The Great Wealth Transfer is already underway, with trillions of dollars changing hands in what’s set to be the biggest economic shake-up of the 21st Century. But what does the transfer of wealth from Baby Boomers to younger generations mean for Wall Street? 

Over $120 trillion in assets are set to be passed from older generations to their heirs and favored charities over the next 25 years, mostly in the form of inheritance. 

While the beneficiaries are still likely to be concentrated at the top of the income spectrum, the change in attitudes between older investors and their younger counterparts could be jarring for traditional finance and the institutions that are constantly seeking to keep ahead of market curves. 

Although much of the Great Wealth Transfer is likely to be distributed among a large cross-section of younger generations including Generation X, Millennials, and Gen-Z, we can take a look at the behavior of Gen-Z investors, who will be making in-roads into their investment journeys throughout the wealth transfer as an indicator as to what the future of Wall Street sentiment could look like. 

Could young investors use their newfound wealth to continue the wealth-generation habits of their predecessors? Or will we see a fundamental shift throughout the global investment landscape? 

The Great Wealth Transfer

Before we get into the impact of the Great Wealth Transfer, let’s take a moment to explore the term and its implications. 

The Great Wealth Transfer represents the mass passing down of trillions of dollars from the older generations like the Silent Generation and Baby Boomers to younger generations in the form of inheritance. 

Data from Cerulli suggests that the transfer will largely come from Boomers, with $84 trillion set to change hands throughout the transfer. Of this seismic figure, around $72 trillion is set to be passed on to their heirs and around $12 trillion to charities. 

The Great Wealth Transfer won’t just be focused on cash and is set to incorporate assets like equities, real estate, and various other alternative forms of wealth. 

Because the post-war Boomer generation makes up such a large chunk of the global population, the Great Wealth Transfer will be an unprecedented economic event. In the United States, consensus estimates suggest that one in every five Americans will be a senior citizen, a figure that’s rapidly grown from the ratio of one in 20 just 100 years ago. 

Because so much wealth is being passed down to younger generations, Wall Street is uncertain about the direction that investor sentiment will take as markets welcome masses of new participants over the coming years. 

Could Sentiment Change? 

Younger investors behave differently from their older counterparts, and the Great Wealth Transfer could underline the necessity to embrace greater levels of fiscal responsibility and diligence. 

Today, at a time when more young people are using the internet, r/WallStreetBets, and financial influencers for advice, there’s a danger that we could fall deeper into the meme investing cycles that we saw in 2021. 

Despite this, Lloyds data suggests that Gen-Z investors are more financially savvy than their older counterparts, and with more than two in five 18 to 25-year-old investors making their first investments over the past year, younger generations appear to be ready to begin their financial journeys earlier. 

But how do Gen-Z investors behave with their investments? According to Sarah Norman, head of CIO Sustainable Investing Thought Leadership, higher volumes of younger investors support climate solutions and social equity, which could help to revive current ailing ESG initiatives on Wall Street and promote a more circular economy within firms. 

Norman has also acknowledged that Gen-Z investors are more likely to embrace alternative investment strategies, which plays into the figures produced by LexisNexis showing that 47% of the generation has reported owning cryptocurrency stocks. 

Despite this, it’s important to remember that Gen-Z and Millennials alike have both spent the majority of their lives in the wake of the 2008 financial crisis and the economic uncertainty that loomed over the pandemic years. As a result, we can see evidence of younger investors embracing safe haven strategies like buying into dividend stocks across popular income-generating companies like Walmart, Verizon, Home Depot, McDonald’s, and PepsiCo.

Because of their experiences with volatile markets, we could see more emphasis on diversification, with alternative investment strategies used to create a far wider range of income sources during the Great Wealth Transfer. 

Preparing for the Next Generation of Finance

One important event that must follow in the wake of the Great Wealth Transfer is the ‘Great Advice Transfer’, and leading firms should move quickly to help shape the investing strategies of the generations of tomorrow. 

We will also need Wall Street to embrace the alternative appetites of the next generation of investors, and we may see retail brokers use prime services for more global and sustainability-focused market access moving forward. 

Data shows that the next generation of investors are driven, passionate, and committed to growing their wealth at an earlier age than their predecessors. This makes the Great Wealth Transfer the perfect opportunity to bring positive change and adaptability to Wall Street. 

With the right level of transparent advice and a commitment to catering to the needs of the next generation of investors, we could see Wall Street’s leading players navigate the uncertainty of the Great Wealth Transfer and open the door to more diversified strength across global markets.