The Unconventional Investment Mentality of Wealthy Millennials
NEW YORK ( MainStreet) Fahad Ghaffar is a real estate entrepreneur who recently joined forces with Donald Trump to re-master a luxury condo building in San Juan, Puerto Rico. Preferring real estate and alternative investments, the 29-year-old holds no position in the stock market.
"My investment strategy is influenced by the seven years I worked within lending at investment banks and learning from the mistakes of some of the most talented real estate investors," Ghaffar told MainStreet.
With 80% in real estate and 20% invested in tech startups, Ghaffar is one of the 49% of 18- to 29-year-old investors maintaining less of their portfolio in the stock market, according to iCrowd's Accredited Investor Survey. That's compared to 21% for accredited investors 45 to 60 years old.
"When it comes to investing, the Facebook generation takes a less traditional, and much more open approach than their parents did," said Brad McGee, co-founder of iCrowd. "Young accredited investors are seeking diversified opportunities outside of traditional equities in order to protect and grow their nest eggs."
Accredited investors are those who have the resources to bear the risks and illiquidity of small company investments.
The survey revealed that 30% of wealthy young investor's portfolios are invested in equities as opposed to 48% for baby boomers, suggesting that the Facebook generation may be more receptive to less traditional asset groups, such as private company securities, hedge funds, private placements and angel investments.
The hesitancy on the part of boomers may be because alternative investments can be riskier than equities. Officially known as Regulation D or Rule 506 offerings, private placements may be exempt from federal securities requirements that publicly traded companies must meet.
In July 2013, the SEC voted 4 to 1 in favor of lifting the ban on general solicitation and allows startups, venture capitalists and hedge funds to openly advertise that they're raising money in private offerings, making it easier for companies to raise capital to start or continue financing a business.
Regardless of age, 71% of accredited investors 18 and up do not know they are considered accredited and eligible to invest in certain asset classes. The recent lift on the ban on general solicitation opens doors for these investors, which they might ignore simply because they are unaware they qualify.
However, 44% of wealthy youth are aware that some online securities brokers allow investors to view investment opportunities in private companies as opposed to 38% of baby boomers. Further, 37% of the facebook generation would consider investing in private companies and startups through an online securities broker.