As the world becomes increasingly volatile and unpredictable, young investors are starting to look beyond traditional stocks and bonds in search of alternatives. According to a recent article in Fast Company, Gen Z traders are choosing alternative assets over stocks in a potentially risky trend[1]. Similarly, CNBC reported that young, wealthy investors are turning to alternative investments[2]. This trend could be driven by a variety of factors, including the perceived uncertainty of the stock market and the desire for investments that offer a more personalized and interactive experience.

What are Alternative Investments?

So what exactly are alternative investments, and why are younger investors interested in them?

Alternative investments are assets that fall outside of the traditional categories of stocks, bonds, and cash. They can include a wide range of assets, such as real estate, private equity, hedge funds, cryptocurrencies, and commodities like gold and oil. These investments are often thought of as less liquid and more risky than traditional assets, but they can also offer the potential for growth.

Why Alternatives?

One reason younger investors might be drawn to alternative investments is their desire for diversification. With the stock market experiencing increased volatility and the potential for significant losses, many young investors are looking to help mitigate their risk across a wider range of assets. Alternative investments may help provide diversification.

   ⇒ Online Platforms

One of the drivers of this trend can be attributed to the rise of online platforms that make it easier for young investors to access alternative assets. In the past, these types of investments were largely reserved for the wealthy or those with connections to the financial industry. However, the proliferation of online brokers and robo-advisors has helped make it possible for a wide range of investors with an internet connection to invest in some alternatives. This has helped democratize the investment process and made it possible for younger investors to potentially invest in some alternatives.

   ⇒ Personalized and Interactive Experience

Another factor helping drive the trend towards alternative investments among younger investors may be the desire for a more personalized and interactive experience. Many young people can be drawn to investments that allow them to be more involved in the decision-making process and that offer a greater degree of control over their investment strategy. Alternative investments, such as real estate and private equity, may provide this type of experience, as they could allow investors to take a more hands-on approach to managing their assets.

   ⇒ Social and Cultural Factors

In addition to the economic factors mentioned above, there are also social and cultural factors that could be contributing to the trend towards alternative investments among younger investors. For many young people, investing may not be just about diversifying their portfolio; it could  also be about helping make a positive impact on the world. Alternative investments, such as impact investing and socially responsible investing, may allow investors to align their investments with their values to help make a positive contribution to society.

Of course, as with any type of investment, there are risks involved with alternative investments. These types of assets can be highly illiquid, meaning it can be difficult to sell them when you need to. They also tend to be more complex and less transparent than traditional assets, making it harder for investors to fully understand the risks they are taking on. In addition, there may be restrictions on who can invest in an alternative investment. Some alternative investments are only available to those who meet specific net worth or income requirements. To learn more about these requirements, check out our recent blog Accredited vs Sophisticated Investors.

Despite these risks, younger investors seem to be willing to take on the challenge. According to a survey conducted by Bank of America, young, wealthy investors are increasingly turning to alternative investments as a way to help diversify their portfolios. The survey found that 80% of young investors are looking to alternative investments and allocate three times more of their investment portfolios to alternative strategies[3].

Final Thoughts

So why are younger investors willing to take on the risks associated with alternative investments?

• Longer Time Horizon – Younger investors typically have longer time horizons and can afford to take on more risk in the hopes of opportunities for growth. With decades ahead of them to ride out any potential ups and downs, younger investors may be more willing to take a chance on less established asset classes.
• Open to Trying New Things and Taking Risks – With the rise of social media and the proliferation of information online, younger investors can be exposed to a wider range of investment opportunities and may be more willing to explore new options.

Regardless of the reason, recent surveys have shown that younger investors are increasingly turning to alternative investments as a way to help diversify their portfolios. While these types of assets come with their own set of risks, they can also offer the potential for rewards. As with any investment, it’s important to do your research and understand the risks involved before diving in.

As the traditional investment landscape continues to evolve, we could see more and more young people turning to alternative investments as a way to help achieve their financial goals. So, it is important for young investors to do their due diligence and carefully consider the risks and rewards of any investment and determine if the opportunity could be suitable for their individual situation before committing their hard-earned money.

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[1] https://www.fastcompany.com/90819370/gen-z-traders-are-choosing-alternative-assets-over-stocks-in-an-extremely-risky-trend

[2] https://www.cnbc.com/2022/10/12/young-wealthy-investors-are-turning-to-alternative-investments.html?referral_code=MVFB210212022

[3] https://newsroom.bankofamerica.com/content/newsroom/press-releases/2022/10/bank-of-america-private-bank-study-finds-younger-investors-turni.html

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The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.