Move Over Stocks: Young Investors Flock to Collectibles and Crypto

Differences in opinion between age groups are as old as time itself. The latest instance of this divergence is in the realm of investing. Younger Americans are increasingly favoring cryptocurrencies and alternative investments over traditional stocks, marking a significant shift in portfolio allocations.

This trend is highlighted in Bank of America’s recently concluded “2024 Study of Wealthy Americans.” The study reveals stark contrasts in investment strategies between those aged 44 and older and their younger counterparts aged 21 to 43. According to the report, the older age group holds 55% of their investments in stocks, 5% in alternatives, and 1% in crypto. In contrast, the younger group allocates 28% to stocks, 17% to alternatives, and 14% to crypto.

The Generational Investment Divide

The study indicates that the generational gap in investment preferences could lead to changing allocation trends as wealth transfers to younger Americans. Older generations continue to favor traditional investment strategies, such as the 60/40 portfolio split (60% stocks, 40% bonds), but this approach is less popular among those under 44. Younger investors are diversifying more, favoring real estate, cryptocurrencies, and private equity, while older investors still prioritize domestic equities, real estate, and emerging markets.

A key factor driving this shift is a growing distrust in traditional markets among younger investors. An overwhelming 72% of respondents aged 21 to 43 express skepticism towards traditional investments. Additionally, 75% believe it’s no longer possible to achieve above-average returns with stocks and bonds alone. This sentiment is shared by only 25% of Gen X and older respondents.

The Rise of Alternative Assets

The popularity of cryptocurrencies and alternative assets is a relatively new phenomenon. Bitcoin, the pioneer of digital assets, was introduced in 2009, and Ethereum, the second-largest cryptocurrency by market cap, followed in 2015. However, alternative assets such as art, wine, and collectibles have been around for centuries, albeit traditionally reserved for the wealthy.

The accessibility of these assets to the general public changed with the Jumpstart Our Business Startups (JOBS) Act, signed into law by former President Obama in April 2012. This legislation allowed retail traders to invest in asset classes previously limited to institutional and accredited investors. Regulation A of the act, in particular, facilitated companies offering securities without registering with the SEC, leading to a surge in investments in alternative assets.

Under Regulation A, average Americans can now invest in securitized assets, including fine art, rare wines, sports memorabilia, luxury cars, designer handbags, first-edition comic books, crowdfunded real estate, and even dinosaur fossils. Additionally, Regulation A+ crowdfunding has opened private equity investments to the general public, typically involving SEC audits and offering approvals.

A Cautious Approach

While these trends indicate a significant shift in investment strategies, it is essential to interpret them cautiously. The Bank of America report focuses on American adults with $3 million or more in investable assets, which does not represent the median American household’s net worth of $162,350 as reported by the Federal Reserve.

The study sampled 1,007 qualified participants, with those aged 43 and under representing just 13% of respondents, while those aged 44 and older made up the majority. Therefore, while the data provides valuable insights, it should be considered in the context of the broader investment landscape.

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