What the Multi-Trillion Wealth Transfer Means for Markets and the Economy

The Great Generational Gift

Members of the Silent Generation and Baby Boomers are rapidly approaching retirement, if not retired already. This has set the stage for what’s shaping up to be the largest wealth transfer in history.

Through 2045, some $72 trillion in assets are expected to switch hands from older generations to millennial and Gen Z heirs. Nearly $16 trillion of that is forecast to come from the Silent Generation, with more than $53 trillion coming from Boomers. Not everyone will benefit equally though: 42% of the total volume of transfers will come from high-net-worth and ultra-high-net-worth households.

Nevertheless, the impact of these transfers is expected to be far-reaching for individuals and the economy. More than two-thirds (68%) of millennials and Gen Z’ers have already received or expect to receive about $320,000 on average, opening a slew of financial opportunities to the younger generation that could have a significant impact on the economy.

Where Did the Wealth Come From?

One of the main drivers of wealth among older generations was home ownership. Since the early 1980s, when Boomers first began purchasing homes, housing prices have surged nearly 500%. That increase has forced many prospective homebuyers out of today’s market. However, it was a massive boon for those fortunate enough to make a purchase decades ago.

In addition to the gains from housing, Baby Boomers benefited from a nearly 3,000% return from the S&P 500 over the same period. The gains for the Silent Generation are even more substantial. Since 1969, the index has returned roughly 4,000%. To be sure, not every older investor matched those returns, but there was ample opportunity to compound small investments into sizable portfolios.

To top it off, the older generation has had notably lower levels of debt compared to the current younger generation, affording them more opportunities to save and invest. Together, these factors help explain why more than half of the wealth in the U.S. currently rests with older Americans.

The Economic Impact

As this unprecedented amount of wealth gradually transitions hands, the trillion-dollar question hovers over it all: how will it affect markets and the broader economy?

Of course, it is impossible to predict exactly how that money will impact the economy, but we do have useful data on what those eventual heirs expect to do with their inheritance when it arrives. About 40% plan to pay off debt like student loans, further highlighting the generational divide in financial circumstances.

Meanwhile, more than 3 in 4 heirs (76%) plan to save or invest any money they receive, suggesting a sizable impact on markets is forthcoming. In terms of how that money will be invested, the younger generation is more likely to own individual stocks, with a particular interest in the technology sector. They are also more partial to alternative investments like cryptocurrency, ETFs, or options, and on a whole trade much more frequently.

In other words, younger investors have different priorities, strategies, and circumstances that will uniquely shape the future financial landscape. As these heirs mature, their values may very well change. But whether they spend on homes, tech stocks, or anything else, understanding their preferences will be key to mapping future market trends.

Sources:

Cerulli Anticipates $84 Trillion in Wealth Transfers Through 2045

Study: Gen Z and millennials plan to use inheritances to invest, pay off debt

The Greatest Wealth Transfer in History Is Here, With Familiar (Rich) Winners

Study: What Are Gen Z and Millennial Investors Buying in 2024?