As younger investors favour alternatives, parents are waiting longer to discuss family wealth
A new study adds to the mounting evidence of a generation gap in investing and financial attitudes of wealthy households.
In a new Bank of America study, 75% of young investors believe that traditional equities and bonds alone cannot produce returns that are above-average. They will also have to wait longer for any family money to come into their hands.
Investing, donating, and wealth planning varies significantly between generations, according to the 2022 Bank of America (BOA) Private Bank Study of Wealthy Americans.
“Financial behaviors and values take shape early in life and live on in the legacies passed from one generation to the next,” Bank of America Private Bank President Katy Knox said. “These research findings point to a larger role wealth advisers and the financial services industry play in helping families transition wealth and meet the needs of the next generation.”
Read more: Why confident young investors still need advisors in their corner
Many people will forego traditional stock market investment during this changeover. According to the study, 32% of investors over the age of 43 do not believe that traditional stocks and bonds can generate above-average returns on their own, compared to three quarters of investors between the ages of 21 and 42.
Following conventional asset allocations closely, older investors in the survey said they allocate 5% of their investment portfolios to alternative strategies, and 55% to stocks. In contrast, young investors said they’d put 16% in alternatives and 25% in equities.
Most millennials have made investments in cryptocurrencies, with Bitcoin now valued about US$20,000 after starting 2022 at US$45,000. Eighty per cent of the newer generation also said they’re looking to put money in private equity, commodities, real estate, and other tangible assets.
Read more: Who are the 'identity investors,' and how are they changing investing?
While two thirds (58%) of parents in the survey say they’ve talked with their children about their family’s wealth, most are waiting until the younger members of the family hit the age of 27 at least, as just a little over half saying their children are prepared to take stewardship of any family money or inheritance they stand to receive.
The BOA analysis also shows a divide on generational philanthropy: only 41% of older generations believe the next generation's charitable endeavors will be as successful as their own, while 87% of the younger generation think their giving will be more impactful than that of prior generations.
