Allocation and the Generational Divide

U.S. Trust conducts an annual survey of high and ultra-high-net-worth Americans, targeting individuals with at least $3 million in investable assets. This year’s survey includes some interesting findings with regard to generational differences in portfolio allocations.

The chart below shows the distribution of investments across broad asset classes for each generation. Notable is a dramatic decline in the allotment to stocks among the younger generations coupled with a similarly steep increase in commitments to cash and “other” (private equity, hedge funds, tangible assets) investments. Survey data also showed a significantly higher percentage of the younger generations, Millennials and GenXers, either interested in, or owning, tangible assets.

Driving the generational divide may be a growing perception among the young that the classic buy and hold equity strategy of their parents has become outdated and suboptimal. For generations whose formative years included the Great Recession and its aftermath, the risk/return promise of traditional stocks may not be so obvious as it was to their parents.

Instead, Millennials and GenXers appear to see greater potential in selected private equity or venture cap opportunities or in other tangible assets like investment real estate or timber – thus the high cash balance kept in reserve for when these opportunities arise. These investments are perceived as more transparent, understandable, and potentially more rewarding than buying into a stock market where alpha is rarely found and price swings are unpredictable and potentially catastrophic.

This generational shift in the assessment of relative risk and return across investments is worthy of attention by wealth managers. Understanding the psychology of younger investors can be critical in both product selection and positioning.



Source: U.S. Trust Insights on Wealth and Worth