Wealth Preservation Insights For The Younger Generation

Millennials – those born between 1981 and 1996 – are now the biggest adult cohort in the world, making up about 23% of the global population, according to MSCI research. They are also poised to become one of the world’s wealthiest generations.  

In the United States alone, millennials are projected to inherit almost US$24 trillion in the next 15 years, Deloitte estimated in 2015. 

“A lot of money is going to flow to the next generation, and a lot of advisors, including Carrick Wealth, are aware of that,” says Anthony Palmer, Group Commercial Director for Carrick Wealth. “So we do need to try and get into the minds of the new generations to understand how they view investing.” 

Based on Carrick Wealth’s interactions and work with the groupings broadly knows as the Millennials and Generation Z (1997-2012), Palmer notes that these younger generations have a tendency towards instant gratification coupled with high expectations when it comes to investments, yield and opportunities. It’s for this reason that many younger investors cleave towards tech stocks, which have been offering big returns in recent decades. But this could be a short-sighted approach in the long run, he notes.  

Flashy vs long-term 

“Just the other day I spoke to two relatively young people who had each made profit of over US$1 million by investing in Crypto,” recalls Palmer, adding that “some people have made large amounts of money taking what they don’t realise is in essence a bet on a highly speculative and unpredictable asset.”.  

Marrying a long-term wealth management approach to these sorts of expectations can be a challenge, says Palmer. For example, younger generations do not have the sort of fascination with property ownership as Generation X (1965-1980) and the Baby Boomers (1946-1964), many of whom built their wealth on the back of property.  

“If I think of some of my wealthier younger clients, who might have come into money recently, some by selling their businesses in their 30s, they generally only have a primary residence. Otherwise property doesn’t really come up on the radar,” says Palmer.  

This is in part a mindset issue for a grouping committed to issues of equality, sustainability and living in the now, but it is also a global reality that many youngsters simply don’t have the available cash to put down the heavy deposits required to buy. This will increasingly change when they inherit.  

A need for guidance 

With this sort of spending and investing power coming their way, this cohort is understandably on the radar of wealth advisors. And, despite a tendency not to think long term and an underlying trust deficit when it comes to financial institutions, there is a lot that Millennials and Gen Z clients stand to gain from finding an advisor who can guide then through the market and diversify their thinking beyond tech stocks and into more diversified portfolios that also resonate with them such as investments that meet their Environmental, Social and Corporate Governance requirements.  

Palmer explains: “Some clients in this age category are extremely savvy, but many don’t know a lot about the market and they generally need an advisor to take them through investing 101. They understand diversification, and they are not afraid to ask questions and seek help. Importantly, once you have their trust they will take guidance.” 

But to get that trust requires transparency and plain speaking, particularly when it comes to the thorny issue of fees. “They’ve read about low-cost exchange traded funds and passives outperforming, and their parents have told them horror stories about local insurance policies that have made no money after 30 years, so they are coming into the conversation with a pessimistic outlook and a high degree of scepticism,” says Palmer. “So, getting their trust and proving your credibility is the biggest battle. Once you’ve got that they tend to make good decisions very quickly.” 

Habits to foster 

While younger generations have been quick to pick up on the angst of their parents and grandparents, Palmer adds that they would also be advised to consider some of the more successful financial habits to come out of the older generations. Specifically when it comes to saving.  

“The long-term approach and savings culture of previous generations have often been their saving grace,” he says. “Good retirement savings, savings outside of retirement and a property focus, as well as an understanding that markets go up and down and that investing requires a long-term mind set.” 

While “youngsters don’t think as long-term as we used to”, says Palmer, he believes that a little forward thinking would be a healthy financial habit to foster in these future tycoons.