Move over, avocado toast and artisanal latte. Millennials like alternative assets now, and these young investors’ affinity for going against the grain of stocks and bonds is about to disrupt financial markets.
Through 2048, some $124 trillion is expected to change hands through the Great Wealth Transfer, and nearly $100 trillion (81% of all transfers) will leave the wallets of Baby Boomers and older generations, according to a report by Cerulli Associates. Millennials will pocket the most of any generation over the next 25 years.
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Generations passing the torch of money management to their children is nothing new. but what is What’s new is a growing appetite for assets that haven’t traditionally been part of investment portfolios built for long-term savings goals, like buying a home or retiring. Bank of America found in 2024 that 72% of high-net-worth investors ages 21 to 43 say it is no longer possible to achieve above-average investment returns by relying solely on stocks and bonds. Only 28% of people over 44 thought the same.
Erica Grundza, a certified financial planner at Betterment, one of the popular digital investment platforms born during the post-Great Recession democratization of financial markets, says alternatives like private credit, real estate, digital assets, or even directly owning shares of a private company they work for are becoming more popular options.
“As wealth is transferred from one generation to the next, these increases in alternative allocations could significantly reshape the alternative market. Increased demand could improve access, drive greater product innovation, and reshape the regulatory landscape over time,” says Grundza. “I think this is more than a short-term trend, but a structural change in the way the next generation generates wealth.”
Another piece of the puzzle that may have even greater implications for the inclusion of alternatives within portfolios that young investors’ new interests are is the growing correlation between stocks and bonds as near-retirees and retirees enter the decumulation phase, where they begin to spend some of their accumulated wealth, says Paisley Nardini, director of multi-asset solutions at Simplify Asset Management. Many investors looking to protect their wealth as they pass it on are funneling money into alternatives to diversify their holdings and protect them from declines in individual markets like stocks.
Where there is demand, supply follows. Alternatives are now more available than ever, with new platforms emerging that provide access to little-known corners of the market, and the popular exchange-traded fund (ETF) becoming a resource for providers to offer unique asset exposure. For example, in 2024, the Securities and Exchange Commission (SEC) made the long-awaited decision to approve spot bitcoin ETFs, opening the floodgates for investors to access cryptocurrencies as easily as investing in an S&P 500 index fund.
“We now have many very exotic, exciting, fun, interesting and unique sources of risk and return,” says Nardini, whose company was founded in 2020 “to make institutional-grade alternative strategies available to all investors through the transparent, low-cost ETF vehicle,” according to its website. Nearly 1,000 active ETFs were launched last year, surpassing the previous record of 584 in 2024, according to Morningstar.
There is more to come. Morgan Stanley experts recently wrote that alternatives will likely “continue to become more accessible, with a variety of registered funds and permanent vehicles providing exposure to asset classes such as private equity, private credit and private real estate.”
Some of those new products have a bad reputation, and rightly so. The alternative space, in general, can pose unique risks, such as liquidity constraints and limited transparency, so advisors say it’s important for investors to be careful with their selections.
“One of the biggest challenges in this wealth transfer is just thinking about how to discern between things that are appropriate and prudent because there are a lot of shiny, flashy objects out there,” Nardini says.
As product offerings change, so does the need for regulatory protections for investors. In December, the SEC sent out warning letters effectively banning companies from launching products intended to generate three to five times the daily returns on stocks, commodities and cryptocurrencies.
Some industry players also support changing the definition of an accredited investor, one who is allowed to invest in unregistered private securities. Currently, the SEC requires individuals to have a net worth greater than $1 million, income greater than $200,000, or meet professional criteria.
Financial services firm Edward Jones, for example, supports expanding the definition to include people who work with a qualified professional, such as a financial advisor, to help them assess their risk tolerance, goals and time horizon, says Steve Rueschhoff, a director at the firm.
In the coming years, Nardini expects to see a growing number of next-generation investors focusing on ways to access investments through tokenized vehicles. (Tokenization uses blockchain technology to create a digital representation, or token, of a real asset.)
“That will be a huge part of the growth of this industry in the next decade,” adds Nardini. “I think next-generation individuals will really gravitate toward that kind of advanced, innovative way of thinking about investing.”
Rueschhoff highlighted the growing emergence of public-private partnerships, in which asset managers established in the public space develop joint ventures with private asset managers. The result, he says, is a packaged product similar to a balanced fund with a mix of public and private investments.
Studies also show that young investors are more interested than their predecessors in environmental, social and governance (ESG) investing, which could mean more money being funneled into companies that prioritize climate protection and social justice.
“The money they will inherit may give them the ability to pursue these alternative strategies, which typically require a high minimum investment and are limited to qualified investors,” Sarah Norman, CIO director of Sustainable Investing Thought Leadership at Merrill Lynch, said in a recent report. “Sustainable and impact investing can be implemented across asset classes, equities and fixed income, as well as alternative investments. Investors now have many options and access on how to integrate sustainability into their portfolios.”
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