Millennial Investing with Patrick O’Shaughnessy

By now, we know millennials need to invest as much of their income as possible – as early as possible – in the global markets. Even small amounts make a big difference long term. But the fact is they don't. But why? 

Today I invited Patrick O’Shaughnessy, an expert on investment strategy and investor behavior to help us understand this better. Patrick, who just released the book Millennial Money – How Young Investors Can Build A Fortune, runs the website Millennial Invest. On his site, he discusses how, millennials don’t even trust the stock market. He believes millennials will not be able to rely on pensions or Social Security to retire and that they need to build their own wealth. Patrick shows that the way to do that is through the global markets. And millennials have a huge advantage over all other investors out there: their youth.

So let's ask Patrick some tough questions on millennial investing…

Tell us about yourself and how you got started helping millennials with their money?

Patrick: I graduated from college with a degree in philosophy and had no clue what I wanted to do. I quickly discovered a passion for markets, investing, and investor psychology and have followed those passions into a career in money management. I now manage money for individuals and institutions as principal and portfolio manager at O’Shaughnessy Asset Management.

About two years ago, I realized that as a millennial myself, I was well positioned to help my generation get off on the right foot financially. Most financial advice comes from older generations, so I think my perspective—having grown up in the same environment—might be refreshing and interesting for aspiring young investors.

What made you want to write a book? Do millennials still read books?

Patrick: Millennials are woefully underserved when it comes to investing. We should be teaching the basics of money and investing in high school and college, but most leave school unprepared to plan their financial futures. And while youth itself is the biggest investing advantage available to anyone, most wait until 40 or so to start thinking about retirement, squandering this huge edge in the process. My goal with Millennial Money is to rectify that problem – and to provide millennials with the tools and knowledge they need to invest intelligently while avoiding the pitfalls of Wall Street, so they can build wealth over time and retire comfortably.

Books will never go away. My book is intentionally concise because I realize that there are so many blogs, books, and shows competing for our collective attention. When it comes to inspiring change, I believe that a good book is more effective than any other medium.

I think a lot of millennials actually understand the math, but have trouble with the psychology of investing – what are your thoughts to encourage them to actually do what you talk about in the book?

Patrick: Two things.

First, by learning how your brain will trick you into making foolish investing decisions, you can prepare yourself for future obstacles and recognize the psychological traps when they show up. I spend three chapters on this very topic in the book to help readers defy their instincts and invest with success.

Second, you should make your investing as automatic and emotionless as possible. The less you do—and the fewer decisions you have to make over the years—the better your results are likely to be. There are many great services that automate the investing process, such as Wealthfront, Acorns, Liftoff, and Vanguard. Take advantage of them, and check in on your portfolio as infrequently as possible to avoid emotional decisions that often lead to financial losses.

Do you think a lot of millennials are simply waiting on a generational wealth transfer later in life?

Patrick: No. Every survey of millennials indicates that our generation’s attitude is worried, risk-averse, and financially conservative. Because of what we’ve watched growing up (namely two stock market crashes and a housing market crisis), we don’t expect to get much help from external sources like Social Security or pensions, like our parents and grandparents before us. Hopefully, this leads to a higher savings rate for our generation.

Paying for school – the burden a lot of millennials face – is also holding them back from investing, buying a house, etc. What would you like to see different in our education/education financing system?

Patrick: More than anything, I think we need to reassess the curriculum – in both college and high school. We should be teaching more computer science, statistics, philosophy, and personal finance classes. The current curriculum is outdated and fails to arm students with the knowledge they need to save their money and plan for retirement at a young age – when they should be planning for retirement.

Given the burden of student loan debt, and the post-grad wage slump, what advice do you have for people to even find the money to invest in their twenties – versus waiting until they are 35 and out of debt?

Patrick: It is very hard to invest in your early 20s. This is true logistically (lower salaries) and psychologically (retirement is decades away—out of sight, out of mind). But money invested when you are young has by far the most potential. There is nothing better you can do for your financial health than making steady, early investments in the global market. Even if the amounts are small, you will be very happy in a few decades that you made a wise early decision. Start with 5% of your income. Set it up so that your 5% is automatically taken out of every single paycheck and invested (another out of sight, out of mind. You’ll never miss it). Getting started early might be hard, but it will be worth it.

My Thoughts On Millennial Money

I think Patrick is on the right track with trying to help young adults invest. I'm a strong believer in the power of compounding and starting early, and regular readers will know that you should start investing as early as possible.

In the book, Patrick covers:

• Three simple principles to follow when investing in the stock market – go global, be different, and get out of your own way
• Top investing mistakes millennials (and other generations) make – and how to avoid them
• Why investors (millennials and otherwise) tend to buy stocks in their home country – but should instead build a global portfolio

If you're looking for a book that will help give you more tools to start investing, you should check out Millennial Money.