The Millennial Investor Is Coming for Wall Street

Portfolio manager Patrick O’Shaughnessy is grappling with what happens when a generation of distruptors try to get in on the action.

What do millennials want? It’s the question that launched a thousand trend stories (Man Buns! Thought Catalogs! Molly!), but it’s based on a false premise. What people want—and, yes, we’re talking about Maslow’s hierarchy—doesn’t really change. What changes (constantly) is how people go about getting what they want. Portfolio manager Patrick O’Shaughnessy is one of the few businessmen who seems to be asking the right question: How will millennials get what they want?

Millennial Money: How Young Investors Can Build is O’Shaugnessy’s attempt to answer his own query while providing some sound advice. His thinking is both practical—a new generation does not a new economy make—and counterintuitive. His proposition is that a lot of economic truism may be rendered false as the members of a generation reared on out-of-the-box thinking figures out how to buy a place to put their boxes. For all the words devoted to the sharing economy, our economy isn’t about sharing. It never will be. Millennials will invest for the same reason their parents did, but they’ll do so entirely differently. Here’s what O’Shaughnessy thinks is about to change.

For millennials, conventional wisdom has been to ignore conventional wisdom. What are the limits of this strategy?

By definition, only a minority group can be contrarian, so at some point the millennial attitude will just be the norm. Our values will work their way through all aspects of our culture—think legalization of gay marriage and marijuana—and our unconventional approach will become conventional. As far as investing goes, our preference for low-cost, automated solutions is already changing the financial services industry. And we are probably just getting started.

Millennials have a reputation for craving excitement. Does this present a potential problem for them as investors and are there any great, boring investments left?

If you are excited by an investment, there is a very good chance that it is a bad idea. Good investing is slow and boring. It would be lots of fun to get lucky and pick the next Google or Tesla, but the odds of your doing so are very low. Think of it like playing the lottery: A few people hit it big, but most don’t. It’s much smarter to buy global index funds—or if you want to buy individual stocks, buy those that are boring, not exciting. Millennials can get their excitement fix in lots of ways. The stock market shouldn’t be one of them.

Economists and psychologists have spent the last few decades proving that economic decisions are not rational. Given that, how can millennials overcome paralysis to act?

Our biological programming is stuck in the Stone Age. Our psychology is well suited for survival situations but awfully suited for investing success. The best solution is to cut oneself out of the equation by making all of your investing happen automatically, behind the scenes. Set up automatic contributions for retirement accounts and other accounts. Check them as little as possible. The less involved you are, the better—you are less likely to make short-term investing decisions that shatter your long-term success.

How can millennials make longer-term investments in technology? Are there particular fields where value can be found?

While it is the most exciting sector of the economy, technology has been the worst performing of the 10 economic sectors for investors over the last 50 years. This is because technology stocks tend to be very expensive—and in the stock market, the more you pay, the less you earn. To invest in technology, ignore the exciting new companies and focus instead on more mature companies with cheaper prices and lower expectations for the future. Think Xerox instead of Twitter. It may sound counterintuitive, but successful investing often is.

How will millennials interface with the market? Presumably, they’re not all going to end up going through brokers.

Fewer and fewer people buy stocks on their own. Low-cost index funds that own the entire market—and other easy, one-click solutions—will continue to grow. New companies like Wealthfront and Liftoff integrate technology and finance to automate the entire investing process. A brand new company—Acorns—rounds up your small purchases to the nearest dollar and invests the difference for you automatically.  Just as they do in most other areas of their lives, millennials will rely on technology to help them run their investments.

A lot of millennials—hell, a lot of people—aren’t financially literate. Are there any easy new ways to learn about investing?

Reading is the antidote. For novice investors, I suggest Simple Wealth, Inevitable Wealth by Nick Murray, The Richest Man in Babylon by George Clason, and The Behavior Gap by Carl Richards. I also think Maxim should start a petition for high schools to include investing and personal finance as a required class in high school. I took four years of French and photography, but didn’t learn one thing about investing. How backwards is that?

On some fundamental level, any long-term investment a millennial makes is a bet on the status quo of our financial system. Does that increase risk?

On the contrary. It is a bet that humans will continue to innovate and grow the scope of global business. The global stock market has continued its relentless upward march despite countless historical catastrophes—World Wars, market crashes—and changes to the financial status quo—moving off the gold standard in 1971. The alternative to making long-term investments in the stock market is to sit in cash, which never works over the long term because of the corrosive influence of inflation. 

Photos by Keith Wright / Getty Images