Gen Z investors often pick risky alternative assets over stocks

It’s hard to blame young investors for losing faith in the stock markets over the past year, given that the S&P 500 is down around 15% year-to-date. Even so, most financial experts would still likely tell millennial and Gen Z investors to trust in the market’s ability to bounce back—after all, it always has, historically speaking.

But that isn’t stopping many investors from looking for alternatives, such as cryptocurrencies, artwork, wine, even farmland. In fact, new data shows that active investors (those who currently invest in stocks and other assets) are willing to allocate a relatively large portion of their portfolio—up to 25%—to alternative investments, or “alts.” That’s according to a newly released survey from the communication consultancy firm Lansons.

The survey showed that while less than 10% of Americans overall have invested in alternative assets, 30% of Gen Z and 25% of millennials either invest in alternative assets or have knowledge of platforms that allow them to.

The top reason that people are investing in alts? They believe they can offer better returns than stocks. Add high inflation to the mix, and it’s possible that more investors than ever are looking at stock alternatives.

“Given that alts, including wine, gold, and real estate, are generally regarded as strong hedges against inflation, the current market climate presents a meaningful moment in time for marketers to highlight the benefits of alts as part of a diversified investment portfolio,” said Josh Passman, CEO of Lansons New York, in a statement.

In addition to the potential for beating inflation with higher returns on alternative investments, investors—especially younger ones—may find the idea of “getting in early” on some alts to be particularly enticing, whereas older, more risk-averse investors are likely to be more skeptical of new investing opportunities, Passman adds.

With all of that in mind, experts do warn that younger investors should proceed with caution, and probably stick to proven strategies. That would include a much more modest portfolio allocation involving alternative investments—be it crypto, artwork, precious metals, or real estate.

Generally, experts would recommend allocating around 10% of their portfolio to passion or “other” investments, which could include crypto, precious metals, and the like. So, going as high as 25% is “extremely risky,” says Jed Collins, founder and CEO of Money Vehicle, a financial education platform. “Investors, especially young ones, believe they’ll hit a home run in the alternative investment space,” he says. However, those “home runs” have been few and far between.

“It’s understandable for young people to be skeptical of the market,” adds Collins, but when it comes to allocating as much as a quarter of your portfolio to alts? Aim for a lower percentage, he advises, “unless you’re completely comfortable losing 25% of your portfolio.”