Sponsors may want to consider going beyond the typical lunch and learn -type webinars to include book groups, workshops and classes with an eye towards increasing financial literacy around diversification, clearly a topic of interest to GenZ.
Recent studies have shown an uptick in interest in investing in alternative investments by Generation Z. GenZ are those who are roughly ages 10 to 25 in 2022. Plan Sponsors who worry that their GenZ employees may be forgoing 401(k)s for buying blitzes of bitcoin can rest a little easier. Statistics show that “53% of Gen Z workers increased the contribution rate to their 401(k)s in 2021, according to Fidelity.”[1] But not too easy. Other surveys show that GenZ and some younger millennials are turning towards alternative investments more than ever. A quick dive into what’s driving those alternative investments might help Plan Sponsors understand where they can be of most use to their younger employees.
First, what’s driving this trend? “[I]nvestors are overwhelmingly steering their individual portfolios toward alternative investments in order to stave off the volatility of inflation, according to findings from a new survey published today by Fundrise.” It may be helpful for Plan Sponsors to keep in mind that it isn’t only the inflation GenZ workers are experiencing themselves that could be behind this trend. GenZ employees are the children of your Generation X employees. Gen X was born between 1965 and 1979/80 and is currently between 41-56 years old. The Dot.com bubble burst in 2001, as Generation X had begun saving for retirement (ages 21 to 36). Then when Generation X was just settling into parenthood, the real estate bubble burst in 2008 (ages 28 to 43). And finally, the current market volatility and corrections are occurring right as Generation X is helping their kids graduate from college (ages 42 to 57). A GenZ worker may have experienced periods of housing insecurity due to these market corrections and fluctuations for their parents. For them, alternative investments may seem especially attractive.
Second, what kinds of alternative investments? Much has been written about GenZ investing in cryptocurrency and NFTs and other digital assets. A deeper look into that trend by Money Magazine revealed an interesting angle to this trend. “New investors poured money into financial markets during the pandemic as lockdowns kept people from their offices, school and usual hobbies. For young people, trading stocks and crypto proved to be a good way to fill the void that the cancellation of sports and other after-school activities left. Investing apps like Robinhood allowed young investors to make trades easily via their phones.” In other words, the interest in digital assets was more entertainment based. The increase in investing for retirement is more protection based.
That interest in securing a safe retirement, one that may be inflation resistant, may be why GenZ has turned more towards alternative investments like real estate. “Over 50% of respondents said they are planning to increase their allocation to alternative investments, with 74% of 18 to 40 year-olds surveyed expecting to invest or explore investing in real estate via online investment platforms in 2022.”[2] This may seem like an enormous amount of 24 year-olds trying to buy property or invest in REITs. And that assumption would be true. Because what GenZ is opting for is a different model of real estate investing: crowdfunding. “[I]nstead of one property owner holding all the profits, they are leveraging crowdfunding to allow more stakeholders to invest in their communities.”[3]
Plan Sponsors can help their GenZ employees by creating education opportunities around the topics that most interest and concern them: inflation and real estate. Sponsors may want to consider going beyond the typical lunch and learn -type webinars to include book groups, workshops and classes with an eye towards increasing financial literacy around diversification, clearly a topic of interest to GenZ.
[1] https://money.com/gen-z-saving-for-retirement-increase
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
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