Gen Z & Millennials Reshape Investing: New Rules

A Generational Wealth Gap: How Younger Investors Are Reshaping the Market

There’s a quiet revolution happening in the world of investing, and it hinges on a stark generational divide. While older investors continue to place their faith in traditional stocks and bonds, younger investors are forging a new path – one paved with alternative investments, collectibles, and a healthy skepticism of Wall Street’s status quo. This shift in investment strategy, fueled by evolving financial landscapes and generational experiences, has significant implications for the future of the market.

A Changing of the Guard

A recent Bank of America Private Bank study reveals a striking difference in investment perspectives:

• Lack of Faith in Traditional Investments: Nearly 75% of Millennial and Gen Z investors believe traditional stocks and bonds won’t deliver above-average returns, a stark contrast to the majority of investors over 44 who maintain faith in these portfolios.
• Embracing Alternative Investments: Younger generations are three times more likely to diversify into alternatives like real estate, emerging markets, private equity, and even collectibles like watches, cars, and sneakers.
• Collectibles as Investments: While older generations view collectibles as a hobby, younger investors see them as a strategic asset class, actively trading in and out of these markets.

Why the Shift?

This generational divide is more than just a matter of risk tolerance. It’s about the very experiences that have shaped these investors:

• Financial Scars: Millennials, having witnessed the 2008 financial crisis, entered adulthood during a period of economic uncertainty, fostering a distrust of traditional financial institutions.
• The Rise of Alternatives: Gen Z, digital natives with access to a plethora of investment options, are naturally drawn to the accessibility and potential of alternative assets.
• Distrust in Traditional Institutions: Both generations, disillusioned by economic inequality and climate change, are seeking investment opportunities that align with their values and offer greater control over their financial destinies.

The Future of Investing

This generational shift has profound implications for the market:

• Demand for Alternative Assets: The influx of young investors will likely fuel the growth of alternative investment platforms and potentially reshape traditional portfolio allocations.
• Redefining Value: As collectibles gain recognition as a legitimate asset class, we can expect to see more sophisticated platforms and investment vehicles emerge to meet this growing demand.
• The Great Wealth Transfer: With an estimated $80 trillion set to pass from older generations to Millennials and Gen Z, understanding their investment preferences is crucial for anticipating market trends.

This changing of the guard presents both opportunities and challenges. While younger investors bring a fresh perspective and a willingness to embrace innovation, their distrust in traditional institutions and their embrace of volatile assets like cryptocurrencies could introduce new risks to the market. As this new generation of investors comes of age, understanding their motivations and investment strategies will be key to navigating the future of finance.

This article is based on insights from Robert Frank’s “Inside Wealth” newsletter on CNBC.com. For further information, visit CNBC.com/InsideWealth or scan the provided QR code.