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Many young investors are finding creative ways to build wealth. Gone are the old days when investing only in bonds and stocks was the go-to way to get rich. In fact, according to one bank, a whopping 72% of young wealthy Americans between the ages of 21 and 43 believe that it is no longer possible to achieve above-average investment returns by investing solely in traditional stocks and bonds. “I think so.” American report.
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In contrast, only 28% of Americans age 44 and older share this sentiment. So what are the younger generations investing in, and should you do the same?
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Collectibles — wine, cars, sneakers
According to the report, affluent Millennial and Gen Z Americans are highly interested in collectibles, with 94% saying they are interested in collectibles. For example, 46% of Americans in these generations are interested in collecting watches. 36% are interested in wine and spirits. 32% are interested in rare or classic cars and 30% are interested in sneakers.
But while these assets offer diversification, multiple experts agree that it’s important to approach and invest with caution.
Steve Sexton, CEO of Sexton Advisory Group, says it’s generally a good idea to diversify your portfolio with assets that are less correlated with each other. However, he added that it is important to recognize that some alternative investments are more reliable than others.
“Collectibles like wine, art, cars, and even NFTs (non-fungible tokens) make for great conversation at a party, and may sometimes bring you a profit or two, but in general, “I don’t recommend relying on collectibles to make or break your portfolio,” Sexton said.
Another potential drawback is that these investments are not liquid. Gloria García Cisneros, wealth manager at CFP Rude Murray, said that while a vintage wine collection or rare sneakers may look great, it’s not easy to sell quickly if you suddenly need cash. .
Rather, she argued, they should complement, rather than replace, a balanced financial strategy.
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precious metal
Interestingly, the report found that 45% of young Americans own physical gold, and an additional 45% are interested in investing in gold. Experts pointed out that this makes sense because gold has several advantages, including being considered as an inflation hedge.
Alex Evkarian, COO and co-founder of precious metals dealer Allegiance Gold, says diversifying beyond buying traditional paperback assets such as stocks, bonds and mutual funds is very important for younger generations. It’s important. One way to solve that, he said, is to use precious metals.
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During financial crises such as the Great Recession of 2008-2009, portfolios containing only paper-backed assets lost huge amounts of value, but gold maintained its value, making it an attractive alternative asset. These investors could be beneficial, he noted.
cryptography
Naturally, young investors are also interested in cryptocurrencies. Although cryptocurrencies have become mainstream over the past few years, they are still considered alternative investments and are highly volatile. The numbers speak for themselves. 28% of young wealthy Americans believe this sector offers the greatest growth opportunity (second only to real estate), 49% of them own digital assets; I’m interested in
Again, experts urge caution. While it’s important to diversify your portfolio, it’s also important to understand that potentially lucrative digital assets are not a sure bet, say both the Blockchain Law Institute and the Maryland Blockchain Association. CEO Jacqueline Cooper said.
“Bitcoin, for example, is increasingly being adopted by the traditional financial community, offering new investment avenues beyond decentralized finance. However, this does not eliminate the inherent risks associated with it.” she said.
real estate
When it comes to which investment offers the greatest opportunity for growth for young wealthy Americans, real estate is the top choice at 31%. These investments now come in many different types. For example, real estate investment trusts (REITS) – essentially mutual funds that buy real estate instead of stocks – can be a great diversification tool.
In fact, the benefit of investing in alternative investments that are uncorrelated to the stock market, such as REITs, means that even if the stock market declines, they can potentially remain stable or even increase in value, Sexton said. said. “Real estate investments (REITs, farmland, commercial real estate, residential real estate) are generally considered sound investments because they have historically provided stable income and tax benefits,” he said. .
Another way to invest in real estate is through fractional ownership. Alex Blackwood, co-founder and CEO of Mogul Club, said fractional real estate is one of the most strategic and creative forms of alternative investing among Gen Z. . As he explained, this allows investors to buy a portion of a home, typically a portion of a home. Since it is a rental property, there is no need for maintenance and upkeep that comes with ownership, and you can earn a high yield.
“Younger generations are increasingly participating in fractional property investing, especially as housing affordability has become a major concern for them in recent years, making it almost impossible to invest in a single property. “There are,” Blackwood elaborated.
conclusion
Experts such as Sean Carpenter, chairman and CEO of StockAlarm, point out that stocks and bonds are not going away anytime soon and remain a good foundation for any investment plan. However, adding alternative investments to your portfolio increases portfolio diversity and reduces risk. Beyond cultural appeal and potential higher returns, deciding whether to go into alternative investing really comes down to what your personal goals are and how much risk you can tolerate. .
“Selling a collectible watch or antique car is not as easy as selling a stock on the stock market,” Carpenter says. “Also, you have to study. Learning about the sneaker market and understanding the value of old wine takes time and effort.”
So where do alternatives come into play?
Start with a strong foundation of traditional investments and emergency savings. Next, if you’re interested in alternatives, consider allocating a small portion of your portfolio (usually no more than 10-20%) to these more speculative investments, says Garcia Cisneros of LourdMurray. says Mr. In other words, think of it as money that you can afford to lose completely if things go wrong, she said.
“Being young gives you the incredible advantage of time. The power of compounding means that stable long-term investments in more traditional assets can yield significant growth over decades.” she said. García Cisneros adds that while it’s okay to explore alternative investments, don’t let that override the importance of building a strong, diversified portfolio of stocks, bonds, and other more traditional assets. Ta.
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This article originally appeared on GOBankingRates.com: Younger generations are buying these 4 alternative investments — should they?
