We get it
The Robinhood app is the latest innovation designed to democratize investing and usher first time traders into the fold. Co-founder Baiju Bhatt declared that Robinhood strives to offer “people that don’t have a lot of money the ability to get started” in the market, which in itself is a righteous intention, with a legacy dating back to the 1970s. Considering that 43% of millennials aren’t investing, it’s encouraging that Robinhood’s median user age is 31. However, the allure of no brokerage fees is tantalizing and certainly may feel like a “discount” for many novice investors previously shut out of Wall Street.
Robinhood’s typical account size is within a $1,000 to $5,000 range, and since Federal stimulus checks were mailed out, Americans across every tax bracket have used that money to buy stocks. In fact, the week after the stimulus checks were released, the country witnessed a spike of 90% more traded stocks by citizens earning $35,000 to $75,000.
The urge to invest while the market is low is understandable, especially for the unaccredited, who are normally forced to watch the markets from the sidelines. However, trading fees act as a barrier to entry, and with these fees removed, new inexperienced investors are entering the market in droves. From the outside, this may seem like a grand idea, but beginner investors entering “the system” without proper knowledge or realistic intentions are hardly doing themselves any favors. Keep in mind that 74% of 13 – 21 year olds weren’t taught about financial literacy, the economy has been decimated, and unemployment is worse than it was 90 years ago. Now would hardly seem to be the time for rookie investors to try their hand (or stimulus checks) at ‘get rich quick’ day trading endeavors. A strategic investment plan is recommended to achieve long term success in any market, bull or bear.
Another face in the crowd
It’s encouraging to see fresh interest in the stock market, but like many things in life, just because you can, doesn’t mean you should. Investing is not a substitute for entertainment like sports betting; it requires education, patience and self-control. Remember, 84% of Wall Street stock market gains are funneled directly into the pockets of 10% of the population.
A savvy alternative to investing in the stock market is equity crowdfunding. This Federally regulated option offers the average person an opportunity to invest when a company is still affordable and is an attractive, stable alternative from the volatile public markets. It’s a starting point for fresh investors to secure equity in startups, support small businesses, and build long-term wealth. Equity crowdfunding is now hitting its stride at a time when the American people need help more than ever. Successful crowdfunding companies create and support on average a total of 54 direct and indirect jobs and since 2016, has already pumped nearly $1B into local economies across the US. Equity crowdfunding is the alternative that novice investors, with no previous access to Wall Street, may want to consider before investing their hard earned money or coronavirus check, into Robinhood.