and millennials between now and 2045, according to market research by Cerulli Associates. Most of that money is projected to go to heirs, while about 15% will be donated to philanthropy.

The younger group is twice as likely to give through structured vehicles such as donor-advised funds (DAFs), which are charitable investment accounts that offer upfront tax breaks with no deadline on when the funds must be distributed. Those with assets of more than $10m were more likely to use DAFs than those with $3m-$5m.

Donor funds can be an “incredibly efficient way to structure a philanthropic strategy”, Busconi said.

Source: Bloomberg News bloomberg.com


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