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Millennials Boldly Try Their Hand at Risky Alternative Investments

Millennials Boldly Try Their Hand at Risky Alternative Investments

(Dollar Photo Club)

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Friday, 29 July 2016 07:24 AM Current | Bio | Archive

Millennials are far more likely to invest in riskier alternative assets for the returns than any other generation but this boldness could result in over confidence in the event of a market correction.

“Investors have gotten used to excellent stock market returns in the last few years, so their view of financial markets is notably positive,” said John Hailer, chief executive officer with Natixis Global Asset Management for the Americas and Asia.

Only 62% of Gen Xers aged 34 to 49 invest in alternative asset categories compared to 76% of Millennials ages 18 to 33 and only 32% of Boomers, according to a Natixis Global Asset Management survey. Overall, more than half of investors say they invest in alternative asset categories.

“Millennials like alternative investments because they usually promise higher returns,” said Thembi Buthelezi, author of Beginner’s Guide to Investing (Stock Market For Beginners School, June 2013). “Returns they can use to alleviate some of the burden they are saddled with from student debt and in my case looking after my baby boomer parents.”

Alternative assets include hedge funds, private equity, commodities, currency and long short funds.

“There is no single best alternative asset for investors,” said Ed Farrington, executive vice president for retirement with Natixis. “Choosing alternatives depends on several factors, including an investor’s age, financial situation, risk tolerance and the make-up of the traditional part of his or her portfolio in stocks, bonds and cash.”

About half of all investors name stocks as the best asset class compared to 17% who chose cash, 12% who opt for real estate and 9% for bonds.

“Currencies may offer diversification and lower correlations compared to a traditional portfolio,” Farrington said.

Nearly 75% of investors perceive alternatives as riskier than other assets compared to 65% a year ago but at the same time 67% say they feel powerless to protect their investments in the face of a severe market correction.

“Confidence has its limits,” said Hailer said. “Investors are far better off when they have a plan so they can prepare for the future and get through rough patches in the markets.”

Looking ahead, investors would like their portfolios to earn a return of 10.1% a year on average after inflation but most don’t plan.

“We are now six years into a bull market and in 2015 indexes were continuing to reach all-time highs,” said Farrington. “Seeing these gains, people may feel less need to sit down and sketch out what they should save and invest for.”

Employing a mix of alternative investment strategies working in tandem with long only traditional investments can help manage risk and reduce volatility.

“Alternatives can help manage risk in a portfolio and can offer real potential benefits of diversification and lower volatility but investors need to be educated,” said Farrington.

Juliette Fairley is an author, lecturer and TV host based in New York. To read more of her work, Click Here Now.

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Millennials are far more likely to invest in riskier alternative assets for the returns than any other generation but this boldness could result in over confidence in the event of a market correction.
millennials, risky, alternative, investments
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2016-24-29
Friday, 29 July 2016 07:24 AM
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