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I’m a wealth adviser to the richest millennials — here are 6 surprising things I’ve learned about how they view money

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A lot of wealthy millennials gravitate toward exciting or trendy investments.
Sean M. Haffey/Getty
  • Jake Halladay is a private wealth adviser for Bel Air Investment Advisors, which manages $8 billion in assets.
  • Halladay works primarily with millennial entrepreneurs; his clients have an average net worth of $25 million.
  • Halladay’s millennial clients often think they can replicate their success and tend to gravitate toward exciting or trendy investments.

The pace at which wealth is being created is unprecedented.

It has never been easier to start a business. Combining the power of social-media marketing and very little money, someone can create a highly profitable business almost overnight. I’ve seen an apparel brand generate revenue over $5 million in less than nine months and another apparel brand grow to over $1 billion in revenue in five years. Companies can grow and scale much more quickly than in the past.

Robert Frank of CNBC reported that millionaire households in the US grew by more than 700,000 last year to over 11 million. The number of households worth $5 million to $25 million grew by 84,000, to 1.35 million. The number of households worth more than $25 million jumped by 10%, increasing by 16,000 to a total of 172,000.

Creating relationships with this new generation of wealthy millennials as a financial adviser is thrilling. I am inspired as they use their newfound wealth to shape the world for the better. Needs and desires are different than they were in the past and it’s important to be flexible and open to the changing environment that encompasses the investment world. As we grow in this age of technology and innovation, I look forward to what these inspired entrepreneurs will bring to the table.

Through my management of assets for wealthy millennial entrepreneurs, I have noticed a few things about how they manage their money.

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1. They think they can replicate success.

Sometimes we become blind to the fact of how hard it is to create and build a successful business. Since our clients are among the ultra-high-net-worth, we are only exposed to those businesses that are very successful and forget the innumerable number of companies that don’t make it. When lightning is caught in a bottle and an individual makes a huge amount of money, they tend to believe that it wasn’t that hard and they can do it again.

There are those select few who can beat the odds multiple times and recreate success, but most of the time success like that can’t be captured twice and it eludes them. The fact of the matter is to get rich we need to take big risks by being highly concentrated in one asset (like equity in their company) and that asset becomes super successful; but to stay rich a person needs to become more diversified and take less risk.

Please don’t get me wrong; I’m not saying to never attempt to build another company! I’m just saying on the second, third, or fourth company, use less of your money and more of investors’ money to build it.

2. They’re investing money outside of the US.

2. They're investing money outside of the US.Alan Crowhurst/Getty Images

Because of social media and the continued globalization of the world economies, millennials are becoming more familiar and comfortable with investing outside of the US. By expanding your investments across the globe you can increase your diversification and not become subject to the performance of a single country.

For example, our firm currently over weights Developed International and Emerging Market equities versus the US, as valuations in the US have become expensive relative to the world. Millennials are increasingly more comfortable with this outlook.

3. They’re comfortable with relocating.

3. They're comfortable with relocating.Alastair Grant/AP

Most of our clients are residents of the state of California. As California has the highest marginal tax rate in the country (13.3%) it becomes very expensive to have a liquidity event while being a resident of the state. Since the average age of our clients is getting younger, and these millennial business owners are more flexible in regards to where they live, they can move out of the state to another location that has a lower (or zero) tax rate.

4. They understand the importance of giving back.

4. They understand the importance of giving back.Shutterstock

We are now seeing a much higher percentage of millennial-run companies creating a philanthropic component to their businesses. Not only do their clients/customers potentially feel better spending their money on products from companies that give back, but the culture that this creates internally at the company shifts from a money hungry profit focus. I’ve noticed that these entrepreneurs tend to invest their wealth more responsibly as well after they become extremely wealthy.

5. Some wealthy millennials spend money before they have the cash.

5. Some wealthy millennials spend money before they have the cash.Antony Jones/Getty Images

We work with founders during liquidity events and before the deal is finalized they already have a new house in escrow and are rolling around in their new customized Rolls Royce. We suggest an individual, after they receive a lot of money, not change their life or spending habits for a few months in order to settle into their new financial success. Visit your trust and estate attorneys and accountants first.

6. They gravitate toward exciting or trendy investments.

6. They gravitate toward exciting or trendy investments.Joe Scarnici/Getty Images for National Geographic

Asset allocation is the most important aspect of investing. We spend the majority of our time making sure that each client is allocated correctly for their risk and liquidity needs.

Asset allocation is the amount that is allocated to stocks, bonds, and alternative investments (Venture Capital, Private Equity, Commodities, Hedge Funds, etc.) in someone’s portfolio. There have been many studies that differ on numbers, but asset allocation is responsible for roughly 80% of the return in a portfolio.

What we have seen with millennial investors is that they tend to drift towards investments that are exciting or trendy and before they know it they have a large amount of assets tied up in illiquid risky investments, such as direct deals into startup companies. If something comes up and they need a lot of their assets quickly, this can create a problem.

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