A Cogent Reports webinar on Thursday provided a look at affluent investors, particularly millennials, and how they invest.
The findings are from the 2015 Investor Brandscape report, which was conducted between May and July among 3,889 financial decision makers 18 and older with at least $100,000 in investable assets.
Nearly half of affluent investors in the study were boomers, with an average age of 54, and 27% were from Gen X. Ten percent of the affluent investors were millennials.
Half of respondents had between $100,000 and $250,000, and a quarter had between $250,000 and $500,000. The average affluent investor’s net worth is over $900,000, and unsurprisingly, increases with age.
What is surprising is that while Gen X has a greater net worth than their Gen Y counterparts ($733,000 compared with $650,000), average investable assets were higher for millennials ($420,000 compared with $399,000 for Gen X).
That could be due to the fact that 38% of millennials said they had assets that they inherited compared with 14% of Gen X respondents, Julia Johnston-Ketterer, senior product director of investor-based products for Cogent Reports, said on the webinar. The report also found more than a quarter of millennials are business owners.
“We think these two factors are likely top reasons for millennials having higher levels of investable assets compared to the Gen X investors in our study,” Ketterer said.
Almost 60% of assets are held in retirement accounts, but Cogent found the percentage of assets held in employer-sponsored plans is falling and investors are favoring IRAs.
Mutual funds and individual stocks continue to be the most popular investment products for affluent investors.
“At first blush, we see that ETF ownership does not appear to have changed, but it actually is up from 2012 when only 14% of affluent investors reported owning the product, compared to 17% this year,” Ketterer said.
Millennials are particularly interested in ETFs, especially those who work with a traditional advisor, she said. Thirty-eight percent of that age group are invested in exchange-traded funds.
The report also tracked affluent investors’ interest in active versus passive strategies overall and found they were fairly evenly split between active, passive and hybrid strategies. Millennials showed a clear preference for hybrid strategies — 60% — followed by Gen X, 48% of whom are using an active-passive blend. By comparison, 39% of all affluent investors were using a hybrid strategy.
Millennials continue to have a low risk tolerance considering their long investment horizon, although they had more of their assets in higher-risk investments than their older counterparts.
That’s at least in part because of their experience with the financial crisis, “because this generation really lived through that period of time and many of them were coming into their formative teen years or in college and experienced what it’s like to be in a recession.”
Millennials’ low risk tolerance could also be inherited, in a sense. “We think, too, that because there’s this influence of legacy assets in many of their portfolios, some of the way in which they are invested could be influenced by the previous generation in their family,” Ketterer said.
However, “while we do see this generation looks before they leap, we also saw they have the largest proportion of high-risk investments,” Ketterer said, adding that it speaks to “the nature of this investor segment to dabble in various types of investments.”