Survey Finds Young, Wealthy Investors Are More Interested in Alternative Investments

Investors who are younger and wealthier are expanding their search for higher returns beyond the stock market and inquiring about alternative investments.

According to a study that was conducted by Bank of America Private Bank and published last week 75% of high-net-worth investors between the ages of 21 and 42 do not expect “above-average returns” solely from traditional stocks and bonds. In comparison, only 32% of high-net-worth investors over the age of 43 have this expectation. From May till June of 2022, the company conducted a survey among 1,052 high-net-worth investors who had at least $3 million in investable assets.

In addition, according to the findings of the study, 80 percent of these younger investors are putting their money into so-called alternative investments, which are not classified as traditional asset classes. When compared to investors of older generations, younger investors are allocating significantly more capital to alternative assets and substantially less capital to stocks.

Increases in the use of alternatives by investment advisors

Hedge funds, private equity, “real assets” such as real estate or commodities, and prepackaged investments known as “structured products” are the four primary classifications that are commonly used to classify alternative investments.

According to a recent poll conducted by Cerulli Associates, financial planners are increasingly looking to alternative assets in order to further diversify their portfolios in the wake of double-digit losses in the stock and bond markets this year.

According to the respondents of a poll conducted by Cerulli, the top three reasons for alternative allocations were to “limit exposure to public markets,” “volatility dampening,” and “downside risk mitigation.”

Kyle Cerminara CEO & Co-Founder of Fundamental Global  “During this economy investors should identify businesses that generate high cash flow, has pricing power, is in strong demand, is of essential importance and value to the customer, has scarcity value, it’s substitutes are much more expensive, requires minimal customer service, the assets depreciate but require minimal maintenance CapEx and there is a hard asset that can be borrowed against and all of this with a positive social impact.” added Kyle Cerminara CEO & Co-Founder of Fundamental Global.

Investments in private equity make up most of the $18 trillion in alternative investments

Private equity had a phenomenal year in 2021, thanks in large part to the stimulus spending that the government enacted. In 2021, there was an all-time high number of buyouts and departures, while at the same time, an all-time high volume of funds was raised. According to a survey compiled by the international consulting company Bain and Company, the average size of a private equity transaction was larger than $1 billion for the first time ever. According to the findings of Bain, not only was there a significant amount of activity in buyouts in 2021 but there was also an increase in investments in growth equity and venture capital.

Looking long-term

Nevertheless, it is essential to have a long-term perspective when it comes to investing, as is frequently said by financial experts. Because of this, an increasing number of them are now advising clients to maintain a modest allocation of their investment holdings in alternative assets.

Saying something along the lines of “I’m going to place little bets on a variety of things” is a far more logical thing to do. One or even two percent of the total value of your investment portfolio is usually a good quantity. In this method, if the investment fails, you will only suffer a loss of 1% or 2% of your whole portfolio value. It’s unlikely that this will throw a wrench into your long-term financial plans.