As part of our second in-depth study of wealthy Millennials, we put their investment behaviors under the proverbial microscope. Most of the young adults who participated in our research are in their early-to-mid 30s, with at least a decade of wealth management experience thanks to years working in their family office and the financial services industry.
On the surface, it’s easy to assume that someone with this type of background wouldn’t need much professional help when it comes to investing and wealth management. But our Coming of Age Study shows that even the most educated and experienced Millennial still has much to gain from working with a seasoned advisor who knows a thing or two about piloting an investment portfolio through all types of market conditions.
Of the Millennials we surveyed, four-out-of-five said they would make changes to how their family portfolio is managed once they assume full leadership. They want to incorporate environmental, social and governance benchmarks and add in more impact investments, which seek to benefit society while earning sustainable returns.
They’re also looking to add riskier, less liquid investments – and are particularly fascinated by the allure of private equity, hedge funds and real estate. But arguably the most eye-opening finding from the study is how aggressive this demographic is when it comes to investment deals.
A whopping 26% of our survey participants have been involved in at least 20 investment deals in the past five years. Another 26% were involved in between five and nine deals2. Add this all up, and that’s a substantial number of young adults chasing unique investments. Further, we also learned that 43% believe the expected return of an investment is the most important factor in selecting a deal vs. 35% who feel due diligence is most important.
In my view, this combination of deal chasing and placing a high value on anticipated returns is a potentially scary thing. First of all, you wonder about the context of some of these deals. Are they investing in something because it’s a really interesting and compelling investment opportunity? Or are they looking for an investment to fit a certain need in their portfolio?
My assumption is it is more the former than the latter. Each deal is likely evaluated and purchased independent of its context within the broader portfolio. If this is done several times, and as we saw, in some cases 20 times, you can end up with a portfolio that’s not in line with what most advisors consider appropriate from a liquidity or risk tolerance perspective.
Teach Millennials How to Properly Diversify
Fortunately for advisors, this can be a great entry point for teaching Millennial investors about the right way to build a diverse portfolio. As an investor, I’ve been in these Millennials’ shoes and learned firsthand how beneficial an advisor can be in the portfolio construction process.
I’ve been fortunate to work in the investment industry since graduating from college and have contributed to my 401(k) from the time I entered the professional workforce. But I’ll never forget what my advisor told me when I first started working with her over 15 years ago.
We had a great discussion early in the relationship. I remember proudly showing off how I’d contributed faithfully to my 401(k) along with my portfolio of hand-selected investments. But after examining what I’d put together on my own, she said hey, ‘I have this really cool investment concept that I want to talk to you about. It’s called a bond.’
To that point, my investment portfolio looked an awful lot like that of the Millennials we surveyed. I’d bought quite a few investments simply because I thought they were interesting opportunities. But I hadn’t given much thought to what a well-balanced portfolio should look like.
Fortunately, she was able to take a look at what I owned, provide recommendations on what I should own, and perform the necessary risk analysis to get me on the right track.
For advisors who are looking to cultivate the next generation of affluent investors as clients, there’s a tremendous opportunity for them to step in and course correct the aggressive deal-seeking behavior we’re seeing from Millennials. It’s human nature for us to have blind spots, even when we consider ourselves to be knowledgeable about a particular subject.
Like many of us, Millennials have been emboldened by the record-long bull market we’ve experienced since 2009. But considering their age, a good measure of their investing experience has come with the market moving in one direction.
If you work with wealthy families, use diversification as a launch point for showing Millennials how to properly allocate their investments. Open their minds to how different asset classes can benefit them in the long run and help them to weather inevitable market downturns.
And if they’re insistent on pursuing the hottest new investment deals, teach them how to conduct proper due diligence. We know through the “Coming of Age” and Proving Worth studies that Millennials are open to working with advisors they know and have a personal relationship with. They’re just looking for you to step up and be that trusted, objective voice that they can count on to steer them the right way.
This is the latest installment in our monthly series about issues facing high-net-worth families and their advisors. To learn more about what HNW Millennials want from their advisor, take an interactive look at the Coming of Age study.
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These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.