With the looming recession and rising interest rates, the stock market’s woes are far from over. Once considered safe investments, many, especially millennials, are rethinking their investment portfolio. The current outlook indicates an ongoing shift from stocks to real estate and cryptocurrency.
Berkshire Hathaway posted a significant $22.8 billion loss in 2022. Even one of the world’s most successful investors, Warren Buffett, fell victim to the market’s decline.
With no promising upturn and more volatility, millennials are changing their investment strategy. Mind you, these are people who are rich enough to hold on to the declining stock market. So, which assets are they turning to?
The Volatile Stock Market
Investors anticipated a volatile market in early February. That led to a record increase in hedging as they sought to hedge against the uncertain market.
Jeff Busconi, the chief operating officer at Bank of America Private Bank, confirmed that the times are volatile.
Even Buffett’s address to shareholders regarding Berkshire’s loss left little information about the stock market. The prolific investor was careful enough to leave out any update on inflation and the looming recession. Hence, shareholders were left to read between the lines.
These and other variables have left wealthy millennials wondering if stocks and bonds are enough to deliver considerable profits over time. They are opting to invest in other assets.
Real Estate and Cryptocurrency Take Centre Stage
Real estate remains the go-to investment to hedge against the recession. It can provide significant price appreciation, even amidst inflation. The rising cost of raw materials and labor makes building properties more expensive.
That sends the price of already developed real estate skyrocketing. Hence, investors get an adequate shield from recession.
Apart from price appreciation, real estate provides other ways to profit. You can earn a steady cash flow through rental properties. With these in mind, it is easy to see why many consider it a better hedge against recession than stocks.
Contrary to popular belief, one doesn’t need to become a landlord to reap the benefits of the real estate market. Investment trusts and crowdfunding platforms provide adequate opportunities to get into real estate.
It is easy to see why millennials have renewed interest in this asset over stocks. Its time-tested hedge security is unbeatable.
Conversely, young people allocate an average of 15% of their portfolios to cryptocurrencies. Despite the bearish crypto market in 2022, many consider it an asset class.
The CFA may have let the cat out of the bag last year. It stated that 94% of government pension plan sponsors have invested in cryptocurrencies. Fast-forward to 2023, and wealthy millennials consider it a better alternative to stocks.
We have seen the massive gains a cryptocurrency can bring relatively quickly. Coupled with the ease of trading cryptocurrencies, it is easy to see why millennials are neck-deep in the trend.
Private Equity in the Mix
Private equity funds are undoubtedly not for small investors, but for rich millennials, they are a viable alternative to stocks. These funds do not rely on public trading. Instead, it hopes to make the portfolio companies more profitable after a certain period.
This investment takes investors’ funds and buys controlling stakes in several companies. Then, they partner with the management to boost the companies’ performance. Investors then profit when these companies have a higher valuation.
High-net-worth millennials, with at least $3 million worth of assets, identify private equity as a fast-growing opportunity. It is not as volatile as stocks since it is not publicly traded.
Should You Diversify or Stay with Stocks?
First, these opportunities suit rich millennials. Buying private equity or real estate takes a lot of money. Hence, you should reconsider that move if your bankroll is not buoyant enough.
The key is to diversify and not dump stocks completely. If you can get a piece of real estate or private equity, go for it. They can be a good hedge against inflation and recession.
Cryptocurrencies have proven to be just as volatile as stocks. So, it wouldn’t make much of a difference if you ditched stocks because of volatility.
Warren Buffett identified the market’s resilience as one of his key elements of success. The investor believes the market always bounces back. However, the question is how long you can hold on till that happens.
StockHax strives to provide unbiased and reliable information on cryptocurrency, finance, trading, and stocks. However, we cannot provide financial advice and urge users to do their own research and due diligence.Read More