Gen Z and millennial investors are embracing crypto, real estate, and private equity along with stocks

Many younger investors have, perhaps understandably, had their faith in the stock market shaken up in recent years. And that’s why many have turned to alternative investments and collectibles as another potential source of returns—much more so than older investors.



That’s according to new data released on Tuesday by Bank of America Private Bank, which worked with market research company Escalent to survey more than 1,000 high-net-worth individuals (with more than $3 million in investable assets, excluding primary residence) in the United States.



The survey data found that 72% of younger investors between the ages of 21 and 43 “believe it is no longer possible to achieve above-average investment returns by investing solely in traditional stocks and bonds,” as compared to 28% of investors over age 44.



This is borne out in portfolio composition, too: Stocks comprise only 28% of younger investors’ portfolios, per the data, compared to 55% for older investors.



As for where younger investors are shifting their allocations? Alternative investments and crypto comprise 31% of younger investors’ portfolios, compared to only 6% for older investors, the data shows. 



Formative memories of 2008 linger



Why the stark difference in allocation strategies?



“Millennials witnessed two big market corrections in their formative years,” says Michael Pelzar, head of investments at Bank of America Private Bank, pointing out market downturns during 2000 and then the financial crisis in 2008 and 2009—and the market chaos due to the pandemic that was effectively the cherry on top. 



“That impacts their view of asset allocation, diversification, and risk,” he adds. “Older generations also have a more lengthy data set, and these differing experiences contribute directly to expectations for returns on certain asset classes going forward.”



Generational access



Another potential reason why younger investors are drawn to crypto and alternative investments—which can include a range of things, including artwork, wine, hedge funds, etc.—is that easy access to those investments simply didn’t exist until recently.



Crypto, for instance, didn’t exist until Bitcoin was developed in 2008. And many fintech companies and investment platforms, which made it easy for people to quickly and cheaply trade stocks and any number of other assets ( “democratizing access,” as it might be described), have only been around for a decade or so. 



As such, younger investors simply have more choices, and that “broader set of asset categories,” as Pelzar says, has helped cultivate a “greater interest” in assets outside of traditional stocks and bonds. 



Even so, Pelzar says that interest in alternative investments among all of Bank of America Private Bank’s clients is on the rise.



“Among our clients, alternative investment assets have doubled in the past five years, and we are investing significantly in the platform and product lineup,” he says. 



Alternative assets, mainstream risks



Crypto and alternative investments are notoriously risky and volatile. Accordingly, younger investors devoting nearly a third of their portfolios to those asset classes may give financial advisers agita. 



While investors are going to do what they want to do, Pelzar says “education is key” to helping them manage risks—and they may want to tap the expertise of a professional for guidance, too. 



“It’s important for investors to have a clear understanding of the unique characteristics of different asset classes,” he says. “The use of alternatives is only concerning if deployed the wrong way, which points to the importance of financial professionals in making investment allocation decisions, particularly to complex asset classes.”