The stock market hasn’t always been a haven for millennials.
The generation, which includes anyone born between 1981 and 1996, was coming of age when stocks fell nearly 57% during the Great Financial Crisis of 2008.
Then, after a decade of strong returns, millennials suffered from the pandemic-induced crash of 2020. And this year, the cohort watched their 401(k) collapse as the Federal Reserve continues raise interest rates to fight inflation, sending the S&P 500 down almost 25% since January.
This instability in the stock market, combined with recession predictions of Wall Street, led many investors to take a more conservative approach This year.
But a new study of Bank of America Private Bank shows that the past experiences of younger generations have made them particularly wary of traditional investments in stocks and bonds.
Researchers asked more than 1,000 people with family assets of more than $3 million how they invest their money and found that wealthy millennials avoid the stocks and bonds that made it rich of previous generations.
Some 75% of wealthy investors between the ages of 21 and 42 believe it is impossible to achieve “above average” returns with a traditional portfolio of stocks and bonds, while only 32% of those aged 43 or older say the same thing.
As a result, affluent millennials only hold 25% of their portfolios in stocks, compared to 55% for older investors.
The Bank of America Private Bank researchers noted that this flies in the face of “conventional wisdom” that young investors should invest more money in stocks.
“These data shed light on differences in beliefs and preferences between older and younger generations,” they wrote. “A prime example is how skeptical young wealthy people are about traditional investments compared to their predecessors.”
The study found that younger generations are also turning to alternative investments to get better returns.
Most affluent millennials believe the “greatest opportunities for growth” lie in real estate and digital assets, while older investors still trust the stock and bond markets.
Around 80% of investors between the ages of 21 and 42 have invested in alternative investments, including commodities, real estate, cryptocurrencies, private equity and other tangible assets. And these younger investors allocate three times more of their funds to the asset class (16%) than those aged 43 or older (5%).
The study also found that young investors were 7.5 times more likely to hold cryptocurrencies than older generations, and 47% currently hold some form of digital asset.
According to researchers at Bank of America Private Bank, this could have big implications for the future of investing, as Millennials and Gen Z will each inherit $30 trillion in wealth over the next 25 years.
“As influence and control over a considerable amount of American wealth continues to shift, generational differences in views on money and the use and purpose of wealth will have significant implications for individuals and families, businesses they own, charities, markets and the economy as a whole,” they wrote.
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