The Younger They Are, The More They Like Alternatives

Date: Thursday, January 25, 2007

The younger the millionaire, the more likely he or she will invest in alternative investments, according to Northern Trustís Wealth in America Survey 2007. The poll found that that 27% of millionaires between the ages of 27 and 41 invest in hedge funds, private equity and the like, and that percentage drops as the groups get older: Only 17% of baby boomers (ages 42-60) invest in them, while 11% of that age 60 and above do. "It comes as no surprise to find allocations to alternative investments inversely correlated with age," says John Skjerm, chief investment officer of Northern Trustís Personal Financial Services division. "Younger investors, presumably still working, can afford to invest a larger proportion of their portfolio in an illiquid, non-income-producing asset class." He notes that older investors, especially retirees, "place a premium on liquidity," as they rely on their investment portfolios for at least part of the income needed to support their lifestyles."

In other findings:

  • 40% of those polled donít invest at all in alternatives, while 45% have 10% or more of their portfolio in them.
  • Among those who donít invest in alternatives, 37% cite concern over product complexity and their lack of understanding, while 32% say theyíre just not worth the risk.
  • Among those who invest in alternatives, 53% cite "improved portfolio diversification" as their main reason, while 34% are looking mainly for potentially higher returns.
  • 31% of households with $10 million or more in investable assets allocate money to alternative investments; only 7% of those with under $10 million invest in them.
  • In general, respondents Ė who allocated 43% of their assets to domestic equities -- were optimistic about stock market, predicting returns of between 6% and 10% this year.