Month: March 2021


March

Millennials vs. Online Investing


Even if you don’t closely follow the stock market, you likely saw headlines in late January on GameStop and how an army of Reddit users took on Wall Street. The most popular platform these Reddit users used to invest was with the smartphone app, Robinhood. Robinhood is a popular choice for many due to its accessibility, it’s free to use and their array of investment choices such as, stocks, options, ETF’s, and cryptocurrency. We aren’t going to go into too much detail on any one specific investment type, but instead dive into the reason Robinhood and platforms like it are so attractive to new or first-time investors and whether that attraction is good, problematic or a mixture of both.
 
Robinhood has existed since 2013 but gained most of its popularity later in the decade. Millennials have been their primary demographic throughout its existence.  In many of the economic or financial benchmarks (salary/wages, home ownership, etc.), the Millennial generation has been lacking behind their predecessors. However, thanks to the emergence of Robinhood and apps like it, investing could be an area where Millennials and Gen Z make up some ground.
 
Robinhood’s marketing approach, although somewhat controversial, is undeniably successful. Their use of push notifications, graphics and promos make the app feel almost like a game. Many compare the marketing techniques to popular sports betting apps like DraftKings or Fan Duel. This is where the problematic aspect rears its ugly head. Gambling can be addicting and detrimental to one’s financial wellbeing. Combining the risks, accessibility to those risks and the appeal to inexperienced or new investors has already resulted in a deadly outcome.
 
In June 2020, a University of Nebraska student committed suicide when he saw a negative cash balance of over $730k. This balance was a result of option trading, which can be extremely risky. Although it turned out the significant negative balance was just a temporary display until an underlying stock settled. This is an extreme and unfortunate example of how inexperience and lack of knowledge can lead to consequences that the investor may not fully understand or know how to handle.
 
The fact remains, this app and others like it aren’t going to go anywhere anytime soon. They continue to attract new investors, mostly from a generation that is beginning to look for new ways to accumulate capital and build for retirement.
 
The uncertainty surrounding Social Security’s future among Millennials is just another factor that’s driving them to invest within these sorts of apps. The positive in this, is it’s expanding access to the market and allowing more people to have the opportunity to build wealth in a time where the wealth gap is widening at a historic rate.
 
But like the famous quote from Winston Churchill says, “with opportunity comes responsibility.” Which begs the question, where does that responsibility lie? Certainly, the individual investor will take on most of the responsibility for their own choices. But is there a point where the gimmicks and marketing strategies from these apps might be considered predatory? These are questions that will likely continue to come up as these apps expand their userbase and broaden their appeal to a generation starving for financial success and independence.