Millennial millionaires plan to sell stocks in 2022. Here’s why

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A majority of millennial millionaires (55%) say they plan to sell stocks in 2022 due to potential tax changes, according to the recent CNBC Millionaire survey.

Ninety percent of Millionaires say they plan to take action on their finances in the coming year due to potential tax changes, according to the survey, which asks investors with of investable assets of $ 1 million or more, not counting the primary. residential homes.

This differs widely from the older generational millionaires polled in the survey. In comparison, 54% of Gen X millionaires say they plan to change, while only 29% and 38% of Baby Boomers and WWII generation said they plan to change. , respectively.

Millennials are also more likely than older millionaires to say they will change estate plans (35%), sell real estate (26%), or make large gifts or donations (23%), according to the survey. for tax reasons, according to the survey. About a quarter (23%) also indicated that they might sell additional forms of assets beyond stocks and real estate as part of tax planning.

While President Joe Biden’s Build Back Better law contemplates significant tax code changes, the House version that passed in November removed some of the tax measures with major personal finance implications. Democrats then failed to get the bill through the Senate before the end of the year. Tax changes to help reduce the annual deficit or cover the costs of new programs could be back on the table next year, but the legislative outlook remains uncertain until 2022.

Concentration of millennial wealth

Part of the difference in outlook between the generations is probably in how they achieved their millionaire status and the potential for it to be heavily invested in an area, said Blair duQuesnay, investment advisor at Ritholtz Wealth Management. .

“A lot of millennial millionaires have concentrated positions in company stocks,” duQuesnay said. “Maybe it’s the companies they work for that have stayed private, so they’re probably starting to have cash flow; the other common avenue for millennials is cryptocurrency… held and held. “

Those who followed these strategies likely saw it pay off in 2021.

There has been a record increase in market debuts this year in the United States, with 416 IPOs raising around $ 156 billion and funding from private companies continuing to flow in and support higher valuations.

Eighty-three percent of millennial millionaires reported owning cryptocurrencies, with more than half (53%) having at least 50% of their wealth in crypto.

Elon Musk faced his own challenges of having a deep investment in Tesla and the tax challenges as a result, selling a total of $ 9.85 billion in Tesla shares in November.

“Maybe they’re a little older now; maybe they realize they want to do something else with these gains, so they’re looking at changes,” duQuesnay said. “I really think it doesn’t necessarily depend on the risk tolerance of millions of millennials, but just on a feature of how they made their wealth.”

For older generations, it’s more likely that they already have a more balanced portfolio that wouldn’t require any sort of change if they weren’t wanted, duQuesnay said.

“If you compare the typical portfolio of a millennial millionaire to the typical baby boomer millionaire, most baby boomers have already saved, invested and diversified their portfolios,” she said. “They don’t necessarily need to change direction, it’s just a matter of continuing the plan they were on.”

On the flip side, many Millionaires are now structuring their financial planning after leaving companies with stocks or after working at a start-up that’s now going public.

“It’s a recurring theme that I’ve recently heard people talk about,” duQuesnay said.

Stock market gains and losses

Selling tax losses as a personal financial planning strategy is also touted much more today as a value-added service, especially through investment platforms that have become popular with young investors such as robots. -advisors, including Wealthfront and Betterment.

“People realize this at a younger age,” said Mitch Goldberg of investment advisory firm ClientFirst Strategy.

In addition, many young investors have been introduced to the market thanks to the commission-free trading structure now standard in the brokerage industry and which facilitates the buying and selling of stocks.

Both of these business technology developments were in place at a time when many young investors were also caught up in the meme and pandemic stocks craze. Even though the S&P 500 is up nearly 30% this year, it’s still easy to lose money in individual stocks, Goldberg said, and many big winners for new investors in 2020 have been hit hard. This year.

“DoorDash, Zoom, AMC, GameStop and many other very popular titles caught in the euphoria of investors have turned into losses,” he said. “Zillow, Stich Fix, Teladoc, DocuSign… stocks that rose due to a set of niche pandemic circumstances have been wiped out,” he said.

This contrasts with older investors, such as baby boomers, who did not understand the phenomenon of memes stocks and stuck to the more conservative stocks they are familiar with, like Apple and Microsoft, which have paid off. this year and, as a result, investors are even less likely to sell even if their valuations are sky-high.

Plan for future changes

Catherine McBreen, managing director of Spectrem Group, which conducted the survey for CNBC, said that for millennial millionaires, “they’re very aggressive in their investment intentions, but they’re also smart.”

The fact that the survey showed Millionaires are the most likely to support the taxation of long-term capital gains as ordinary income as well as the creation of a 2% annual tax on the Fortune exceeding $ 50 million suggests they could look to take advantage of not having to pay a tax before it is implemented, she said.

The survey also showed widely divergent views on the extent of inflation risk to the US economy over the next year. No millennial millionaire said it was a risk, while baby boomers said it was the biggest risk. Millennial millionaires said the coronavirus was the biggest risk, followed by higher taxes and the U.S. stock market.

“Millennials are smart enough to understand [inflation], but they never lived it, “McBreen said.” The older generations are becoming much more cautious of the whole wave of inflation that is at its peak, while younger investors are focusing more on taxes and the market. “

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