Simplifying Complexity – applying the millennial mindset

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Nick Foy, CFP®

Millenials have earned a (perhaps well-deserved) reputation for being “entitled, lazy, and over-confident.” But their attitude toward money and things, paired with a penchant for simplicity, might produce better investors than ever before, if only they can develop the necessary patience.

Those 80 million Americans born between 1980 and 2000 have taken a different tact when it comes to spending their money. Assuming they can stick with a job long enough to earn something, their attitude is much more in line with what research has shown actually brings satisfaction:

Millennials are highly adept at using technology and social media influences many of their purchases. They prefer to spend on experiences rather than on stuff. Seventy-eight percent of millennials—compared to 59% of baby boomers—“would rather pay for an experience than material goods,” according to a survey from Harris Poll and Eventbrite cited on Bloomberg.

Applying the millennial mindset to investing

Believe it or not, there are some things we can learn from millennials about investing well. While baby boomers bought products from their brokers, millennials are looking for advisors who collaborate and educate, and they’re willing to pay for it.

Baby boomers have amassed more wealth than any generation in history, but they’ve probably overcomplicated the investment process. Or, marketers and Wall Street overcomplicated it on their behalf and took plenty of money from their accounts as a result. They might have done much better had they applied the science of investing to their personal portfolios, or depended on advisors that were doing so.

Lower costs should mean better results

One headwind that millennials won’t face over the entirety of their investing lives is high-cost investment products. Even though there are still advisors who are pushing high-commission, sales oriented products on clients, the cost of investing has been slashed across the board. Just last week, Fidelity was the first to offer a fee-free index fund. To be fair, their 0% expenses aren’t that much different from Vanguard’s 0.04%, but the fee cutting revolution that John Bogle started more than 40 years ago has come to this: investing well shouldn’t cost much, and it shouldn’t be complicated. Millennials are well served thanks to Bogle’s initiative.

Price is what you pay, value is what you get

Unlike just about any consumer product, there’s an inverse relationship between the cost of investing and the value one can expect to receive. Data shows us that, in aggregate, investors who pay less should expect to receive more in return. Older generations have done plenty of work to help us understand the how and why of markets, and if millennials are able to actually apply it to their portfolios and lives, they stand to be far wealthier than their parents.

Invest like a woman

Another tailwind for millennials is the influx of women in the working world. Studies have shown that women are better at investing than their male counterparts, and now that women make up 47% of the workforce, and are more likely to have graduated college by age 29, women should drive the next generation of wealth creation by doing what has shown to provide them a superior rate of return to the average ego-driven male: avoiding frequent trading, keeping their costs low, diversifying broadly, letting the market grow their wealth over the long-term. In short, women are better at avoiding investing blunders.

What could go wrong?

Just like prior generations, millennials can get off track easily by chasing the latest investment fad (I see you, Bitcoin), and investing too heavily in assets with low-expected growth rates (gotta get that “forever” house).

It turns out that millennials might not be totally immune to the type of get-rich-quick schemes that have plagued some in every generation in human history, and even though they say they want to spend money on experiences rather than possessions, there might come a time when the desire to one-up their neighbor just becomes too strong.     

But the opportunity is there for millennials to build and utilize their wealth like no generation in human history, if only they can learn from the wisdom passed down.


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