A new study from Bank of America Private Bank breaks down the generational divide in investing strategies among wealthy Americans. Bank of America Private Bank head of investments Michael Pelzar joins Wealth! to give insight into these generational differences and what investors should consider for their portfolios.
Pelzar lays out the “stark” differences between younger and older cohorts: “So, first is with respect to returns: of that younger cohort, nearly three-quarters of people felt that they could not achieve the above average market returns that they want using strictly stocks and bonds. That’s in stark contrast with the older generation, who largely felt that you could get there with stocks and bonds.”
Younger people also favor alternative investments: “If you look at their asset allocation, that older generation has 75% of their portfolios in stocks and bonds and only about 5% in alternatives. But the younger generation actually allocates about a third of their portfolios to alternative investments, crypto and digital assets.”
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This post was written by Nicholas Jacobino
Video Transcript
Well, whether you’re a novice investor or a seasoned veteran of the market, the ultimate goal remains the same.
Build your wealth, hold on to it.
But there are varying perspectives on how to achieve this.
A new study from Bank of America breaks down the generational divide in investing among wealthy Americans with $3 million or more in investable assets here to weigh in on the report.
We’ve got Mike Pulzar who is the head of investments at Bank of America Private Bank.
Mike, great to see you and thanks so much for joining us here, especially on this study.
And this survey are very significant.
You know, first and foremost, what, what are the kind of asset allocation areas that are being perhaps most um uh uh most trickled into at this juncture, where are people reallocating into?
Yeah.
So Brad, as you say, we, we do a survey every two years of, of wealthy Americans and uh we survey about 1000 people.
Uh what we were looking for this time around was, was differences in behavior concerns.
Uh investment approaches amongst two different cohorts.
Uh The, what we’ll call the older cohort, which was 47 or 44 years plus.
And then the younger uh cohort, which is 21 to 43 years of age.
And what we found was some stark differences in approaches to investing and mindset toward overall investing.
First is with respect to returns.
Uh of that younger cohort, nearly three quarters of people felt that they could not achieve the above average market returns that they want using strictly stocks and bonds.
Uh That’s in stark contrast with the older generation who largely felt that you could get there with stocks and bonds.
Now, that’s somewhat understandable.
The younger generation has seen and they’re investing lives two market crashes, right?
I think that the uh global financial crisis, the the the.com uh bus and then over the course of the last few years, they’ve seen an increasing correlation between stocks and bonds.
And so that’s really colored their thinking around how they need to allocate assets in order to generate the returns they they look for.
And in fact, if you look at their asset allocation that, that older generation has 75% of their portfolios in, in stocks and bonds and only about 5% in alternatives.
But the younger generation actually allocates about a third of their portfolios to alternative investments, uh crypto and and digital assets.
So you see a much different profile between those two different cohorts and I think that indicates lessons learned or things we need to be thinking about in terms of the investment landscape going forward.
You know, it was interesting and we were just putting that stat up on the screen, the percentage of young investors 93% planning to increase their holdings in alternatives in the next couple of years.
What are some of the top ALTs that you see young investors turning to?
Well, this, this 93% e expect to allocate more to alternatives going forward.
And that is largely reflective of their views on the growth opportunities in the market.
Uh Again, different expectations for the different cohorts.
This younger generation sees the greatest opportunities for growth uh as being in various segments of of alternative assets.
So think private equity, uh real estate, uh even crypto and and digital assets.
Again, in contrast to the older generation that sees the greatest opportunity in us stocks, international stocks, uh ee emerging market equities, uh those categories barely even appear on the radar screen for the younger investors.
So this this interest in allocating more going forward to these alternative types of asset classes is really reflective of their view on these opportunities for growth in invest in identifying and really looking across the investment landscape.
How has the tenner for or at least the duration um kind of stance shifted if at all people who are and young investors who are looking at where they’re going to be able to max out the returns on a shorter duration versus a longer duration.
So clearly, this becomes around diversification and, and taking a long term view.
Uh If you look at some of these alternative asset classes, they’re a little bit less liquid.
And what that implies is that this is the younger generation is taking that longer term view.
Um You know, importantly, as you think about uh uh duration, obviously, rates are high right now, you can get a good return on cash.
A lot of investors are saying I’ll get paid to wait by seeing it sitting in cash.
But we all know that the interest rate environment will evolve over time.
So uh it’s important that we don’t uh advise investors to sit in too much cash.
Today, we invest uh today we lock in on the fixed income side, some of the longer term rates that we’re seeing.
And most importantly, we divest diversify for the long term with, with their investments.
