Robinhood has opened up the door for millions of investors to access markets. They disrupted an industry of elite who were gatekeeping America’s greatest means for wealth accumulation. At this point, however, that’s where my sympathies and praise end.
In light of Robinhood’s complicity in the GameStop short squeeze, their most glaring shortcomings have been aired during a Congressional hearing on these events. Among Robinhood’s shortcomings include: complaints they halted the buying of certain securities and rigged markets, lack of phone support, their alleged role in the suicide of an 18-year-old options trader, and the claim that they’re turning investing into “a casino.”
People love to hate Robinhood. You might even feel bad for them. But they have gotten themselves here — and they don’t care about some temporary bad press. It’s making them bigger anyway. To support that growth, Robinhood ran a 30-second spot during the Super Bowl, which has re-aired on dozens of channels since the big game. The ad, titled “We Are All Investors,” compares investing in the stock market to getting an education, adopting a puppy, starting a small business and buying hair dye.
While some of these things are not completely unfounded, Robinhood wants the masses to hear: “You don’t need to become an investor, you were born one.”
I don’t share their optimism. As somebody who knows a thing or two about Robinhood users, I’m actually quite concerned. Spending money on hair dye, NFTs or an education is not like investing in stocks at all. In fact, the comparison is extremely reductionist. I’ll give Robinhood props for all the good they’ve done for the fintech ecosystem, but this ad is one huge falsehood.
Whether they like it or not, this ad is telling millions of impressionable working-class people, many of whom are underpaid or unemployed because of the pandemic, that investing is easy. They are insinuating that there is such a thing as quick and easy money, but anybody who has spent a little bit of time in the market knows that is not the case.
Now credit to our audience — there are some smart cookies on FinTwit, FinTok and in the scores of stock-centric Discord communities. However, I also know that most of these people have been trading stocks for years. They are in these spaces because they have a passion for trading stocks, learning how markets work and understanding the world. These folks know a thing or two about business valuations, fibonacci retracement and macroeconomic trends.
For millions of new investors, Robinhood will be their first (and only) understanding of markets. Analyst ratings, their preconceived notions about a company, the historic price of a stock and things they read or hear from friends or The Motley Fool will guide their decisions on whether or not to invest. In some cases, they will get lucky and make money. In many cases, they will not. I’m not trying to gatekeep investing to people who know what a PEG Ratio is. I’m simply saying that Robinhood knows that their target public is generally going to try to exert as little effort as possible and expect the highest yield.
Please don’t get me wrong: it’s great that retail investors can now invest in whatever they want for next to nothing. Robinhood deserves all the credit for creating a product which has disrupted the traditional paradigm of the brokerage industry and increasing access for working-class people. However, I don’t think everybody should be stock-picking. The reason why is simple: Nobody was born an investor, and few have the passion and energy needed to learn and become a good one.
For most people today, the best place to send money to work is in a robo-advisor or under the management of a certified financial planner. The most meaningful medium for investing is in tax-privileged retirement accounts such as a Roth IRA or 401(k). Robinhood lacks these offerings; they don’t offer autopilot or even a co-pilot for your portfolio. They expect you to figure it out. Oh, and you’re still using an individual taxable account that ultimately means you’ll be subject to more taxes from Uncle Sam at the end of the day (even if you are saving for the long-term). In that sense, no amount of “educational resources” and “advertising” will make up for material losses to customers. For that reason, I hope Robinhood implements features that help people balance the excitement of stock picking, what’s trending and responsible long-term investing. However, in its current implementation, Robinhood is just a tool. And it’s a tool that most people have no idea how to use responsibly.