This week’s Chart is from a Bank of America study of households with $3M+ in assets which found Gen Z and Millennial investors holding just 32% of their portfolios in stocks, as compared to 58% for the Gen X and Boomer crowd. The gap gets filled with 15% in alternatives and 13% in crypto. Two-thirds of the youngsters told BofA they no longer believe stocks and bonds can deliver above-average returns. Not an earth shattering finding but interesting nonetheless.
Certainly older investors have built significant wealth over the last 40 years, in large part from equity markets, The younger investing cohort hasn’t had time to do that yet.
But...
An interesting question is what longevity does to the math underneath all of this.
Ninety-two percent of these same wealthy households told BofA that longer life expectancy is now a core factor in their planning. Fair enough. We’ve bolted something like 30 extra years onto the human lifespan over the last century, and a healthy 60-year-old today is underwriting a retirement that could run four decades. A liability that long needs a growth engine that long. And the only asset that has reliably outrun inflation over 30-year stretches, through every war, panic, and policy blunder we can point to, is equities.
So look at the Chart again with that in mind. The Boomer sitting at 58% stocks isn’t being naive about risk. She’s matching a 30-year liability with a 30-year asset. The kid at 32%, loading a 13% crypto sleeve that has never funded a real retirement drawdown, is the one taking the bet most people would call reckless if it didn’t have a youthful, contrarian spin.
Now, the kids aren’t crazy to want diversification, and some of these allocations will almost certainly look smart in hindsight. A lot can go right.
But here’s the part that gets lost and something I focus on a lot: the danger in a multi-decade retirement isn’t a bad year. It’s sequence-of-returns risk, the brutal arithmetic of drawing income out of a portfolio while it’s down. Trading the proven long-horizon asset class for illiquid alternatives and a coin that swings +/-70% is exactly the kind of move that wrecks the first ugly decade of a 40-year plan.
If I had to bet, I’d take the Boomers’ instinct over the kids’ enthusiasm. Stay invested in the asset that actually compounds. The job is figuring out how to ride equities through the inevitable drawdowns without selling at the bottom or sending a bunch of your assets to Uncle Sam, That is a risk-management problem, not an asset-allocation one.
I’d say that the young investors got one thing right, though. They’re planning to live a very long time. Allocating more to equities and allowing them to compound over a long investment horizon is in my opinion, still the best way to fund that long life.
Sources: Bank of America press release · Bank of America Institute summary