Generational Polarization – Investment Strategy

They fear the rising ravages of climate change more than their elders. They are vastly more tolerant than the average American. They are very pessimistic about the very institutions their parents and grandparents cherished… and the future of their country. They do not believe that Social Security will remain sufficiently funded or, for many, that they will ever own a house or a condo. Today, more than half of younger Americans have at least some college education, and more than half of those are women. They are millennials and younger. And while we see young MAGA supporters at rallies across the land, the more educated they are, the less they believe in conspiracy theories and autocratic solutions. Yet many believe that their votes no longer have meaning. The balance in the mid-terms hangs on their turnout, but apathy remains an issue.

Z generation are struggling with student loans, unaffordable housing and the worst rise in the cost of living we have seen in decades. While those who want jobs have little trouble finding work, the pay levels have lagged well below our new inflation levels. Millennials have been in the work world for a while now and have more established patterns. They are often parents, settled in their career paths now and many even have the incomes stabilized sufficiently to have investments. But their fearful lack of faith in traditional American institutions also translates into their investment strategies and portfolios. And believe me, Millennials are very different from generations past.

Clint Rainey, writing for the October 12th FastCompany.com, reviewed a detailed Bank of America survey and report, released on October 11th, examining those millennial investment practices, often completed entirely on smart phones. With both their earnings and their expected $73 trillion inheritance from their Boomer parents, their changes in how they approach savings represent a monumental shift that will impact every corner of the US capital and debt markets… and those broker-dealers designed to service what may become a very old-world approach to investing:

“The report, which surveyed about 1,000 adults with at least $3 million in investable assets, says the younger generation of investors is much less enamored with stocks, opting instead for cryptocurrency and other alternative investments. Roughly three-quarters of younger investors—those between the ages of 21 and 42, for Bank of America’s purposes—believe they’ll never beat the market by investing only in traditional stocks and bonds. That view is held by just 32% of the older generation, according to the report.

“The way this breaks down is that younger people are allocating three times more of their money to alternative investments than older people do, and half as much to normal stocks. This would represent a sizable shift for the market… Most of it is going into cryptocurrency. Forty-seven percent of younger investors hold digital assets of some kind. In fact, they allocate 15% of their entire portfolio on average to crypto. (It’s a solid 2% for the older generation.) Older and younger people trust the same authorities for investment advice: professional advisers, crypto experts, or their own online research more than family and friends. Except half of the young people say they turn to social media for ‘guidance.’ A third of them think crypto is a smart long-term investment vehicle, even more (35%) think it will go mainstream by 2025 to 2027, and 64% of them claim they ‘understand cryptocurrency quite well.’…

“Bank of America says a total of 16% of younger investors’ portfolios go toward alternative investments—that leaves a whopping 1% parked in something other than crypto, but it’s still something. The investments younger people believe present the best growth opportunities (if you eliminate crypto, which is No. 1) are real estate, followed by a tie between private equity and capital directly invested into companies, then ESG funds. Meanwhile, for the older folks, it’s domestic equities, then real estate, emerging markets funds, international equities, and direct investment, and finally private equity. Crypto comes in ninth for them, or third to last…

“Sixty-six percent of younger investors own art, versus 23% among the older crowd. Of the current owners, 83% of younger people bought a piece of art in the past year; for older people, it was 53%. Of course, if Gen Zers are collecting art, they’re doing it in a very fleeting, rebellious Gen Z way: Although two-thirds of both groups say they like art for its aesthetic value, once a piece becomes ‘valuable,’ 42% of young people concede they’re ‘very likely’ to sell it, compared to a quarter of older people.” And Gen Z are becoming digital millennials on steroids.

Still, the recent plunge in cryptocurrency value is simply a herald of the instability of that currency alternative. Nevertheless, it is the monetary tool of a highly disintermediated Web 3.0, a blockchain-driven version of cyberspace where buyers and sellers are increasingly put into direct contact with each other. Investment advisors, prepare! So, whatever else is said and done, America’s financial intermediaries not only have to deal with this entirely new cybercurrency trading trend, they may also be facing their own demise unless they find a way to provide genuine perceived value to these highly skeptical digital sophisticates.

I’m Peter Dekom, and this skepticism from younger generations may side-step national currencies entirely, quite detached from traditional governmental monetary and fiscal policies as well.