Inside the Minds of Younger HNW Investors

Analysts with Bank of America Private Bank have published a new study of the savings and investing behaviors of wealthy Americans, putting the focus on the different beliefs and expectations of different generations of U.S. investors.

According to the analysis, the U.S. is already in the early stages of a historic generational transfer of wealth — with as much as $84 trillion expected to pass from baby boomers to younger generations through 2045.

Of that massive transfer, according to Bank of America, $73 trillion will go to heirs and $12 trillion will go to philanthropic causes.

Speaking with ThinkAdvisor about the findings, Ken Shepard, head of investments and wealth strategy for BofA Private Bank, says generational differences in perspectives about money and the use and purpose of wealth will have significant implications for high-net-worth individuals and families — and for the advisory professionals serving them.

Lower Faith in Stocks, Enthusiasm About Crypto

The survey shows younger and older investors have starkly different views on the best way to build wealth in the future. Older investors, for their part, put investing in the U.S. stock market at the top of their list.

Younger investors, led by millennials, put U.S. stocks at the bottom of their list — behind international and emerging market stocks, alternative investments and owning a business.

As Shepard points out, younger investors allocate three times more of their investment portfolios to alternative strategies and half as much to stocks as older investors do. Younger investors are twice as likely to invest in private equity, hedge funds, commodities, infrastructure and tangible assets.

“One really striking finding is that young investors think the best growth opportunity lies in the digital asset space,” Shepard points out. “Nearly half report being invested in cryptocurrencies, and most say they understand the crypto market quite well.”

New Investments, New Forms of Engagement

Shepard says it makes sense to see the younger generations of investors embracing new ideas about wealth generation. He suspects the experiences of going through the Great Recession and the economic turmoil created by COVID-19 have definitely affected these people, causing a degree of skepticism about the equity markets not seen in older generations.

“I think there is something else at play here, too, and that is the pace of innovation seen during their lifetimes,” Shepard says. “Millennials and Gen Z are very quick to embrace new things, and they are equally as quick in deemphasizing older ways of doing things.”

In Shepard’s experience, in the same way younger generations are very quick to embrace new investment ideas, they are also very quick to embrace new ways of engaging with their advisors.

“The acceptance of digital interactions has become much more prevalent,” he points out. “What we also found, when we looked at areas like philanthropy and sustainable investing, is that younger generations often have very different views than their own parents and grandparents.”

Shepard says advisors can and should step up and be a kind of mediator between family generations, helping them to understand and see each others’ point of view. Greater clarity and communication, he says, are the sources of successful wealth transfers — and healthy relationships in general.