Stock Investing: Tips to Get Started
Entering the world of trading can seem daunting. Here are some important things to consider if you’re just getting started:
Buzz 60, Buzz 60
Older investors prefer stocks. Younger investors prefer “alternative investments.”
That’s the conclusion of a new study of wealthy Americans released in June by Bank of America Private Bank.
The bank surveyed 1,007 Americans with at least $3 million in investable assets, and when asked to rank the investments they considered to be their “greatest growth opportunities,” responses varied widely by age.
Older Americans ages 44 and older chose stocks, stocks and more stocks. Their top investment was domestic stocks. “Emerging market stocks” and international stocks came in third and fourth, behind real estate.
Younger Americans between the ages of 21 and 43 preferred six alternative investments over stocks, with “alternative” meaning anything other than the traditional investment breadth of stocks and bonds.
According to a Bank of America survey, the top five investments for Gen Z and millennial investors are:
Real estate (31%) Crypto/digital assets (28%) Private equity (26%) Individual businesses/brands (24%) Direct business investments (22%) Positive impact-focused businesses (21%)
The findings suggest that wealthy millennials and Gen Zers have different financial priorities than older investors. Some of the younger billionaires made their fortunes by starting companies or apps, while others were early entrants to the cryptocurrency movement that has brought exponential gains to a small group of young, male investors.
Average net worth by age: See how you compare
Can you get rich with stocks and bonds alone?
The survey also suggests that there is a big divide between younger and older investors on a fundamental investing question: Can stocks and bonds alone get you rich?
“The survey asks, ‘Where can I get above-average returns?'” said Dustin Wolk, a wealth adviser at Crescent Grove Advisors in Milwaukee. “These individuals are saying, ‘I don’t think it’s stocks or bonds anymore.'”
The survey asked, “Is it still possible to earn above-average investment returns by investing only in traditional stocks and bonds?” A majority of older investors, 72%, said “yes.” An equal number of younger investors said “no.”
And, at least to some extent, young investors are putting their money where their mouth is.
The study found that older investors hold, on average, only 5% of their portfolios in alternative investments, while younger investors hold 17% of their assets in alternative investments.
Nearly all younger investors (93%) said they are likely to allocate more money to alternative investments in the next few years, compared to just 28% of older investors.
Older and younger investors also seem to have very different views on what constitutes a risky investment.
“Everyone knows someone who became a cryptocurrency millionaire”
Millennials, born between 1981 and 1996, grew up during two stock market crashes: the dot-com bubble of 2000 and the great recession of 2008 and 2009.
“I think the great financial crisis was really formative, especially for this generation,” said Mike Sullivant, 36, head of investor relations at Aspen Funds, a private investment firm in Kansas City, Kansas. “A lot of us were in college or young professionals when it all happened.”
In contrast, some younger investors have come to view cryptocurrencies and other alternative investments as “surprisingly risk-averse,” meaning safe, the report said.
“Among millennials, everyone knows someone who made money in crypto. Everyone knows someone who became a crypto millionaire,” said Craig J. Ferrantino, president of Craig James Financial Services in Melville, New York.
Still, many financial advisors believe that cryptocurrencies and other alternative investments are inherently risky.
“My advice to anyone making these investments is that they are not safe investments,” said Monica Dwyer, a certified financial planner in West Chester, Ohio. “You should not put more money into cryptocurrencies than you can afford or are willing to lose.”
Young investors get their information from social media and podcasts
Older and younger investors also differ in terms of where they get their investment information.
When asked to rank their main sources of financial content, young investors ranked social media first, followed by online articles and videos.
Meanwhile, older investors said they get their news and tips from more traditional sources: online articles, newspapers, and television, in that order.
Pitches for alternative investments have proliferated in social media posts, YouTube videos and podcasts, many of which are aimed at millennial and Gen Z audiences.
“There are now voices out there saying, ‘Here’s exactly how you can do it,'” Sullivant said.
Rapidly evolving technology has lowered the barrier to entry for alternative investments, he said. Private equity funds have historically been the preserve of billionaires, but now it’s possible to invest in them for as little as $25,000. Cryptocurrencies, which are completely incomprehensible to many baby boomers, are now second nature to tech-savvy millennials.
A quick introduction to cryptocurrencies and other alternative investments.
Cipher
Cryptocurrencies are digital currencies. Unlike the cash in your wallet, they are generally not backed by governments, banks, or “real” assets. The best-known cryptocurrency, Bitcoin, emerged in 2009.
Crypto investors tend to be younger and male, and buy and sell bitcoin on crypto exchanges, which can be a deal-breaker for those unfamiliar with the cryptocurrency.
“When you look at who was attracted to cryptocurrency, it was young people at first,” said Peter Lazaroff, a certified financial planner in St. Louis. “They had a hard time figuring out how to even buy it.”
Federal regulators this year paved the way for retail investors to buy and sell bitcoin ETFs, opening them up to a wider range of investors.
Read more: SEC approves Bitcoin ETF, opening up cryptocurrency trading to retail investors
Unlisted stocks
According to Investor.gov, a private equity fund is a pooled investment vehicle similar to a mutual fund. The fund typically buys, manages, and sells companies, seeking to increase their value.
Unlike mutual funds, private equity funds typically work with institutional investors such as pension funds or university endowments, or with high-net-worth individuals.
Direct Investment
The term “direct investment” has multiple definitions in the financial world. In a Bank of America study, the term means investing directly in a company, rather than indirectly investing, such as by buying publicly traded stock.
Direct investing, according to Kiplinger, “allows investors to acquire shares in privately held companies whose shares aren’t traded on a stock exchange, such as a local craft brewery or software development company.”
For the young investors in the survey, direct investment could mean owning their own business or investing in a start-up.
“They’re just successful people whose hard work has paid off,” Lazaroff said.
