Financial experts advise that young, affluent investors are committing two critical errors, which they will eventually learn from through experience.

Young, rich people believe that traditional forms of investment are not effective in building wealth.

According to the 2024 Bank of America Private Bank Study of Wealthy Americans, only 28% of those aged 21 to 43 with at least $3 million in investable assets believe it is possible to achieve above-average returns with stocks and bonds.

The inverse is true among those aged 44 and above: 72% of them believe classic investing practices are sufficient, while 84% of the older generation view stocks, both domestic and foreign, as the best investment opportunity for growth over a long list of asset classes.

For many Americans, owning stocks has been a way to build wealth over time, with the U.S. stock market averaging a 10% annual return over the past century when dividends are reinvested.

While stocks are a popular investment option for younger wealthy individuals, they rank eighth among the various investment options available, with real estate, cryptocurrency, private equity, and direct investment into companies being more preferred.

Despite being part of the affluent group, young investors can still benefit from the wisdom of their older peers, according to Brad Klontz, a financial planner and professor at Creighton University.

"According to him, the older generation has a more accurate list. Studies show that as we age, our beliefs about money become healthier because we learn from our experiences."

Younger wealthy investors may be hindered from maximizing their returns due to cognitive biases, such as ignoring conventional wisdom and prioritizing exclusivity, according to Klontz.

Young people have ignored traditional advice 'for thousands of years'

It's not surprising that younger investors, regardless of their wealth, prefer to blaze their own trail rather than follow the path of older generations.

"According to Klontz, the stage of challenging traditional wisdom is crucial for development. Young people on social media believe that conventional investing advice is outdated, and everything has changed. This sentiment has been expressed for millennia."

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Historically, stocks have delivered returns, which is why older investors tend to prefer them. Additionally, many of them may have previously attempted to discover a more efficient method to accumulate wealth but were unsuccessful.

Klontz says that if he were asked the question in his 20s, he might have answered with day trading, but he lost all his money day trading before saying it.

The enthusiasm of younger investors for cryptocurrency mirrors the story that Klontz sees, where this asset has given some investors impressive returns, but also caused significant losses for those who speculated on its volatility.

"He explains that while some traditional investment strategies are a long-term game, the mindset surrounding cryptocurrency and alternative assets is more focused on a short-term approach, with the goal of making money quickly."

'We're inherently obsessed with status'

Exclusivity is a common trait among young, rich Americans' preferred investments, according to Klontz.

To participate in real estate, private equity deals, or direct investment into companies, a significant amount of cash is typically required, which most individual investors lack. For instance, to purchase an investment property, you must have enough for a down payment. Additionally, to invest in a private equity fund, you must be an accredited investor, which generally means having an income over $200,000 or a net worth over $1 million.

The belief is that these investments must be superior to commonly available options, but this may not always be the case.

You can purchase exposure to the S&P 500, a measure of the U.S. stock market, for a small fee through an exchange-traded fund.

You'll be investing in something with less risk than a small business, which has a 50% failure rate within the first five years, according to the Bureau of Labor Statistics.

While there is no clear consensus on whether private equity funds outperform public stocks over the long term, investing in one typically involves paying a high fee, which can range from 1.5% to 2% of your invested assets per year, plus 20% of your annual profits over a certain threshold. This can significantly reduce your long-term returns, making it a risky investment decision.

It's crucial to recognize the reasons behind your preference for one investment over another, according to Klontz.

""Being preoccupied with our status is an inherent trait, and denying it suggests psychological immaturity," he remarks."

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