Stark differences of opinion between age groups is a tale as old as time. The latest instance is investing: Among younger Americans, stocks are losing favor as an asset class, with crypto and alternative investments gaining a significant share of portfolio allocations.
This is according to Bank of America’s recently concluded “2024 Study of Wealthy Americans,” which provides insights into the shifting investment landscape among various age groups. The report found several divisions between people aged 44 and up and their 21- to 43-year old counterparts, with the former holding 55% of their investments in stock, 5% in alternatives and 1% in crypto, and the latter holding 28% in stock, 17% in alternatives and 14% in crypto.
The generational investment divide
The study determined that members of older and younger generations are “surprisingly far apart on many investment issues, which could change allocation trends as wealth transfers to younger Americans,” per a news release. Their views also diverge on “outlooks and growth opportunities.”
While the report suggests that investors have shifted away from traditional strategies like the 60/40 portfolio (i.e., 60% stocks, 40% bonds), that trend has been more pronounced among Americans under the age of 44. As a result, younger Americans are embracing greater diversification in their holdings.
According to the study, younger investors are drawn to real estate, cryptocurrencies and private equity, while older adults prize domestic equities, real estate and emerging equities. Bank of America added that “older investors rely most on traditional stocks and bonds, [while] younger investors hold a more evenly spread mix of asset classes — including an average of 31% in alts and crypto.”
Much of this gap can be attributed to a distrust in traditional markets. Significantly, 72% of respondents aged 21 to 43 continue to be skeptical of traditional investments, with 75% of younger people saying that it’s “no longer possible to achieve above-average returns with stocks and bonds alone.” Just a quarter of those in Gen X and above say the same.
The rise of alternative assets
The rise in popularity of crypto and alternative assets is a relatively recent phenomenon. Bitcoin, the torchbearer of digital assets, debuted in 2009 and it wasn’t until July 2015 that Ethereum, the second-largest crypto by market cap, hit the market.
On the other hand, alternative assets — or alts — have been around for hundreds of years. Artworks, for example, were first featured by auction houses like Christie’s and Sotheby’s in the 1700s. However, as investments, they were reserved for members of the wealthy class. It wasn’t until 12 years ago that alts became broadly accessible to the masses.
In April 2012, former President Obama signed into law the Jumpstart Our Businesses Startup (JOBS) Act. In doing so, retail traders gained access to asset classes previously reserved for institutional and accredited investors.
Specifically, Regulation A of the act allowed for “an exemption from the registration requirements, allowing companies to offer and sell their securities without having to register the offering with the SEC.” And while companies still must comply with SEC regulations, Regulation A expedited the rush of investments into alts.
This provision of the JOBS Act provides increased access to securitized assets like fine art, rare wine collections, sports memorabilia, luxury automobiles, designer handbags, first-edition comic books, crowdfunded real estate and even skeletal dinosaur remains.
As with traditional equities — like stocks, exchange-traded funds and mutual funds — companies are now able to offer individual shares of alts amounting to $50 million per year without needing to meet SEC registration requirements.
Regulation A also allows average Americans to participate in other alts like private equity. This is commonly achieved through Regulation A+ crowdfunding, which is commonly used by startups and entails SEC audits and SEC offering approval.
Among the overall alternative investment landscape, private equity is behemoth. Consulting firm McKinsey & Company found that in 2023, private equity set a record for assets under management by reaching $1.5 trillion, good for an 18% increase over the year prior.
A grain of salt…
Though investing trends are certainly shifting with time, be careful not to jump to conclusions based on a single analysis.
Bank of America’s report “represents American adults with $3 million or more in investable assets,” which is not emblematic of the median American household’s net worth of $162,350, according to data available from the Federal Reserve.
The sampling used in the Bank of America study included 1,007 qualified participants. Those aged 43 and under represented just 13% of people surveyed, with those aged 44 and older accounting for the remainder.
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