Millionaire millennials plan to sell their shares in 2022. That’s why

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According to a recent poll of CNBC millionaires, the majority of millennial millionaires (55%) say they plan to sell their shares in 2022 due to possible tax changes.

According to a survey in which 90% of millennial millionaires expect to take action on their finances in the coming year as a result of potential tax changes, which polls investors with $ 1 million or more in investment assets, excluding the primary. residence.

This is very different from the older millionaires surveyed. In comparison, 54% of Gen X millionaires said they plan to change something, while only 29% and 38% of baby boomers and WWII generations said they plan to do so, respectively.

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

While President Joe Biden’s Build Back Better Act calls for major changes to the tax code, the House’s version passed in November abolished some tax measures with serious personal finance implications. Then the Democrats were unable to pass the bill in the Senate before the end of the year. Tax changes to help cut the annual deficit or cover the costs of new programs may return next year, but the outlook for legislation for 2022 remains uncertain.

Concentration of Millennial Wealth

Part of the difference in views between generations likely comes down to how they achieved their millionaire status and the opportunity for this significant investment in one area, said Blair DuQueznay, investment advisor at Ritholtz Wealth Management.

“A lot of millennial millionaires have concentrated their positions in company stocks,” DuQueznay said. “These may be companies they work for that have remained private, so they are probably just starting to have liquidity; the other way common for millennials is cryptocurrency … there are also millennials who just put it all in Tesla and just held and held and held. “

Those who followed these strategies likely paid off in 2021.

The US has seen a record increase in the number of market debuts this year. The 416 IPOs have raised about $ 156 billion, and private company funding continues to pour in and support higher valuations.

Eighty-three percent of millennial millionaires said they own cryptocurrencies, with over half (53%) having at least 50% of their fortune in cryptocurrency.

Elon Musk faced his own deep investments in Tesla and tax problems, which resulted in the sale of Tesla shares for a total of $ 9.85 billion in November.

“Maybe they’re a little older now; maybe they understand that they want to do other things with these achievements, so they think about changes, ”said DuQueznet. “I really think it’s not that millions of millennials are willing to take risks, but simply how they made their fortune.”

It is more likely for the older generation that they already have a more balanced portfolio that will not require any changes if they are not desired, DuQueznet said.

“If you compare the portfolio of the typical millennial millionaire to the typical baby boomer millionaire, then most of the baby boomers have already accumulated, invested and diversified their portfolios,” she said. “They don’t have to change anything, it’s actually just a continuation of the plan they were in.”

On the other hand, many millennial millionaires are now structuring their financial planning after leaving stock companies or working for a startup that is now going public.

“This is a recurring theme that I’ve been hearing in conversations with people lately,” DuQueznet said.

Stock market gains and losses

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

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

In addition, many young investors have been brought into the market through the commission-free trading structure that is now standard in the brokerage industry and which really makes it easier to buy and sell stocks.

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

“DoorDash, Zoom, AMC, GameStop and many other very popular stocks, gripped by investor euphoria, turned out to be losses,” he said. “The stocks of Zillow, Stich Fix, Teladoc, DocuSign … which rose from a niche set of pandemic circumstances have been wiped out,” he said.

This contrasts with older investors like the boomers, who did not understand the stock memes phenomenon and held on to the more conservative stocks they know well, such as Apple and Microsoft, that paid off for them this year and, as a result, investors have even less chances to sell, even if their estimates are sky-high.

Predicting future changes

Catherine McBreen, managing director of Spectrem Group, which conducted the survey for CNBC, said millionaire millennials are “very aggressive in their investment intentions, but they are also smart.”

The fact that the survey found that millennial millionaires are more likely to support taxing long-term capital gains as ordinary income, as well as imposing an annual 2% tax on wealth in excess of $ 50 million suggests that they could take advantage of the lack of need – pay the tax before it is implemented, she said.

The poll also showed vastly different opinions about how big inflation risk to the US economy next year. Millennial millionaires did not say it was a risk, while baby boomers said it was the biggest risk. Millionaire millennials said coronavirus is the biggest risk, followed by higher taxes and the US stock market.

“Millennials are smart enough to understand [inflation]but they never experienced it, McBreen said. “Older generations are becoming much more cautious about the coming wave of inflation, while younger investors are simply more focused on taxes and the market.”

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