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Advisors are steeped in knowledge about stocks and bonds, but many have also gotten up to speed on alternative investments, or alts, and that’s a good thing.
Increasingly, clients across a variety of age and income ranges want access to alts, be it commodities, cryptocurrency, private credit or real estate among others. And due to the fact that asset classes clients hear most about on their own are stocks and bonds, they rely on advisors to bring the alts “goods” to the table.
Adding to the intrigue regarding younger investors’ asset allocation proclivities is data suggesting these market participants are fond of alternative asset classes. That’s good news for advisors because if ever there was an asset group where clients need education and guidance, it is alts.
Here’s another reason advisors should become fluent in alts and do so sooner than later: data confirm this is an asset class about which younger investors are highly enthusiastic.
Gen Z, Millenials Love Alts
A survey released last week by Bank of America Private Bank confirms that younger clients love alts. How those views were formed is worth noting. In particular, millennials live through (and many were working during) the global financial crisis. Then came the albeit brief coronavirus bear market, which was followed by the highest inflation in 40 years and the highest interest rates in two decades.
As a result of those factors and others, Gen Zers and millennials have their doubts about portfolios comprised entirely of stocks and bonds confirming the 60/40 methodology is a tough sell with these clients and that they want alts.
“Seventy-two percent of younger investors (ages 21-43) believe it is no longer possible to achieve above average investment returns by investing solely in traditional stocks and bonds, compared to only 28% of investors over the age of 44 that hold the same view,” according to Bank of America.
Consider the following about wealthy Americans in the 21 to 43 age cohort. Just 17% believe the best opportunity for growth is bonds while 14% feel the same way about equities. Conversely, 28% of those polled by BofA in that age group view digital assets as the best growth avenue while 26% feel the same about private equity.
When turning to the 44+ demographic, 41% see equities as the best outlet for growth, or about 10x the percentage that view crypto in the same light.
Understanding How Younger Clients View Alts
Alts aren’t a traditional asset class. Hence, the “alternative” designation, but there is tradition within the group. Think commodities and real estate as two prime examples. However, the universe of alts is much more expansive than what’s been mentioned here and Gen Zers and millennials are wise to that. Advisors ought to be, too.
Advisors, particularly those that cater to high-net-worth clients, are already aware that many affluent folks cobble together art or wine collections for the dual purposes of joy and return on investment. The latter theme isn’t limited to those in the 44+ age bracket.
Art and wine are just two examples and they’re embraced as hobbies and investments by younger clients, but those clients are expanding into other nuanced alts in an effort to diversify portfolios and juice returns.
“65% of study respondents, including 94% of those under the age of 44, are interested in collectibles. Millennials and Gen Z are at least two times more likely than older generations to be collectors of watches (46%), wine or spirits (36%), rare or classic cars (32%), sneakers (30%) and antiques (30%),” concludes BofA.
Bottom line: advisors that can be cater to younger prospects’ penchants for alternative investments are more likely to attract and retain that business.
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