Millennials, this generation of 20-somethings, are steering clear of the stock market. While there are plenty of reasons to be cautious, including the volatile performance of S&P 500 (^GSPC) in recent weeks, Patrick O’Shaughnessy, author of the new book Millennial Money and portfolio manager at O’Shaughnessy Asset Management, says this generation is missing out on easy returns.
“If you start in your early 20s, which many millennials are at that age right now, historically the average potential of that dollar in the stock market is about $1 growing to $17, after inflation, so a very nice return. If you wait until you are 40 that potential drops to about $5 by the time of retirement. So youth itself is really the number one investing advantage out there.”
O’Shaughnessy notes the average portfolio of a Millennial mirrors that of new retiree whose age is roughly 62. A typical retiree portfolio allocates about 52% to cash and just 25% to stocks. This makes sense when the goal is to preserve wealth, but it won’t work to grow your money says O’Shaughnessy.
“Over the long-term, which is what we should be focused on as very young investors, there has never been a better, safer option than the global stock market.”
Putting money to work in the stock market is the easy part. O’Shaughnessy advises millennials and parents of the next generation of investors to begin by building a foundation of knowledge. A great first step: learning the basic math behind investing.
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