Wall Street’s Great Democratization Needs More Than Just Investing Technology

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In the world of mythology, Robin Hood took from the rich and gave to the poor. And in the new telling of the Robinhood tale, in the digital age, the definition of who’s rich and who’s poor can change day to day or minute by minute. We’re speaking here of stock trading, of course, where apps such as Robinhood set out to democratize investing, and where day trading has become the coin of the realm.

You’re no doubt familiar with the huge volatility seen in recent weeks in names like GameStop, where shares rocketed more than 14,000 percent and then fell back toward earth, where cryptos soared and plummeted, and where Robinhood’s platform became a playground of speculation. The frenzy got so, well, frenzied that this week, lawmakers will train their collective sights on the subject of stock trading. The virtual House Committee hearing is titled “Game Stopped? Who Wins and Loses When Short Sellers, Social Media and Retail Investors Collide.”

At the heart of the matter might be the way the trading landscape itself has been tilting. Technology has evolved to the point that platforms can bring buyers and sellers together online, in real time — leveraging accounts held with financial institutions (FIs), or the platforms themselves, to get in and out of holdings in the blink of an eye, using social media as a megaphone.

But at issue, too, is the matter of education: Opening up conduits to get rich quick or get poor quick may need a dose of measured “think before you trade” caution on the part of the platforms themselves. The “forewarned is forearmed” argument is especially important as other companies are launching digital platforms to level the equities playing field. As opposed to what’s been seen with Robinhood and Reddit, these FIs and FinTechs seek out the long view – where investing is a marathon rather than a sprint.

Marcus and More

As reported this week, Goldman Sachs is launching Marcus Invest to facilitate automated stock buys. The platform will automatically make investments in stocks and other holdings based on pre-determined criteria, with the trading tool integrated into the Marcus app and website. As noted by The Wall Street Journal, Stephanie Cohen, global co-head of Goldman’s consumer and wealth management division, has said that the best way to generate wealth over time is via diversified portfolios. “Marcus Invest is not intended to drive user engagement the way Robinhood is,” the Journal reported. There’s a world of difference between those two strategies. And it’s an important distinction where individuals, with stimulus payments newly in hand, will likely put money to work in the market.

CNBC reported that retail trading has been trending as an ever greater percentage of market activity, having doubled from 15 percent to 18 percent of the total at the beginning of last year to more than 30 percent today, per estimates from Credit Suisse. That surge has benefited not only Robinhood, but also more traditional brokerages such as E-Trade and Charles Schwab. Some of the activity has come as brokerages have dropped commission fees, which makes it more affordable to trade.

Of course, we contend that it’s all affordable – until you go broke. Day trading is exciting, to be sure, but it’s probably not the sustained path to financial stability. A well-rounded financial strategy brings traditional financial management (checking and savings and debt management) together with investing (which is distinct from speculation).

There are any number of alternatives to social media-spurred trading that can result in whiplash — where a measured approach is mandated and, in some cases, automated. As detailed in Vox, sites such as Wealthfront use questionnaires and portfolio rebalancing to play the long game.

In one example spotlighted by PYMNTS, Finch CEO Neel Ganu said that combining banking and investing activities into a single account can help these younger consumers – those with increasing financial firepower in their futures – to optimize their daily finances and grow their wealth in the meantime. Finch invests users’ checking balances into a tailored portfolio mix that matches accountholders’ risk profiles. As he told PYMNTS, the account earns returns on the balance while giving users instant access to money for everyday spend (80 percent of the balance outside of market hours). The model, he said, is based on “autonomous finance.”

Judicious financial management is worlds away from Reddit and Dogecoin looking to storm the hedge funds’ turf – but it involves stamina and plenty of “safety checks” on the part of the platforms that seek to democratize investing.



About: Buy Now, Pay Later: Millennials And The Shifting Dynamics Of Online Credit, a PYMNTS and PayPal collaboration, examines the demand for new flexible credit options as well as how consumers, especially those in the millennial demographic, are paying online. The study is based on two surveys, totaling nearly 15,000 U.S. consumers.