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Across My Desk: Gen X Investors

Although millions upon millions of Americans are suffering financially these days, many others are doing just fine.

Earlier this year, Northern Trust published the results of its third annual Wealth in America 2008" report. According to the report, Gen X folks (those ages 28 to 42) are more sophisticated in their investment style than are older millionaire generations. The young Xs have invested, on average, twenty-three percent of their money into alternative asset class products like hedge funds and privately equity, real estate and commodities. Baby Boomers (ages 43 to 61) and the Silent Generation (ages 62 to 77) aren't as keen on those types of products. Millionaire Boomers have put about 14 percent of their assets in them; the Silent folks allocating only about 10 percent.

Additionally, the report pointed out that Gen X millionaires take more and more of an institutional approach to asset management that those in the older generations.

From the Northern Trust Press Release: "Historically, investments in alternative asset classes have generated superior returns and provided important diversification benefits, given that their return profiles are less correlated with traditional asset classes," commented John Skjervem, chief investment officer of Personal Financial Services at Northern Trust. "But these benefits come at the cost of reduced yield and liquidity. In fact, many alternative investments pay no current income and are characterized by lock-up periods that range from months to years. Older investors, many of whom rely on their investment portfolios to produce some or all of their income needs, often find these income and liquidity "costs" financially prohibitive. Younger millionaires, however, are often still working and can use wage income to support their current lifestyle needs, allowing this group to capitalize on alternatives' favorable return and diversification benefits."

Other survey results include the following:

  • 52 percent of Gen X millionaires own exchange traded funds, 42 percent own structured notes and 41 percent own socially responsible investments. Of the older millionaires familiar with socially responsible investments, only 18 percent of Boomers and 13 percent of the Silent Generation include them in their portfolios.

  • Gen X millionaires reduce volatility in their portfolios by holding more cash. Seventeen percent of Gen X millionaires' assets are allocated to cash, compared to 12 percent of Boomers' and 11 percent of the Silent Generation's portfolios.

  • Gen X millionaires were much more satisfied with investment performance than were older generations across a number of asset classes. Sixty percent of Gen X millionaires reported that returns on hedge fund investments exceeded expectations, compared to 23 percent of Boomers and 33 percent of the Silent Generation. Similarly, 56 percent of Gen X millionaires said returns on private equity exceeded expectations, while only 35 percent of Boomers and 42 percent of the Silent Generation were more than satisfied with their returns.

  • Sixty-one percent of Gen X millionaires prefer to have a collaborative relationship with their advisors, while only 50 percent of Boomers and 53 percent of millionaires in the Silent Generation do.

    The point of Northern Trust's nationwide survey of millionaire households is to highlight important wealth management issues among high net worth investors. A total of 1,014 online questionnaires were completed among households with self-stated $1 million or more in investable assets in the fourth quarter of 2007. This excludes 401k and other retirement plan assets, as well as most real estate holdings. The data contained in this report has a margin of error of +/- 3.1 percentage points at a 95% level of confidence.

    contribution, Welther advises."

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