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The shifting landscape of global wealth

Oct 08, 2019 | The Economist Intelligence Unit


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Future-proofing prosperity in a time of upheaval.

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The world of wealth is witnessing a historic transformation. By 2030 the share of global wealth held by Baby Boomers will be surpassed by Gen X and Millennials1—cohorts brought up in a far more interconnected, technologically savvy and globalized age. In some instances the impact of this shift will be shaped by local factors, such as demographic changes. In other instances this shift will reflect shared characteristics, as demonstrated by the greater popularity of overseas investing among younger high-net-worth individuals (HNWIs2) brought up in an era of globalization.3 Whatever the drivers, the landscape of wealth is changing—from local to global, and from one focused on returns to one founded on personal values.

A more globalized investor emerges

Despite rising economic concerns and a tradition of investor home bias4 in large parts of the world, the new landscape of wealth appears less interested in borders. According to a survey commissioned by RBC Wealth Management5 and conducted by The Economist Intelligence Unit (EIU), younger HNWIs are substantially more enthusiastic about foreign investing.6 The U.S. is a particularly high-profile example of a country where a long-standing preference for investments in local markets appears set to be transformed.7

Although part of this focus on global investment opportunities can be attributed to the natural preference among younger investors for growth, it is noticeable that their enthusiasm is backed by their business peers. Business owners and entrepreneurs (BOEs) across all ages surveyed skewed in favor of foreign investments (a trait they also share with ultra-high-net-worth individuals8). Similarly, younger investors see globalization as providing more opportunities to generate wealth than in the past—again, a trend shared with BOEs.

FIGURE 1: Beyond borders
Percentage of survey respondents choosing more foreign investment as a preferred position.

Mind the generation gaps

While the new contours of the wealth map are increasingly global, this emerging population of younger investors is still choosing to invest in areas that have a social dimension. Notably, younger investors are almost twice as likely to adopt an ethical approach to investing as older investors,9 with Asia the most enthusiastic (perhaps reflecting awareness of the rapid increase in inequality that has accompanied the region’s economic success10). This passion for ethical investment is echoed in their views of investing according to environmental, social and governance (ESG) criteria, with more than four fifths of younger investors viewing it as increasingly important. Alongside this interest in impact investment, there is a simultaneous willingness to experiment. Over the next five years, Millennials and Gen X investors are more keen to explore alternatives, including hedge funds and private equity, and newer asset classes like cryptocurrencies, compared with Baby Boomers.11

Older investors may be more likely to adopt a less risky investment strategy than their younger peers, which could be part and parcel of the older cohort’s common focus on locking in a legacy or inheritance for their children.12 Yet exploring the differences between older and younger investors can lead to some unexpected conclusions; for example, there exists a widespread perception that Millennials and Gen Z value unique experiences such as travel and sports more than material goods,13 but our survey found this to be equally true of older investors.14

Also of note, older HNWIs’ investments are not necessarily as conservative as one might assume. For example, when it comes to their preferences over the next five years, older investors (particularly men) choose the technology sector more often than younger investors. They are also increasingly exploring newer investment vehicles, such as exchange traded funds (ETFs), with a quarter of the older cohort saying ETFs align with their investment preferences (compared with 17 percent of those in the 18–54 age range).

FIGURE 2: Exploring options
Which of the following asset classes, if any, most aligns with your investment preferences? (Percentage of respondents)

Wary but confident

All investors, regardless of age, express some jitters about the state of the global and domestic economy, although these worries run particularly deep among the younger cohort. Almost 60 percent of younger investors report they are concerned about ensuring their financial well-being, about twice the level of Baby Boomers and members of the Silent Generation. Their unease primarily centers on domestic issues, such as the rising cost of living and changing employment opportunities. Older and wealthier investors, on the other hand, are more likely to cite global economic uncertainty and tariff barriers as their key issues.

FIGURE 3: Fear factors
Which of the following external factors most concern you about your ability to create, preserve or manage your wealth? (Percentage of respondents selecting each option)

Yet this uncertainty has not bred pessimism; four fifths of younger investors say they are confident they will reach their financial goals for creating, preserving and managing their wealth. Admittedly, they acknowledge getting there will not be easy—more than three quarters of respondents agree that today’s market requires investors to be far more flexible and responsive in their investment strategies, as well as more attentive to their portfolio. Nonetheless, despite the backdrop of macroeconomic and geopolitical concerns, the new holders of wealth appear confident and ready to not only face the future, but reshape it.

References
  1. Gen X is defined as people born between 1965 and 1980; Millennials are defined as those born between 1981 and 1996; Baby Boomers are defined as those born between 1946 and 1964; see Cale Tilford, “The millennial moment — in charts”, Financial Times, 5 June 2018, https://www.ft.com/content/f81ac17a-68ae-11e8-b6eb-4acfcfb08c11
  2. For the purposes of this study, HNWIs are defined as having more than US$1MM in investable assets.
  3. Younger HNWIs are defined as people born between 1965 and 1997 (Gen Z, Millennials, and Gen X). Older HNWIs are defined as people born in 1964 or earlier (Baby Boomer or Silent Generation).
  4. https://www.economist.com/briefing/2019/07/06/conservatism-is-fighting-for-its-life-against-reactionary-nationalism
  5. The survey covered seven countries: the UK, U.S., Canada, Hong Kong (SAR), Mainland China, Taiwan and Singapore.
  6. 72 percent of younger HNWIs have foreign investments, compared with only about half of their older counterparts.
  7. In the U.S. almost two-thirds of older respondents prefer domestic investments, compared with just 39 percent of younger investors.
  8. Those with investable assets of more than US$5MM.
  9. Over the next five years 12.9 percent of younger investors plan to invest more ethically, compared with 6.6 percent of their older counterparts.
  10. https://www.unescap.org/blog/reimagining-crazy-rich-asians-social-commentary-inequalities-asia-pacific
  11. When asked how they anticipate adjusting their investment strategy over the next five years, 23 percent of Millennials and 18 percent of Gen Xers choose investing in more alternatives, compared with 12 percent of Baby Boomers.
  12. When asked to list their three most important investment goals, 28.5 percent of older investors choose leaving an inheritance, compared with 13 percent of younger investors.
  13. https://www.cnbc.com/2016/05/05/millennials-are-prioritizing-experiences-over-stuff.html
  14. When asked whether they prefer to spend their wealth on experiences rather than material goods, 74 percent of older investors agree, compared with 70 percent of their younger counterparts.
  15. The term “investor” includes HNWIs, grown children of HNWIs, and those with high incomes but who do not qualify as HNWIs.

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Wealth planning