Managing Partner at Cloud Equity Group, a New York-based asset management firm focused on investments in tech-enabled business service providers.
Americans have faced numerous challenges recently. We’ve endured the fear, isolation, and loss of more than 1 million friends and family members due to COVID-19, the collapse of digital asset markets, the impact of climate change, significant tech layoffs, a polarized political climate, and decreasing U.S. college enrollment rates—all while the AI revolution, led by technologies like ChatGPT, threatens up to 300 million jobs globally.
For those entering the investment world during these turbulent times, the U.S. stock market often seems untrustworthy. A recent Bank of America study found that 75% of Americans aged 21 to 42 doubt they can achieve above-average returns solely through traditional stocks and bonds, compared to 32% of investors over 43. Additionally, 80% of young investors prefer alternative investments such as private equity, commodities, real estate, and other tangible assets. Nearly 75% of Millennials, versus 21% of older respondents, invest in sustainable products and ventures.
This skepticism is understandable, given that Millennials and Gen Z grew up during continuous technological and social change, leading them to distrust traditional institutions like Wall Street. Their experiences with major market crashes, including the tech bubble, the Great Recession, and COVID-19’s economic upheaval, have further shaken their confidence in the stock market as a reliable wealth-building tool. Moreover, rising inequality and concerns about social and environmental justice add to their doubts.
Where are younger investors putting their money?
– Real Estate: Millennials made up 43% of all U.S. home purchases in 2021. Real estate offers consistent and reliable returns, whether through residential or commercial properties, which can be rented out for passive income or appreciated over time. Real estate also acts as a hedge against inflation, as property values and rents typically rise with the cost of goods and services.
– Peer-to-Peer Lending: Peer-to-peer (P2P) lending platforms connect borrowers directly with investors, bypassing traditional banks. Investors can earn higher returns by lending money to individuals and businesses. P2P lending has a low entry barrier, allowing portfolios to be built with minimal capital. Lenders can also choose their risk level by evaluating borrower profiles.
– Investment Crowdfunding: Investment crowdfunding (or equity crowdfunding) allows investors to pool money to fund specific projects, businesses, or ventures, such as startups or real estate. It provides businesses with easier access to capital and gives investors the chance to support projects they believe in while earning a return. Small and medium-sized businesses, which are the backbone of the American economy, benefit significantly from this type of funding.
– Commodities: Commodities like gold, oil, and agricultural products serve as a hedge against inflation and market volatility. They are not usually directly correlated with each other, so a drop in the value of one does not affect the others. Investing in commodities can help smooth portfolio volatility and protect against inflation. With climate change, many investors are turning to clean energy and fresh water as commodities.
– Collectibles: Investing in collectibles such as art, antiques, rare books, NFTs, vintage wines, watches, jewelry, and baseball cards can provide long-term gains as these items appreciate in value. Collectibles have a low correlation with traditional financial investments, making them a good place to preserve capital during volatile times.
Whether Millennials and Gen Z will change their views on Wall Street as they age remains uncertain. Studies suggest that Millennials are breaking some trends of previous generations, but it’s too early to tell if this will affect their investment choices. Gen Z, often called “Generation Precarious,” may face many financial ups and downs, potentially making them more resilient and open to diverse investment options.
