According to recent studies, wealthy millennials are making the same investment mistakes as many of those in older generations did when they were younger. Specifically, they are shunning “traditional” investments like stocks and bonds in their quest for generating greater wealth.
This may not be surprising, as younger generations in general often think they can outsmart conventional wisdom by charting their own path. But even if millennials may not want to hear it, there’s usually a reason why older generations stick to “boring,” traditional ways to invest — they have experienced the downside of chasing the latest hot thing.
Here’s a look at some of the common investing mistakes that wealthy millennials are making in 2024 and how they can be corrected.
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What Do Millennials Think About Investing, Compared With Older Generations?
The 2024 Bank of America Private Bank Study of Wealthy Americans shows a great divide between how younger and older generations view investing. Of those aged 21 to 43 years with at least $3 million in investable assets, for example, just 28% think you can achieve above-average long-term results by investing in stocks and bonds, versus a whopping 72% of those 44 or older.
The differing attitudes among generations towards the stock market itself is also telling. While 41% of those 44 and older see the stock market as the single best opportunity for long-term growth, only 14% of those 21 to 43 feel the same way. In fact, of all of the investment choices in the study, the younger generation views stocks as offering one of the worst opportunities for growth.
Here’s a look at the investments that each generation believes offer the best long-term opportunity for building wealth, according to the Bank of America study.
Age 21-43
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31% real estate investments
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28% crypto/digital assets
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26% private equity
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24% personal company/brand
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22% direct investment into companies
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21% companies focused on positive impact
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17% bonds
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14% U.S. stocks
Age 44 and up
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41% U.S stocks
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32% real estate investments
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25% emerging market equities
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18% international equities
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15% private equity
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15% direct investment into companies
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12% bonds
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4% crypto/digital assets
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Millennial Mistake No. 1: Ignoring Conventional Wisdom
Unfortunately for younger investors, one of the investments they are least bullish about — the stock market — is the one with a proven long-term record for generating wealth.
The U.S. stock market has a long-term average return of about 10%, meaning your money will double every seven years or so. What this means is that if you were to start investing just $200 per month at age 21, you’d end up with nearly $1.9 million in your account by age 65 if you earned that 10% average annual return. And in spite of the notorious short-term volatility the market can have, the S&P 500 index has never lost money over any 20-year rolling period, helping to minimize the risk for long-term investors.
Millennial Mistake No. 2: Prioritizing Status
In addition to ignoring conventional wisdom, Brad Klontz, a certified financial planner and professor of financial psychology at Creighton University, told CNBC that millennials, to their detriment, are prioritizing status with their investments. According to Klontz, some of the top investment choices for millennials — real estate, private equity and direct investment into companies — are all status-oriented, as they require high levels of cash that indicate you have some level of wealth. The misguided thought behind these investments is that as not everyone can access them, they must somehow be “special” or “better.”
But these types of selective investments can also be expensive — and illiquid. Private equity, for example, typically requires an annual fee of 1% to 2% or more, in addition to forking over 20% of your profits, and you may only be able to access your money quarterly or annually. Real estate involves commissions and closing costs and can also be hard to liquidate quickly.
Putting It All Together
Generally speaking, the reason older generations stick to more classic forms of investing is that they have tried some of the others and found them to come up short. In your 20s, it’s common to think that you have an edge on the market and can make money day trading or investing in more obscure choices like private equity or crypto. But the consistency of the stock market over the long run has won over most older investors.
This isn’t to say that other investments can’t outperform the market. However, you should be sure to understand the reasons why you are choosing any investment and its risks, costs and liquidity. For older generations, no-commission stocks and index funds with negligible expenses — and instant liquidity — outweigh more speculative options.
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This article originally appeared on GOBankingRates.com: 2 Investing Mistakes Wealthy Millennials Are Making in 2024
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