Millennials like me get a lot of flak.
According to the mainstream media, we’re a bunch of social-media obsessed, avocado-toast eating “kids” who care more about our next Instagram post than finding a real job.
But on one important topic, my generation gets heaps of praise: when it comes to investing, we’re known for thinking outside the box.
The thing is, this outside-the-box thinking includes a strategy that can potentially help investors of any generation build long-term wealth.
Curious? Let me tell you about it.
Behind the Financial 8-Ball
If you were born between 1981 and 1996, you’re a millennial. And unfortunately, you’re probably behind the financial 8-ball.
Millennials, now aged 29 to 44, make up 22% of America’s adult population. Yet they hold only about 10% of U.S. household wealth. GenXers held 15% at those ages, while Boomers held about 21%.
As you can see on this chart, millennials (the purple line) are well behind other generations with respect to net worth:
A few factors are contributing toward this predicament:
Student debt — Millennials hold more than $500 billion in student loans.
Stagnant wages — Wages for younger workers haven’t kept pace with inflation or asset growth.
Market timing — Older generations benefitted from long bull markets in the 1980s, 90s, and 2000s. Many millennials entered the workforce amidst the 2008 Great Recession, and experienced further setbacks when Covid struck in 2020.
When it comes to building wealth, millennials face an uphill climb.
But now we’re doing something about it…
“A Seismic Shift”
As reported by CNBC, millennials are allocating more of their savings to “alternative investments.”
Alternative investments are investments outside of stocks and bonds. They include private startups and private real-estate deals — the kind we focus on here at Crowdability — as well as collectibles like art, watches, and crypto.
According to Goldman Sachs, alternative investments make up about 20% of millennials’ portfolios. That’s significantly higher than GenXers (at 11%) and Boomers (at 6%).
Why alternative investments? According to a recent study from Goldman, more than a quarter of millennials said the key reason was diversification. But more than half said the primary driver was getting access to the most exciting and fastest-growing sectors.
“If you take a step back, millennials have grown up during a period of rapid technological innovation — from startups that became household names to what we’re seeing now in terms of AI and other sectors,” said Kristin Olson, global head of alternatives at Goldman Sachs. “It makes sense that this generation values getting access to alternative investments to tap into this economic growth.”
Simply put, millennials are targeting alternatives because that’s where the growth is.
But they’re not the only ones following this strategy…
The Wealthy Are Following the Same Playbook
Most folks invest mainly in stocks, bonds, and ETFs. If they’re adventurous, maybe they’ll add some bitcoin.
But the rich invest differently.
According to the Motley Fool, the rich mainly invest in alternative assets. As of 2020, the wealthy held about half of their assets in these alternative investments, and less than a third in stocks. The remainder was in bonds and cash.
Why would they do such a thing?
Three Reasons the Wealthy Invest in Alternatives
For starters, investing in alternative assets provides diversification. So even if the stock market crashes, these assets can keep growing in value.
Furthermore, they offer a hedge against inflation. In inflationary times like we’re in today, that’s a valuable trick.
But perhaps most important of all, they can provide market-beating returns.
For example, according to Cambridge Associates, a top financial advisor with clients including the Rockefeller Foundation, Harvard University, and the Bill Gates Foundation, over the last twenty-five years, startups have delivered annual returns of fifty-eight percent. That’s about ten-times higher than the historical average for stocks.
Meanwhile, according to the Motley Fool, over the last decade or so:
- Wine has shot up 127% in value.
- Classic cars have gone up 193%.
- And rare whisky is up an astonishing 478%.
Three Options for Investing in Alternative Assets
Historically, investing in the private markets was reserved for institutions or the ultra-wealthy.
Not anymore. Now, any investor can invest in alts. Here are three examples:
Mogul — Mogul is an investment platform for real estate that enables any investor to build a portfolio of quality, vetted rental properties. Minimum investments start at just $100.
Rally — Rally enables anyone to purchase fractional shares in high-value collectible assets, including classic cars and comic books.
Courtyard — Courtyard is one of the fastest-growing collectibles marketplaces. This platform offers “mystery packs” — digital vending machines filled with real-world collectibles that could be worth a fortune.
Before You Dive In
Keep in mind: all the typical caveats about investing apply here.
For example, don’t invest more than you can afford to lose; invest in what you know; and be sure to dip your toe into the water before diving in.
Furthermore, many alternative investments are illiquid. That means they can’t necessarily be converted into cash at the snap of your fingers.
So don’t invest your rent or grocery money into these offerings…
But if you're looking for strategies to build long-term wealth — and you don't mind taking the lead from millennials! — platforms like these are a great place to start.
Happy investing.
Best Regards,
Editor
Crowdability.com
