How Young, Wealthy Americans Are Shifting Away from the Stock Market: The New Alternative Assets Dominating Their Portfolios
In recent years, the volatility of financial markets, particularly the stock market, has led many investors to explore more stable investment options. For the younger generation of wealthy Americans, traditional stocks no longer seem to be the go-to choice, with an increasing number of them moving toward alternative assets. This shift not only reflects a heightened focus on risk management but also reveals a unique perspective on wealth growth for the future.
According to a recent survey by Bank of America, individuals aged 21 to 43 with at least $3 million in assets only allocate 25% of their portfolios to stocks, compared to 55% for those over 43. This gap underscores the distinct preferences of younger investors. Around 93% of young affluent Americans say they plan to allocate more of their portfolios to alternative assets in the coming years. But what alternative investments are catching their attention? The list includes gold, real estate, art, private equity, and cryptocurrency—assets that are increasingly gaining traction.
Among them, gold has remained a long-standing favorite for many affluent individuals as a safe haven. Throughout history, gold has been considered a reliable store of value during times of economic uncertainty and geopolitical instability. According to the Bank of America survey, 45% of younger investors own physical gold, and another 45% are interested in acquiring it. Due to its stability, gold is often seen as a hedge against inflation. Recently, gold prices have soared to a historic high, hovering around $3,300 per ounce, reflecting investor enthusiasm.
Beyond physical gold, many young investors are turning to Gold IRAs (Individual Retirement Accounts) as an attractive option. These accounts allow investors to hold physical gold or gold-related assets within a retirement fund, offering tax advantages while also providing protection against market volatility. For example, platforms like Thor Metals offer services to help individuals incorporate gold into their retirement plans, combining the benefits of tax-deferred growth with the security of precious metal investments.
Real estate is another asset class drawing significant interest from younger investors. In the U.S., real estate has long been regarded as a stable and lucrative investment, with properties generally appreciating over time. According to the Bank of America survey, 31% of younger respondents believe real estate offers the best growth opportunities. In fact, the top 1% of Americans own more than $6 trillion in real estate assets, including residential, commercial, and rental properties.
Platforms like Arrived make it easier for everyday investors to tap into this market. Through these platforms, individuals can buy shares in vacation homes or rental properties, allowing them to benefit from property appreciation and rental income without the complexities of managing real estate directly. With as little as $100, investors can become part-owners of real estate, receiving dividends from rental income and potential appreciation.
Art investment has also become increasingly popular among younger investors. Historically, art investment was reserved for the ultra-wealthy, who could afford multi-million-dollar paintings. However, platforms like Masterworks have made it possible for everyday investors to access this high-end asset class. Masterworks allows individuals to buy fractional shares in blue-chip artworks by renowned artists such as Pablo Picasso, Jean-Michel Basquiat, and Banksy.
Art has proven to be a lucrative investment. According to Deloitte, the global art market has a transaction volume of over $67 billion annually and is valued at $1.7 trillion. Notably, contemporary art has outperformed the S&P 500, delivering an annual return of 11.5% from 1995 to 2023, compared to the S&P 500’s 9.6%. Thanks to platforms like Masterworks, ordinary investors can now access the art market by purchasing fractional shares in high-value artworks. As these artworks appreciate over time and are eventually sold, investors receive returns proportional to their shares.
Aside from gold, real estate, and art, private equity and cryptocurrency are also becoming key areas of interest for younger investors. Private equity involves investing in companies that are not publicly traded, typically during their growth stages or through buyouts. Over 25% of young affluent Americans view private equity as a top growth opportunity. While private equity offers significant upside potential, it often requires a longer-term commitment and carries higher risks than public equities.
Fundrise is one platform that provides access to private equity and other alternative investments, including real estate and private debt. Fundrise manages over $7 billion in real estate assets and has more than two million investors. Through Fundrise, individuals can create customized portfolios based on their risk tolerance and financial goals, allowing them to invest in high-growth opportunities in the private equity space.
Cryptocurrency has also become a major asset class for young investors, despite initial skepticism due to its volatile nature. With the global market cap for cryptocurrencies now standing at $3.72 trillion, fueled by endorsements such as former President Trump’s proposal to create a "strategic national Bitcoin stockpile," cryptocurrencies have become mainstream. According to the Bank of America survey, 29% of younger investors see cryptocurrencies as offering significant growth opportunities, compared to just 7% of older investors.
Rich young Americans have also allocated 15% of their portfolios to cryptocurrencies, compared to only 2% for older investors. Platforms like Coinbase allow users to easily buy, sell, and store digital currencies such as Bitcoin, Ethereum, and Litecoin. With cryptocurrency’s increasing acceptance in mainstream financial systems, young investors are increasingly seeing it as a legitimate long-term asset class rather than a short-term speculative play.
In conclusion, the investment behavior of young wealthy Americans is undergoing a profound transformation. They are moving away from traditional stocks and seeking more diverse and flexible alternatives. Whether it's gold, real estate, art, private equity, or cryptocurrency, these alternative assets offer not only protection from market volatility but also the potential for substantial wealth growth. As these investment strategies become more accessible to the broader public, we may witness a significant shift in the financial landscape in the years to come.