The world of investing is undergoing a significant transformation, led by a new generation of investors. Traditional stocks and bonds, long considered the cornerstones of investment portfolios, are taking a backseat as investors increasingly turn to alternative investments. This shift is not just a passing trend but a fundamental change in investment strategy that could reshape the future of wealth management.
The New Face of Wealth Management
Recent research from Bank of America has revealed a stark contrast in investment preferences between younger and older wealthy investors. According to the study, as reported by CNBC,
“If you’re between the ages of 21 and 43 and have at least $3 million in investable assets, your preferred investments likely aren’t your traditional mix of stocks and bonds”
(Konish, 2024).
This trend is not limited to high-net-worth individuals. In the UK, a significant shift towards alternative investments is occurring across various investor segments:
- 58% of UK investors surveyed currently hold at least one alternative investment in their portfolio.
- UK investors in alternative assets plan to increase their monthly investments by 11% on average in 2023, rising to 13% among Gen-Z investors.
- 65% of investors said they added alternative investments to their portfolio to diversify their investments.
- 55% of alternative investors reported previously making a profit from holding alternatives in their portfolio.
What Constitutes Alternative Investments?
Alternative investments encompass a wide range of assets outside of traditional stocks and bonds. For investors, popular alternatives include:
- Real estate investments
- Private equity
- Direct investments in companies
- Companies focused on positive impact
- Precious metals
- Venture capital
These alternatives offer diversification, potential for higher returns, and often align with the values and interests of younger investors.
The Growing Popularity of Precious Metals
One area of alternative investments that has seen significant growth is precious metals:
- The Royal Mint saw a 17% year-on-year increase in first-time precious metals investors during the first half of 2023.
- Investments in precious metals like gold and silver increased by 10% and 16% year-on-year respectively in the first 6 months of 2023.
- 21% of UK investors are expected to hold gold in their portfolio by 2024, up from 19% currently.
- The Royal Mint reported a 26% year-on-year increase in the volume of gold investments during 2022.
- Over the past five years, UK investors have benefited from a 64.8% increase in the value of gold (as of September 2023).
Why the Shift to Alternatives?
Mike Pelzar, head of investments at Bank of America Private Bank, explains the generational divide: “This younger generation has enjoyed much greater access to a broader set of asset classes than the older generation did as they were growing up
Several factors contribute to this shift:
Increased Access
Investors have grown up with greater access to a broader range of asset classes.
Market Experiences
Having lived through significant market upheavals, investors may be more skeptical of traditional markets.
Diversification
The increased correlation between equities and fixed income in recent years has pushed investors to seek true diversification through alternatives.
Potential for Higher Returns
Many alternative investments offer the possibility of outperforming traditional markets.
Value Alignment
Investments in areas like impact-focused companies allow investors to align their portfolios with their personal values.
We’re witnessing a fundamental shift in how investors approach wealth building. They’re not just chasing returns; they’re seeking to create portfolios that reflect their values and leverage the full spectrum of available investment opportunities. At New Capital Link, we’re committed to helping investors navigate this new landscape and access high-quality alternative investments.”
Rachel Buscall, CEO of New Capital Link,
The Future of Investing
The preference for alternative investments shows no signs of slowing down. As Pelzar notes, “The two different cohorts think very differently about what the greatest opportunities are for growth with their investments
This shift is having a significant impact on the investment landscape:
- The value of venture capital financing in the UK in Q1 2022 totaled over $9 billion, up significantly from $2.5 billion in Q1 2018.
- Financial institutions are developing more alternative investment products to meet growing demand.
- There’s an increased need for education around alternative investments, their risks, and potential rewards.
- The rise of fintech is making alternative investments more accessible to a broader range of investors.
Challenges and Considerations
While alternative investments offer exciting opportunities, they also come with unique considerations. Douglas Boneparth, a certified financial planner and president of Bone Fide Wealth, advises caution: “There’s never been a bigger menu of opportunities to put your money into” (Konish, 2024). However, he also warns that alternatives may require money to be locked up for a certain period and may come with higher fees.
The shift towards alternative investments represents a significant change in the investment landscape. As investors continue to allocate more of their portfolios to alternatives, it’s clear that the future of wealth management will look very different from its past. For those looking to stay ahead of the curve, understanding and embracing this trend could be key to future financial success.
Alternative Investments London
New Capital Link is at the forefront of the alternative investment revolution. Based in London, we specialise in connecting investors with high-quality alternative investment opportunities. Our team of experts has deep knowledge of the alternative investment landscape and a proven track record of identifying promising opportunities.
Whether you’re a seasoned investor looking to diversify your portfolio or a newcomer interested in exploring the world of alternative investments, New Capital Link can help. We offer personalised guidance, rigorous due diligence, and access to a wide range of alternative investment options.
Ready to explore the world of alternative investments? Contact New Capital Link today to schedule a consultation with one of our investment introducers. Let us help you build a portfolio that aligns with your financial goals and values.
Sources
Konish, L. (2024, July 5). Young, wealthy investors turn to alternatives instead of traditional stock and bond investments. CNBC
