Generation Y might be a lot of things, but afraid of alternative investments isn’t one of them.
A recent survey of accredited investors from iCrowd showed that the up-and-coming generation has less of their portfolios in stocks and more in alternative investments.
In fact, iCrowd’s co-founder, Brad McGee, thinks this generation might become the “sweet spot” for one type of alternative investing in particular: crowdfunding.
Before we go any further, let’s tackle an important caveat: The survey sampled accredited investors … and most of us are not accredited investors.
An “accredited investor” is an individual who had greater than $200,000 in income — or $300,000 if including the income of a spouse — in the preceding two years, with a reasonable expectation that they will exceed $200,000 — or $300,000 with spouse — in the current year. Or, an accredited investor also can be someone with a net worth in excess of $1 million excluding the value of his or her primary residence.
Still, as McGee explained, the survey focused on high-wealth individuals because, with changes in securities regulations that go into effect in September, small businesses will be allowed to advertise when they seek capital and may accept investments — but only from “accredited investors” because those folks presumably have the resources to bear the risks and illiquid nature of small-company investments.
But McGee still thinks that if non-accredited millennials had the opportunity to invest in alternative assets, they would show the same propensity as their accredited counterparts.
In fact, the survey showed very little differences in responses to questions based on income level. The differences were instead generational … likely because millennials have three key qualities:
- They have an interest in alternative assets. Data from the survey showed that only 30% of young investors’ (ages 18-29) portfolios are in equities vs. 48% for baby boomers. Meanwhile, nearly half of all young accredited investors are currently invested in private company securities, compared with only 21% of 45- to 60-year-olds.
- They are more online-focused. As McGee explained: “This is important because a broker is unlikely to have a large selection of private investments to consider. But online investments sites aggregate offerings, allowing investors greater choice and the ability to compare across multiple opportunities. Online sites also curate the investment opportunities in order to show only those that are felt to have merit. Finally, online sites allow investors to collaborate on their analysis of deals.”
- They are more socially oriented. Crowdfunding is more reward-based and cause-related than other kinds of investments. And according to McGee, the relatively high usage of social networks is part of the reason that a “shareable social moment” is an “important motivator for a socially dependent demographic” like Generation Y.
Unfortunately, most investors who do qualify for these opportunities don’t even realize it. According to the survey, 71% of accredited investors don’t know that they are considered accredited.
Icrowd strongly believes in broadening the ability for individuals to invest in small companies and startups — something the company claims is unequivocally a good thing. One reason: The Ewing Marion Kauffman Foundation recently concluded in a study that “net job growth occurs in the U.S. economy only through startup firms” — a statement that McGee believes is a “powerful endorsement for increased capital efficiency for startups and small business.”
So at least keep crowdfunding on your radar — either for the day requirements are loosened even further, or for the day you meet the criteria for “accredited.”
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