Goldman Sachs' 'Marcus Invest' bets against the GameStop trend

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Goldman Sachs announced a new product called Marcus Invest on Tuesday, a low-cost digital investment platform much like the robo-advisors that have emerged in the last 10 years. The product joins the bank’s other Marcus consumer-facing products, which include bank accounts and personal loans.

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At first glance, the new product seems to piggyback on the unprecedented interest in stocks following the l’affaire GameStop, in which the power of social media helped drive up a sleepy stock from the teens to almost $400 before it fell back down again.

But there’s one big difference that represents a big gamble for the firm: You can’t buy individual stocks through Marcus Invest.

Last year was the biggest ever for people signing up for new brokerage accounts thanks to free trading on platforms like Robinhood. But 2021 might eclipse 2020 in terms of new investors coming into the market: more people have googled “how to buy stocks” in the last week of January than ever before.

Marcus (“by Goldman”) and its new product may look as if it’s jumping on the bandwagon to try to woo these new investors, but the inability to trade stocks with it means it’s a completely different type of offering than Robinhood and its more established competitors like Schwab, TD Ameritrade, Interactive Brokers, and the like. Instead, Goldman is going with a more robo-advisor and automated type of investing, letting allocation of a managed basket of asset classes represented by ETFs be the differentiating factor rather than trying to pick winning stocks.

The managed basket of index funds and ETFs is already becoming “best practice” for a lot in the financial industry: you diversify and invest with a handful of funds that provide exposure to U.S. large-cap stocks, emerging markets, foreign stocks, corporate bonds, or whatever you need. It does not involve picking individual stocks.

Investing is a problem that has been ‘solved’

This has grown into accepted conventional investing wisdom in the money management world. Scores of wealth management firms focus on allocation and use ETFs and index funds as their primary tools, rather than stock picking.

“People are historically not great stock pickers,” Ritholtz Wealth Management’s Barry Ritholtz told Yahoo Finance. “The data overwhelmingly shows that most people do not add any value in their stock selection.” Ritholtz’s firm is a strong advocate of asset class investing. If you have the compulsion to defy the odds and buy stocks, just keep it a small percentage of your overall portfolio and be okay losing it all.

© Provided by Yahoo! Finance Goldman Sachs logo is seen displayed on an Android smartphone over stock chart. (Photo Illustration by Daniel Fung/SOPA Images/LightRocket via Getty Images)

“If you want to set up a side account with 10% of your money, you can buy all the Tesla and bitcoin,” Ritholtz said. “Go buy yourself a boat if it works out. But if you’re going to be saving regularly for the long haul, I question the ability for the average investor to first identify which stocks, second determine how long to hold them.”

These days, investing in stocks sort of exists on two ends of a wealth spectrum. On the one side you have the ultra-rich hedge fund types who have teams of researchers to help them get “edge” on the market. On the other side, you have people who are new to the market and getting their feet wet as beginners. The middle is the land of index funds and sensible, boring products that allow people to save for retirement.

And according to Ritholtz, boring is good.

“Good investing is not supposed to be exciting,” he said. “Investing is a problem that has been solved. What hasn’t been solved is the human propensity to get into trouble. To get FOMO.”

That doesn’t sound very glamorous — and Goldman might have made a bigger splash by buying Robinhood. But instead it decided to create something in line with the personal finance expert orthodoxy as well as many of their own employees.

Products like this — or doing it DIY with your own basket of a few ETFs — is how a lot of people in the Goldman world – people who work on Wall Street – invest.

Though plenty of people there likely think like Ritholtz and spend their time doing other things than researching stocks to buy, for compliance reasons, many of them simply own a simple fund-based portfolio. With Marcus, therefore, you may be literally investing like people at Goldman.

Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, personal finance, retail, airlines, and more. Follow him on Twitter @ewolffmann.

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