In the not-so-distant future, we will be witnessing a demographic shift that will profoundly reshape the investment landscape, and consequently, our entire society.

The current generational wealth gap is probably one of the biggest in history. The older generations – the Boomers and the Silent Gen – collectively possess 64% of the total wealth in the US, while representing only 26% of the population. The younger generations – Millennials and Gen-Z – possess less than 6% of the nation’s wealth, but make up 42% of the population (source: Federal Reserve). In Western Europe, the generational wealth gap is also widening significantly.

However, as the natural course of life is taking its toll, this situation is bound to change. Over the next 20 years, Millennials are set to inherit their parents’ wealth, becoming the richest generation ever. This event, often referred to as the Great Wealth Transfer, will bring about profound changes, driven in large part by the fundamental differences in investment behavior between the older and the younger generations.

Indeed, Millennials’ life experiences is likely to lead them to cast aside the assets favored by their predecessors, such as a traditional mix of government bonds and stocks. Instead, they prefer alternative investments, such as private equity, real estate and crypto.

Generational wealth gap

Boomers (born in 1946-1964), are widely considered the “luckiest” generation, coming of age in a rapidly growing economy, full of hopes and newly printed dollars.

In contrast, Millennials (born in 1981-1996) have faced significant economic challenges, navigating financial and ecological crises, mounting student debts, and an overall rapidly rising cost of living.

Housing, in particular, has played a role in the disparity in buying power between the two generations. Only 43% of 30-year-olds in the US own their home, compared to 52% of Boomers at that age (source: Redfin). In the UK, there’s even a new monicker to describe Millennials who cannot afford their own house and are forced to move back in with their parents – “Guppies”, as in “giving up on property”.

What Millennials saw at the start of their careers were foreclosed homes and people losing their savings in the 2008 crisis. “What that underscored for people is that banks can’t be trusted, and your money is only as safe as the government allows you to believe,” said Tom Lee, the founder of Fundstrat, a market strategy firm.

Such experience has shaped a totally different attitude toward investing.

New investment behavior

Millennials' investment behavior has been extensively studied.

In the end of 2022, Bank of America found that as many as 75% of investors between age 21-42 didn’t believe it was possible to achieve above-average returns solely with traditional stocks and bonds. 80% were looking to alternative investments, such as private equity, commodities, real estate, and crypto, while 73% paid attention to making sustainable investments.

A recent study conducted by Finra and CFA Institute in the US, Canada, the UK, and China, revealed that cryptocurrency is the most common investment among Millennials and Gen-Z, with over 55% including it in their portfolios. Conversely, mutual funds with conservative portfolios of stocks and bonds, a primary investment choice for Boomers, are steadily losing their appeal.

A comparable research by Morningstar confirmed that over half of the US Millennials invest in crypto.

Investment methods are changing too. Over 55% of Millennials and 65% of Gen-Zers use platforms like Robinhood or crypto exchanges, which allow anyone to start investing even very modest sums of money.

The Great Wealth Transfer

By 2045, the US Millennials and Gen X (the preceding generation) are expected to inherit $84 trillion, which is roughly half of today’s total US population wealth of $156 trillion (source: Cerulli Associates).

Twenty years is a period long enough to produce a totally unexpected turn of events.

However, if the Millennials continue investing in things they believe in, the investment landscape will never be the same again. More money would flow from traditional finance into the fintech, crypto, and sustainable sectors, setting in motion the processes that can reshape our entire world.

As put by Fidelity in its recent Institutional Insight report, “Given their lived experiences, next generation investors do not fit the same mold as their older counterparts at comparable ages. They are following nontraditional life paths, driven by values, always connected to technology, motived by FOMO (fear of missing out), focused on mental health and value diversity.”

 Written by D.Center