Managing Partner, Cloud Equity Group. New York based asset management firm focused on investments in tech-enabled business service providers.
Americans have been through a lot recently. We’ve experienced the fear, isolation and loss of more than 1 million friends and family members from Covid-19, the collapse of digital asset markets, the ravages of climate change, major tech layoffs, a deeply polarized electorate, and declining U.S. college enrollment rates—all coming at a time when the AI revolution, thanks to ChapGPT, could disrupt up to 300 million jobs globally.
For those coming of age as investors in a volatile world, most view the U.S. stock market with great skepticism and mistrust. According to a recent Bank of America study, 75% of Americans between 21 and 42 years of age don’t think it’s possible to achieve above-average returns solely by investing in traditional stocks and bonds. That’s compared to 32% of investors over the age of 43 who believe the same. Eighty percent of young investors look to alternative investments, such as private equity, commodities, real estate and other tangible assets, and nearly 75% of Millennials, compared to 21% of older respondents, invest in sustainable products and ventures.
This is no surprise, as Millennials and Gen Z were raised in a time of unrelenting technical and social change and find traditional institutions suspect, including Wall Street. Further, younger generations have lived through major market swings impacting the trust they put in the market to accumulate wealth. The tech bubble, the currency crisis, the Great Recession, Covid’s economic turmoil, the growing inequality between the uber-rich and everyone else, and concerns about social and environmental injustices are all experiences contributing to skepticism of the stock market’s ability to reliably provide amenable returns.
Where are the younger generation of investors putting their money?
• Real Estate: Millennials accounted for 43% of all home purchases in the U.S. in 2021. Good for them. Real estate is a tangible asset that can provide consistent and reliable returns over time. Whether you invest in residential or commercial real estate, you can rent out your properties, providing you with passive income. You may also see long-term gains through property appreciation. What’s more, investing in real estate acts as a protection against inflation. When the prices of goods and services are rising, home values and rents typically increase as well. Investment properties, then, help protect you financially when the costs of everything are skyrocketing.
• Peer-To-Peer Lending: Peer-to-peer (P2P) lending platforms, such as enabling individuals to obtain loans directly from other individuals, cutting out the middleman. They connect borrowers with investors, providing an opportunity for investors to earn returns by lending money to individuals and businesses. Through P2P lending, it’s often possible to access a much higher rate of return than is currently available from other investments, such as deposit accounts or bonds. There’s a low barrier to entry because a P2P portfolio can be created with a limited amount of capital. A lender also has the agency to choose the level of risk they’re willing to accept by scrutinizing the profile of the buyers to whom they lend money.
• Investment Crowdfunding: Investment crowdfunding (also called equity crowdfunding) occurs when investors pool their money together to fund a specific project, business or venture—like a startup, expanding business or even real estate. It allows businesses to more easily raise capital by allowing anyone to invest and can provide an opportunity for investors to support projects they believe in while also earning a return. Small and medium-sized businesses greatly benefit from investment crowdfunding because it allows them easier access to investor capital. These types of businesses are the backbone of the American economy, enabling investors in this space to feel good about their contributions.
• Commodities: Commodities, such as gold, oil and agricultural products, are an asset class made up of raw materials used to make consumer goods. Investors often see commodities as a hedge against inflation and market volatility. This is because commodities are assets that are not usually directly correlated with each other—say, for instance, cattle and oil. When the value of one asset falls, it doesn’t affect the other. Investing in commodities can smooth volatility in a portfolio. Additionally, being an input of production, when inflation goes up, commodities follow the same trend, making them a good way to store value and protect against inflation. Commodities also are changing. With the advent of climate change, many investors seek to invest in clean energy or even potable water. As the Earth continues to warm, there may be a shortage of fresh water to drink and grow crops.
• Collectibles: There’s nothing better than having the opportunity to invest in the things you love and cherish. Art, antiques, rare books, NFTs, vintage wines, watches, other jewelry and even baseball cards can provide opportunities for long-term gains as the value of these items appreciates over time. This is particularly good news for young, stock market-wary investors: Collectibles have a low correlation with traditional financial investments, making them a perfect place to preserve capital in volatile times.
Whether Gen Z and Millennial investors will view Wall Street more favorably as they mature remains to be seen. Recent studies show that Millennials are defying some trends common to previous generations as they age, but it’s too soon to know if these changes will apply to investing as well. As for Gen Z, aka “Generation Precarious,” they are more likely to experience lots of financial ups and downs—but that may also make them more resilient and looking to a wide range of investing options.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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