How "Rich Kids" Are Investing Their Money

A recent study released by Northern Trust shows that young millionaires ("rich kids" in their 30s aka Gen X - we are launching a GenX Financial website in the future, so stay tuned) have more diverse investment portfolios than their older, Baby Boomer counterparts - huh? I thought that young investors were supposed to take more risk?

According to the study, the Rich Kids that have some how accumulated portfolios of $1 million or more (must have made their money in Real Estate...errr...foreign currency trading) allocated 23% of their portfolios to investments such as hedge funds, private equity, real-estate investments and commodities (oh, that kind of risk). Maybe we should add Prosper Lending as an alternative asset category. That compares to 14% for the old folks/Baby Boomers and 10% for the REALLY old folks (over the age of 62). What's really interesting is that the rich kids like CASH. The report shows that they had 17% of their portfolios in cash, compared to 13% for the ancient ones (can you guess how old I am right now). I have to be honest - hedge funds and private equity sound sexy, but the fees are a killer and I suspect the funds that lowly millionaires (as opposed to multi-millionaires) have access to are not the creme de la creme.

So, what can we learn from this? I think the obvious conclusion is that the young rich kids like to keep a lot of cash around to buy cool stuff and old folks still remember the Depression as well as the great bull market of the 1990's. I'm kind of kidding, but I would conjecture that most young, wealthy investors remember when their margined brokerage accounts were being liquidated as the dot com bubble burst (and are paying close attention as the financial markets are in a bit of trouble now). That may be an exageration, after all, I'm talking about current young millionaires, not the ones that went broke back then, but I think it serves to highlight a valuable lesson (don't invest in bubbles). Spread your investments around so that no one category makes up more than 20%-25% of your assets (US stocks, your company stock (should be more like 5% for this one), bonds, international stocks, cash, small vs. large cap, etc.). Remaining diversified will help you weather the storms that we call bear markets (yeah, we're in one now) and will help you become a rich kid (or old fossil if it's already too late for you).