Almost half of Americans are abandoning old strategies. According to a Charles Schwab survey released yesterday, 45% of U.S. investors say they are now willing to put their money into non-traditional assets, including everything from cryptocurrencies and gold to private equity, real estate partnerships and hedge funds.
The same poll found that two-thirds of people think it’s no longer possible to stick solely to stocks and bonds.
Schwab reportedly asked 2,400 people (2,000 adults, plus 200 Gen Z and 200 crypto investors) what they thought about investing. The message was loud and clear: the traditional model is not enough. Young people in particular are fed up. Experts even have a name for this: “financial nihilism.” People want more options and are not afraid to look outside their usual options.
Investors focus on alternative investments through ETFs
Alternative investments, or “alternatives,” include investments other than regular cash, stocks, and bonds. We’re talking about commodities like gold and oil, real estate, private companies, and of course cryptocurrencies. However, these options are cumbersome. These have complex rules, lock-up periods, and often have low liquidity. This is where exchange-traded funds (ETFs) come into play.
Instead of diving into private trading, more investors are opting for ETFs that track these riskier assets. This is a safer way to get in without locking up your funds for years. More than $1 trillion has already been invested in U.S.-based ETFs this year, according to State Street Investment Management, and analysts reportedly told CNBC that much of that money went straight into gold and crypto ETFs.
ETFs can help cut through red tape, said Kathy Curtis, CEO of Curtis Financial Planning. “These (private) investments often have multi-year lock-up periods, limited redemption dates, or depend on the underlying funds liquidating their holdings before investors receive payment,” he said. In contrast, ETFs holding the same assets can be bought and sold throughout the day, even during after-hours trading.
But Curtis also offered a warning. People with small portfolios should not delve too deeply into alternatives. “If you have a small portfolio, keep alternative stocks at less than 5%. Larger investors can increase that to 10-15%,” she says. ETFs provide access, but they are not magic.
Government promotion makes alternative access easier
The regulatory environment is also changing. Former President Donald Trump signed an executive order in August that makes it easier to offer alternative retirement benefits within workplace retirement plans. At the same time, the U.S. Securities and Exchange Commission (SEC) has introduced changes that could accelerate the launch of spot crypto ETFs. Both moves could widen the door for more everyday investors to buy alternatives without complex legal or financial hassles.
Still, not everyone is convinced that it’s time to make the jump from traditional assets. Andy Reid, director of behavioral economics research at Vanguard, says hype can lead people to make bad decisions. “There’s always noise in the investment environment, and chasing trends and the latest headlines can have a negative impact on an investor’s portfolio in the short and long term,” Reid said.
And the data backs him up. If you had invested $1,000 in the S&P 500 in February 1970, you would now have more than $379,000. According to Morningstar Direct, a $1,000 bet made in January 2020 will be worth $2,200 by October 20th.
So while more investors are seeking alternatives, the message from advisors is clear. Non-traditional assets are growing, but it’s not a free pass. As Curtis says, “boring investing still works.”
