Leaving a good legacy behind for your children is the hope for most parents. Ensuring your family is well looked after by the time you’ve passed is always a delicate and critical process, yet a necessary one. Recent years have forecasted that Baby Boomers would leave the most wealth to the next generation. The markets might change.
Never Seen Before
Historically, the predictions for wealth transfers from Baby Boomers to the next generations, Millennials, Gen X, and Gen Z, are said to be one of the largest wealth transfers in America. An accumulative $84 trillion in wealth is estimated to pass from one generation to the next within the next two decades.
Boomers Investments
In the past, Baby Boomers chose to invest in property and lots of stocks. However, according to research from Bently University, their portfolios are not as diverse. Around 30% of Boomers invest nearly all their wealth into stocks.
Millennial Investors
Millennials are diversifying their portfolios even more than Boomers. According to a 2022 article by NASDAQ, Millennials are keen on environmental change and are investing in green energy. “75% of Millennials are eco-conscious,” and favor environmentally friendly products and services.
Gen X Investors
Generation X is invested in cryptocurrency, and according to Investopedia statistics, 70% manage their finances well.
Gen Z Investments
Gen Z is regarded as the most tech-advanced, and cryptocurrency is one of their popular investments, along with social change and environmental issues. NASDAQ reported 73% of Gen Z has invested in stocks.
Wealth Transfer Next Two Decades
Merrill estimates that within the next 20 years, the wealth transfer over the generations will be something like 4 trillion to Boomers, 30 trillion to Gen X, 27 trillion to Millennials, and 11 trillion to Gen Z.
Boomers Continue Giving
Merrill reported that many Baby Boomers transfer wealth to their younger generations while they are alive, more so than leaving it in their wills. Boomers give more than their other generational peers while living, while others may seek to invest for a longer term.
Alternative Portfolio Investments
From Millenials to Gen Z, the wealthy younger generation’s investments are prominent in private wealth and diversified portfolios. “Younger investors are more open to new financial vehicles, including alternative investments,” said Merrill Senior Investment Strategist Lauren Sanfilippo.
Not Afraid To Invest More
Sarah Norman, the Head of CIO Sustainable Investing Thought Leadership, said that the younger generation is ” more confident in their ability to direct their own investments…”
Support for the Future Through Hedge Funds
Many young wealthy Americans are creating hedge funds to support climate change and other environmental and social equity issues.
Young Are Not Keen On Old Investment Options
According to Merrill’s expert advisors, the younger generation is less confident in how their senior generations invest their wealth. Younger investors aged between 21 and 42 disagree with the former strategy.
Gen X and Millennials Follow Their Senior’s Lead
Merrill’s reports noted that 32% of older investors aged 43 and up trust the way their parents used to invest.
Yes to Sustainability
Bank of America reported in a study that younger adults under 43 have investments in sustainable assets. Impact and sustainable investments have increased in the past few years to 26% and are set to become a regular part of future investing.
Sustainable Investing Could Mitigate Risks
Norman also added that the younger generation of investors strategically invest in sustainable options because it can help “mitigate potential future risks.”
Sustainable Investments Reaching a Wider Option
According to Norman, the interest in sustainable investments would gradually progress from its smaller “nich” group to more significant interest.
Sustainable Investment Options for the Future
She also predicts that what is considered sustainable today in terms of ESG (Environmental, Social, and Governance-Related) parameters will expand to wider investment options that also fall under sustainability.
Real Estate Is a Favorite
Among many investors, real estate has always been a good investment option regardless of generation cohorts. Although younger generations face more challenges when purchasing their first homes, these issues will be ironed out with time. Sanffilipo says, “That’s a for now story, not a forever story,” regarding young homeowner challenges.
What Does the Young Homeowner Face?
According to Sanffilipo, younger adults investing in first-time property can face rising interest rates, supply problems, and other challenges.
Can Do More With Inheritance
The Great Transfer will enable many Gen Z and Millennial groups to afford a second or third property. They may also inherit property, which will add to their investment portfolio.
Closing Thoughts
Experts recommend a diversified portfolio, considering taxes and long-term goals, such as inheritance or growing wealth. Only time will tell how the transfer of this grand wealth will impact the markets and investment options.
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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.
