The Changing Landscape of Investment
Over the past decade, traditional investment approaches have given way to a more diverse range of asset classes. Private wealth, blockchain technologies, and digital assets have experienced increased volatility with boom and bust cycles. The emergence of millennials and Gen Z into wealth will further disrupt this evolving landscape.
According to the CFA Institute, a US non-profit organisation providing investment professionals with finance education, millennials are starting to invest at a younger age, indicating greater investment experience and economic power. With an estimated $30 trillion in inheritable wealth to pass down, future investors will have different values, goals, and aspirations than previous generations. As a result, family offices are adapting to meet the needs and expectations of this new generation of investors.
The Rise of a New Generation of Investors
The generational wealth transfer that will take place over the next two decades is unprecedented. A sizable portion of Gen Z investors have already immersed themselves in the world of investing, according to a survey by the CFA Institute and the FINRA Foundation (the US Financial Industry Regulatory Authority). In the United States, 82% of Gen Z investors surveyed started investing before the age of 21. This trend is mirrored in Canada, where 79% of Gen Z investors began their investing journey at a young age. In the UK and China, the numbers were slightly lower but still significant, with 81% and 63% of Gen Z investors, respectively, having started investing before the age of 21.
New Investment Preferences and Behaviours
Young investors are looking beyond traditional stocks and bonds to alternative asset classes for superior returns. Private equity, commodities, and real estate are gaining popularity, driven by a desire for diversification and scepticism about the transparency of traditional financial institutions.
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Cryptocurrencies have also captured the attention of millennial and Gen Z investors. The survey found that a significant proportion of young investors, particularly in the US, Canada, and the UK, started their investment journey with cryptocurrencies. In the US, 44% of Gen Z investors put their money in crypto for the first time, compared to 35% of Millennials and 23% of Gen X investors. Similar trends were seen in Canada and the UK.
The Rise of Sustainable Investing
Sustainable investing, including net-zero initiatives, is gaining traction among young people, growing three to five times faster than traditional investments. Projections show that by 2026, sustainable investment could account for 8% to 17% of privately invested assets, up from 4% to 11% today.
Family offices are adapting to the demands of younger investors by integrating sustainable investing into their strategies, aligning with networks, and supporting companions that reflect the values of the younger generation.
Challenges in Generational Wealth Transfer
Transferring wealth to Millennials and Gen Z presents challenges for family offices. The younger generations have different investment preferences and goals, resulting in delayed transfers. Conversations about wealth transfer often occur around the age of 27, as parents worry about their children’s readiness to manage the family’s money. Financial literacy is critical in this process, with Gen Z youth expressing its importance but lacking adequate educational resources for financial independence. Family offices can bridge this gap by providing educational resources and guidance to the younger generation.
