Young wealthy investors are investing less of their portfolio in the stock market and more in alternative assets versus older investors. That was a key finding of a recent Accredited Investor Survey conducted by iCrowd. The survey confidentially polled a large sample of accredited investors – investors with over $1 million in investable assets, excluding the value of a primary residence, or individual annual income exceeding $200,000 – aged 18 and older. The survey gathered information about investors’ approaches to asset allocation, trust in Wall Street and the financial community, key investment decision drivers, and general awareness of online investment opportunities.
Wealthy Young Investors Fear the Stock Market, Turn to Alternative Investment Opportunities
According to the survey, 49% of young accredited investors (ages 18-29) are currently invested in private company securities (private placements and angel investments) compared with 21% of 45-60 year olds. Young accredited investors are also more interested in alternative investments. 18-29 year olds have allocated 7% to both private equity and hedge funds, in comparison with their senior counterparts, who have allocated only 4% and 2% respectively to the same asset classes. And with an average of only 30% of young investors’ portfolios in equities, as opposed to 48% of baby boomers, results suggest that the Facebook generation may be more receptive to less traditional asset groups.
The Facebook Generation’s Perception of Wall Street
While wealthy millennials allocate less to stock market investments, 22% of 18-29 year olds believe Wall Street firms act in their best interest while only 10% of 45-60 year olds and 12% of 60+ accredited investors indicated that they trust Wall Street firms.
“When it comes to investing, the Facebook generation takes a less traditional, and much more open approach than their parents did,” said Brad McGee, co-founder of iCrowd. “Young accredited investors are seeking diversified opportunities outside of traditional equities in order to protect and grow their nest eggs.”
Cause-Related Investing is a High Priority for Wealthy Millennials
More than one quarter of young accredited investors rank investing in a business that supports the local community as a top factor when making investment decisions, as opposed to 11% of total respondents. The importance of cause-related investing for millennials is not a new trend. According to the American Dream Composite Index, “Individuals ages 24-35 are much more likely to participate in traditional crowdfunding campaigns; those over 45 are significantly less likely to back campaigns.”
“Reward-based crowdfunding has been successful because it’s predicated on establishing emotional connections with donors,” said Brad McGee. “Investment crowdfunding is likely to find a niche with investors who want to allocate a portion of their portfolios to companies that create financial opportunities and whose values they support.”
Tech-Savvy Young Investors are More Attuned to Online Investment Opportunities
Markedly, forty-four percent of digital natives are aware that some online securities brokers allow investors to view investment opportunities in private companies, as opposed to 38% of baby boomers. The results suggest that digital natives are more aware of online investment opportunities, and 37% would consider investing in private companies and startups through an online securities broker.
Where Age Doesn’t Matter
With changes in securities regulations went into effect in September, small businesses are allowed to advertise when they seek capital, but they may accept investments only from “accredited investors,” who presumably have the resources to bear the risks and illiquidity of small company investments.
Regardless of age, 71% of accredited investors 18 and up who responded to our survey do not know they are considered accredited, and thus, eligible to invest in certain asset classes. The recent lift on the ban on general solicitation opens myriad doors for these investors, which they might ignore simply because they are unaware they qualify.