Alternative Investments: Are They Right for “Next Generation” High Net Worth Investors?

And just as all this wealth is changing hands, one of the most common questions we hear from these “next generation” investors is whether they should pay more attention to adding alternative investments to their portfolios, and to what extent? 

In a time when so much wealth is changing hands while there’s also so much happening in the world, it’s a valid question to ask. Here are some things to consider as you work to determine what the right answer is for you and your portfolio. 

What Are Alternative Investments? 

 First, let’s start with the basics. What are alternative investments? Alternative investments are assets that fall outside traditional public stocks, bonds, and cash. Common examples include private equity, private credit, hedge funds, private real estate, venture capital, infrastructure, and certain private placements. These investments often share a few defining characteristics: limited liquidity, less frequent pricing, higher minimum investments, and more complex risk profiles.  

Historically, alternatives were primarily used by institutions and ultra-high-net-worth families. Today, interest among younger affluent investors is growing rapidly as they look for diversification, differentiated return drivers, and alignment with long-term goals beyond traditional markets. 

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Why Alternatives Appeal to the Next Generation  

Younger high-net-worth investors tend to approach wealth differently than their parents. Many came of age during the Global Financial Crisis or the COVID-era volatility and are skeptical that a traditional 60/40 portfolio alone can deliver their desired outcomes.   In fact, According to Bank of America Private Bank’s 2022 Study of Wealthy Americans, 75% of Millennial and Gen Z investors surveyed expressed skepticism that above-average returns can be achieved solely through traditional stock and bond portfolios.  

Alternative investments can offer several potential benefits when used appropriately:

• Diversification: Returns may be driven by factors other than public market movements, potentially reducing overall portfolio volatility.
• Access to private growth: Many of today’s fastest-growing companies remain private longer, making private equity and venture capital appealing for long-term investors.
• Income and inflation sensitivity: Certain alternatives, such as private credit or real assets, may offer income streams or inflation-linked characteristics.
• Customization and values alignment: Private investments can sometimes align more closely with themes like sustainability, innovation, or direct ownership.  

That said, these benefits are not guaranteed, and they come with meaningful tradeoffs.  

The Accredited Investor Requirement  

One critical distinction with alternative investments is who is eligible to invest. Most alternative investments are available only to accredited investors, as defined by the Securities and Exchange Commission (SEC).

 In general, an individual qualifies as an accredited investor if they meet at least one of the following criteria:

• Earned income exceeding $200,000 in each of the last two years (or $300,000 jointly with a spouse), with a reasonable expectation of the same going forward; or 
• Net worth exceeding $1 million, excluding the value of a primary residence; or
• Certain professional certifications or roles that meet SEC standards.  

This requirement exists because alternative investments are typically more complex, less liquid, and carry higher risk. Regulatory frameworks assume accredited investors have the financial sophistication and capacity to absorb potential losses.  

The Risks and Tradeoffs to Understand  

Alternative investments are not inherently “better” than traditional investments, they’re simply different. Key considerations include:

• Illiquidity: Capital may be locked up for years, limiting flexibility.
• Higher fees: Many alternatives carry layered fee structures that can impact net returns.
• Complexity and transparency: Valuations may be infrequent, and performance can be harder to evaluate.
• Manager risk: Outcomes are often heavily dependent on manager skill and execution.  

For next-generation investors with long time horizons, these risks may be acceptable, but only when alternatives are sized appropriately and integrated into a broader, well-constructed financial plan. For optimized results, consider working with a financial advisor to decide which investments are best for you.  

Are Alternatives Right for You?  

For many next-generation high-net-worth investors, the real question isn’t whether to use alternative investments, but how and why. Alternatives tend to work best as a complement to traditional investments—not a replacement—and should be guided by cash-flow needs, tax considerations, risk tolerance, and long-term objectives.  At WHZ, we focus on helping clients evaluate whether alternatives serve a clear purpose within their overall strategy, rather than pursuing them simply because they are available or popular. 

Take the Next Step 

 If you’re part of the next generation of wealth and are curious about whether alternative investments make sense for your situation, a thoughtful conversation is the right place to start. Understanding eligibility, risks, and portfolio fit is essential before allocating capital. 

Connect with the WHZ team to schedule a complimentary discovery conversation and explore how alternative investments may—or may not—fit into your long-term financial plan. 

Authored by WHZ Wealth Advisor Logan Lum. AI may have been used in the research and initial drafting of this piece. Investing in alternative investments may not be suitable for all investors and involves special risks, such as risk associated with leveraging the investment, utilizing complex financial derivatives, adverse market forces, regulatory and tax code changes, and illiquidity. There is no assurance that the investment objective will be attained. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your financial advisor. WHZ Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. 697 Pomfret Street, Pomfret Center, CT 06259 and 392-A Merrow Road, Tolland, CT 06084, 860.928.2341. http://www.whzwealth.com.