Page 58 - Money - November 2018

when reached via Reddit direct like options to magnify returns, as he posted about seem to have
message. “I think some brokers many on WSB do. clarified the consequences of the
need to be more careful about how For his part, Rogozinski Wallstreetbets investing style. In
their clients are ‘investing.’” disclaims responsibility for what the post announcing his losses, he
At least one academic study of he sees as investors’ bad judg- admitted he wouldn’t take the
day trading suggests that about ment. “If you have money, you’re same risks in the future. “Will still
eight in 10 investors end up losing probably old enough to under- stick around but play with a
money within six months. Those stand the consequences and live significantly smaller portion of the
losses only stand to be worse up to them,” he says. pie,” Cao wrote. “Basically quitting
when investors use instruments In Cao’s case, the giant losses while I’m ahead.”

ROBINHOOD ENCOURAGES STOCK PICKING, Tantia hadn’t tried the app before speaking
AND THAT’S DANGEROUS with MONEY but said that generally users “will choose
When you sign up for the app, a list of popular out of the choice sets that you give them,” as opposed
stocks like Apple, Tesla, and Netflix and even well- to doing their own research. He added that certain app
known cryptocurrencies like Bitcoin appears on settings, such as frequent notifications, encourage
your screen. You won’t see low-cost, diversified users to respond—and, therefore, trade—more often.
ETFs on that list. In order to invest in a fund, you Robinhood’s spokesperson said those notifications
need to find the fund yourself. “are intended to keep investors updated on news,
In general, stock picking isn’t for amateurs. earnings, and price movement and can be customized
Economists who study the stock market tend to or turned off.”
believe short-term stock fluctuations are basically
random. Over the longer term, studies have ROBINHOOD’S PREMIUM SERVICES
shown that most investors have trouble keeping AREN’T WORTH YOURTIME (OR MONEY)
their emotions in check, rushing to buy late in
One way Robinhood can provide commission-free
bull markets when prices are high, then selling
trades is by making money on the interest from the
amid panics when prices are low. In other words,
assets it holds within accounts, a practice that’s not
they shoot themselves in the foot.
unusual for brokerages. Another way it makes money
Over many years—say, while you save for
is through a subscription to gain access to margin (or
retirement—index funds outperform other
borrowing money to invest more than you can afford
strategies because this kind of investment doesn’t
with your own money).
attempt to time or beat the market, it simply
For these subscriptions, you’re essentially paying
tracks the performance of the total market.
a monthly fee to borrow money to trade stocks. And
if those trades go sour, you could lose your money
ROBINHOOD’S DESIGN COULD GETYOU very quickly.
TOTRADE MORE OFTENTHANYOU SHOULD Robinhood says the subscriptions are meant only
When you tap on a stock within Robinhood, for experienced traders.
you’re given information about how it has that low-cost ETF. Then turn off the notifications and
For the inexperienced, though: Use the app to buy
COURTESY OF ROBINHOOD you purchase it, confetti falls. You’ll then receive don’t check back in, except every few months to make
performed over time, along with some stats. If
sure it’s working correctly.
notifications throughout the day about the stock’s
Better yet, you could just invest via index funds
movement. This type of setup promotes frequent
through a much more boring 401(k), IRA, or even in
trading, says Piyush Tantia, chief innovation
officer at Ideas42, a nonprofit design firm that
a plain-vanilla brokerage account from Vanguard,
uses behavioral science to tackle social ills.
Schwab, or Fidelity.

NO VEMBER 2 018 MONE Y. C O M