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- Gen Z and Millennial High-Net-Worth Investors are Abandoning Traditional Investments
Gen Z and Millennial High-Net-Worth Investors are Abandoning Traditional Investments
Young Wealthy Investors Look to Crypto and Real Estate for Gains
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Happy Sunday everyone, and welcome to Benzinga’s financial advisor newsletter.
In today’s newsletter, we are covering a new study from Bank of America that shows younger high-net-worth abandoning stocks and bonds in favor of gold, cryptocurrencies, and especially real estate, in search of higher returns - a trend advisors hoping to capture this demographic must adapt to.
So, let’s get into the Industry Chatter!
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INDUSTRY CHATTER
The 2024 Bank of America Private Bank Study of Wealthy Americans reveals that Generation Z and Millennial investors are increasingly turning to alternative investments, moving away from traditional stocks and bonds.
The study, which surveyed 1,007 U.S. high-net-worth individuals with at least $3 million in investable assets, found that 72% of investors aged 21-43 believe it's no longer feasible to achieve above-average returns solely through traditional equities and bonds. This contrasts sharply with only 28% of investors over 44 who share this view.
Leaving Stocks and Bonds for Real Estate
Younger investors have significantly lower exposure to stocks and bonds (47%) compared to their older counterparts (74%). Instead, they allocate 17% of their portfolios to alternatives, versus just 5% for older investors. An overwhelming 93% of younger investors plan to increase their alternative investments in the coming years.
The survey highlights diverse interests among younger investors:
49% already hold cryptocurrencies, with 38% interested in acquiring them
Real estate investments are seen as offering the best growth prospects
45% physically hold gold, with another 45% interested in doing so
Aaron Filbeck, managing director and head of Unifi by CAIA Association, attributes this trend to recent market volatility and the growing opportunity in private markets. He notes that venture-backed companies are staying private longer, and banks are retreating from small and medium-sized business lending, creating new investment opportunities.
High Fees Make Alternative Investments Tricky
The CAIA's report, "Crossing the Threshold," suggests a "second phase of democratization" in alternative investments, with improved technology and access points enabling a wider range of investors to participate in private market products.
However, Filbeck cautions plan sponsors and advisers to carefully consider the implementation of alternatives, especially in 401(k) plans, due to liquidity, fee, and complexity issues. He encourages an open-minded approach, particularly for younger investors far from retirement, while emphasizing the importance of risk management and due diligence.
The growing interest in alternatives among younger high-net-worth investors signals a potential shift in long-term investment strategies and portfolio construction, something advisors should pay close attention to.
WHAT THE PROS ARE WATCHING
As a financial advisor, staying ahead of market movements is crucial for guiding your clients to success. With Benzinga Pro, you can take your advisory services to the next level by creating custom watchlists tailored to each of your client's unique investment goals and preferences.
Our platform empowers you to monitor big moves in real-time, allowing you to react swiftly to market shifts and keep your clients informed and confident in your expertise. Whether you're tracking specific stocks, sectors, or market indices, Benzinga Pro provides the tools you need to stay informed and proactive in managing your clients' portfolios.
Say goodbye to manual tracking and hello to efficiency with Benzinga Pro's intuitive interface and customizable features. Join thousands of financial advisors who rely on Benzinga Pro to enhance their advisory services and drive better outcomes for their clients.
MARKET RECAP
The Federal Reserve's most closely monitored inflation measure — the Personal Consumption Expenditure price index — reached its lowest level since March 2021 in May, registering an annual rate of 2.6%, in line with economist expectations.
The inflation figures released Friday indicate that price pressures are trending toward the Fed's 2% target, solidifying market expectations for interest rate cuts. September is now seen as the most likely month for the first rate cut, followed by another by the end of the year, and potentially three more next year, according to market prediction data.
The first presidential debate concluded with a spike in Donald Trump's win probabilities to about 60%, as President Joe Biden's performance was widely viewed as disappointing. The odds of Biden being replaced have increased with just about four months left until the election.
Economists say the policies of both candidates are inflationary and fail to meaningfully address the fiscal and debt issues facing the U.S. economy.
FedEx Corp. (FDX) and Carnival Corp. (CCL) led the week's best performances within the S&P 500, with both posting double-digit share price increases amid strong earnings reports and optimistic guidance. Conversely, Walgreens Boots Alliance (WBA) and Nike Inc. (NKE) each plummeted over 20% due to disappointing quarterly results.
Market Breadth Warnings
Veteran investor Ed Yardeni warns of a “bad breadth” problem in the stock market, with performance heavily reliant on Nvidia Corp. (NVDA). This dependency on a few tech stocks increases the risk of a market downturn if these investor darlings falter.
Banks Show Resilience
American banks have proven solid and resilient in maintaining minimum capital requirements even in highly adverse economic scenarios, as demonstrated by the latest Federal Reserve stress tests released this week. Yet institutions might still face greater losses than those projected in the previous year's assessments.
Pandemic Savings Depleted
U.S. household pandemic savings have dwindled, leading to rising delinquencies and record-high debt. The Federal Reserve Bank of San Francisco estimates that excess savings peaked at $2.1 trillion in August 2021 but are now fully depleted. Economists warn that consumers’ financial stability is now tied to current income.
Tesla's New Models
A Goldman Sachs analyst predicts Elon Musk will launch lower-cost Tesla Inc. (TSLA) models soon, including a smaller Model 3 and a van, with the more affordable Tesla vehicles potentially selling at least 100,000 units per year.
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THE WEEK AHEAD
Economic Data
Monday: June ISM Manufacturing Prices and PMI reports
Tuesday: May JOLTS Job Openings, Fed Chair Powell speech
Wednesday: ISM and S&P Services PMI reports, ADP Nonfarm Employment Change, FOMC Meeting Minutes
Thursday: Fed Balance Sheet
Friday: Unemployment and Payroll reports, Fed Monetary Policy Report
Earnings
Monday: Cineverse
Tuesday: MSC Industrial Direct Co, Radius Recycling
Wednesday: Constellation Brands
Click here for the full calendar of economic data and earnings reports.
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