Learn Why Young, Affluent Investors Should Not Be Pulling Away from Stocks

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Young, affluent Americans are pulling away from stocks and choosing alternative investments, but many certified financial planners believe that doing so is a mistake, writes Ryan Ermey for CNBC’s Make It.

According to a recent survey from Bank of America Private Bank, Americans ages 21 to 42 with a minimum of $3 million in investable assets hold an average of just 25 percent of their assets in stocks or stock funds.

While advisers still recommend that younger investors hold most of their investment in stock, young people of means are skeptical that traditional investments are the best way to go. Instead they fill their portfolios with real estate, private equity, and cryptocurrency.

However, financial pros advise against replicating that approach.

“Inexperienced investors — [including] the high-net-worth young investors who may have made a lot of money with stock options or crypto the past decade — tend to mistake success with expertise,” said George Gagliardi, a CFP with Coromandel Wealth Management.

This means that those who believe that alternative investments will provide above-average results during their lifespan are most likely ignoring the fact that they got lucky with the timing of their investments.

This is evident in the recent turmoil in the crypto market, which shows how easy it is to rapidly lose on alternative investments.

Even something steady, such as owning rental properties, can result in major losses if things go wrong.

“Sure, rents are income, but that’s not guaranteed,” said Nicholas Bunio, a CFP in Downingtown. “And I’ve seen it with my own clients where they get way in over their head in real estate, ultimately leading to lost money, which set them back years.”

Fred Hubler, CEO and Chief Wealth strategist for Creative Capital Wealth Management Group, begs to differ. “I build my company around the fact that the largest portfolios who can invest anywhere, have a majority of their investments NOT in the stock market.”

Rather, Hubler argues, “investers should look at the annual reports of large endowments (not the small ones) and you will see where they are investing and it’s currently not a majority in the equity or bond market. If the market goes on sale, that probably would change. But given the current world, we are happy with a 20-25% allocation to alternatives and being smart with how we invest in the current stock and bond market.”

Alternately, since 1945, the S&P 500 has logged an average annual total return of 10.1 percent. While that might not fit in with the “above average” returns wealthy young investors are aiming for, for most that average is good enough.

Read more about stock funds at CNBC’s Make It.


Want to know if you’re on the right path financially? CCWMG’S Second Opinion Service (SOS) is a no-obligation review with one of  Creative Capital Wealth Management Group‘s Wealth Strategists. 

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