Wealthy millennials aren't relying on the stock market. Here's how their investment portfolios break down.

• 75% of rich millennials don't think the stock market can generate the returns they're looking for.
• Only 32% of older investors said the same.

Despite the stock market's struggles over the past year, older generations still trust it with their hard-earned money. But wealthy millennials have begun exploring other options.

That's according to Bank of America's annual Study of Wealthy Americans released Tuesday, which included interviews with over 1,000 Americans aged 21 and older with investable assets of over $3 million. The interviews were conducted in May and June of this year.

The report found that 75% of those surveyed aged 21 to 42 — effectively the millennial generation — felt it was "not possible to achieve above-average returns solely on traditional stocks and bonds." Only 32% of those aged 43 and over said the same.

The wealthy millennials surveyed said they allocate 25% of their portfolios to stocks, compared to 55% for older investors. And they dedicate over three-times as much of their portfolios — 16% vs 5% — to alternative investments like private equity, commodities, real estate, and even art. Cryptocurrency is popular among these millennials as well, accounting for 15% of their portfolios compared to only 2% for older investors.

"Younger generations have been raised during a time of incredible advancements where new innovations are quickly embraced and old innovations are quickly discarded," Kenneth Shepard, head of private bank investments at Bank of America, told Insider. "This mindset is likely being applied to investments where non-traditional solutions such as alternative investments and digital assets are being viewed more positively than stocks and bonds."

On the one hand, one might argue that young investors have nothing to complain about when it comes to the stock market's performance. Despite a hiccup during the Great Recession — and some struggles over the past year — the S&P 500, for instance, has generally been on an upward trajectory since the turn of the century.

That said, an individual who invested $100 in the S&P 500 in 1950, 1960, 1970, 1980, and 1990 respectively, would have seen a roughly 10-11% annual return on their investment as of today. An investor starting in 2000, however, would have only seen a roughly 6% return — one of several factors that could be nudging younger investors towards less traditional investments.

"Many younger investors have formed their views of the market growing up during the dot-com bubble, financial crisis, pandemic and 2022 inflationary environment," Shepard said. "This may have led to the belief that there are better ways to invest their assets than traditional investments."

While there is some skepticism that stocks will rise at the same pace that they have historically, others young investors are focused less on the shortfalls of stocks, and more on the potential for even higher returns from other investments. And the report's findings suggest the younger investor's approach could indeed be a profitable one. 49% of those surveyed with at least $10 million in assets agreed that stocks couldn't be counted on to generate above-average returns, compared to 42% and 32% respectively for investors with $5-10 million and $3-5 million in assets.

Wealthy millennials see cryptocurrency as the best investment

Looking forward, the wealthy millennial investors ranked cryptocurrency or digital assets, real estate, private equity, and direct investment into companies offer the "greatest opportunities for growth." Older investors favored US stocks, followed by real estate and equities in the emerging and international markets.

Regardless of who they side with, Americans with less than $3 million in assets will likely find it difficult to add private equity and direct company investments to their portfolios. Stocks and cryptocurrency, however, are only a click of a button away.

Real estate, the one investment both groups of investors were high on going forward, has historically been a ticket to wealth for many Americans. It's an "excellent inflation hedge," comes with a tax break, insulates buyers from changes in rent and housing prices, and diversifies one's investments, Boston University economist Laurence Kotlikoff previously told Insider.

But the rising cost of home ownership has at least temporarily put this out of reach for many individuals. A June Opendoor survey of over 1,000 millennials found that only 12% thought they could afford a house, and nearly half weren't sure they would ever buy one.

While the housing market may be cooling — with prices falling in certain regions — high mortgage rates are keeping homes unaffordable for many prospective buyers.

As Bloomberg detailed, a borrower that locked in a 3% mortgage rate in 2021 could buy a $758,572 home with a payment of $2,500 per month. With the 30-year fixed rate now near 7%, a $2,500 monthly payment would only fetch a $476,425 home.