Bank of America Private Bank’s Biennial Survey of Wealthy Americans revealed a generational divide in the greatest perceived opportunities for investment and growth in assets.
“What we discovered were some stark differences in investment approaches and mindsets toward investing overall,” Michael Pelzar, chief investment officer at Bank of America Private Bank, told Yahoo Finance.
Market research firm Escalent surveyed 1,007 high-net-worth Americans on behalf of Bank of America Private Bank. Respondents, who were divided into a younger group (ages 21 to 43) and an older group (ages 44 and older), had a minimum of $3 million in investable assets in addition to their primary residence .
Here’s what Bank of America found about the younger investors it surveyed:
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47% of the younger cohort’s portfolios are invested in stocks and bonds. This is much lower than the older cohort (74%).
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More younger investors invest in alternative assets than older investors, and almost all young investors (93%) said they plan to allocate more to alternative assets in the coming years.
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Almost half (49%) of the youth group own cryptocurrencies and 38% expressed some interest. Behind real estate, this group ranked crypto as the top area of opportunity.
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45% of the younger group owns physical gold as an asset and another 45% said they are interested in owning it.
Differences in financial outlooks have driven disparities in investment allocations and where investors perceive opportunities.
Notably, more than 70% of younger, wealthier investors no longer think it is possible to achieve above-average investment returns by investing exclusively in a combination of stocks and bonds. In contrast, only 28% of older investors share this opinion.
Younger investors’ skepticism about traditional investments comes as the stock market soars into 2024. As Myles Udland wrote this week, the S&P 500 (^GSPC) is up 42% since the start of 2023, the pace of a annualized rate of return approaching 26.%, or nearly three times the index’s 10% average annual return over time.
However, Pelzar called this difference in viewpoint “somewhat understandable,” citing the turmoil the younger generation has experienced in their investing lives.
“The younger generation has seen, in their investing lives, two market crashes… and then, over the last few years, they have seen a growing correlation between stocks and bonds,” Pelzar said. “And that’s really influenced their thinking about how they need to allocate assets to generate the returns they’re looking for.”
The survey revealed that the younger group focused their asset allocation on alternatives and many expressed plans to allocate even more to these investments in the coming years.
Pelzar said this projected increase “largely reflects” the younger group’s views on growth opportunities in the market. Given that some of the alternative asset classes are less liquid, Pelzar said this implies that the younger generation is taking a long-term view.
“You see a very different profile between these two different groups, and I think that indicates lessons learned or things that we need to think about in terms of the investment landscape going forward,” he said.
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