While that's true, it may only be part of the story. There is a clear tension between "democratize X" (for Robinhood X is "finance for all") and offering a white glove service, including stellar support for everyone. It simply won't scale.
Democratizing X also means commoditizing X by offering a minimum acceptable solution that will become what people are taught to expect. I am not sure there is a way around this to be honest.
Schwab and Vanguard are completely free if you're not trading individual stocks, which in complete bluntness virtually no retail consumers should be doing.
Robinhood has gotten their position by invisibly and dramatically increasing the amount of risk assumed by their customers' life savings. Everybody's a savvy investor in a record-breaking bull market.
> Yeah, well, I regularly read on HN about how retail consumers are locked out of investing in stocks, that only rich people can.
Vanguard and Schwab already did that decades ago. They just didn't gamify their products or benefit from meme culture.
> I've been a retail consumer stock investor my entire adult life, and would be pretty unhappy if regulations locked me out of that.
"Retail consumers should not be [trading individual stocks]" is not a claim that individuals should be barred from putting their life savings into belly button lint futures if that's what want to do. It's simply stating that by and large, individuals should be encouraged towards sensible defaults and not simply whatever the latest meme investment is. Veering from those defaults for non-trivial sums of money should involve increasing levels of warning and resistance proportionate to the estimated change in risk.
And that goes in both directions. Just as retail consumers should be given additional levels of resistance for investing in individual stocks, investing in recently-memed stocks, buying put options, and buying on margin, they should also meet resistance when putting their entire balance into cash positions as happens to far too many investors that don't realize the error.
> Vanguard and Schwab already did that decades ago.
I know that. I didn't say the HN comments were correct! Heck, even in the 1920's there's that famous story of the elevator boy talking about the stocks he was trading.
Let adults be adults and invest the way they want to. The government shouldn't be treating them like children.
The level of effort and personal commitment necessary to commit your life savings toward starting your own business vs. putting it all into meme stocks isn’t even remotely comparable.
One of these can be done in ten minutes from your couch while stoned with a handful of clicks. I’ll leave you to guess which of the two it is, but suffice it to say that’s the one I think should have some additional guard rails.
You can buy individual stocks without yoloing your entire life savings into meme stocks.
The movement to limit the most profitable investments only to “experienced” i.e. already wealthy investors is one thing that prevents average people from accumulating wealth.
If an average person is allowed to walk into Vegas and put their whole life savings on black, or spend it on lottery tickets why shouldn’t they be able to buy a stock? Less nanny state, please not more.
> The movement to limit the most profitable investments only to “experienced” i.e. already wealthy investors is one thing that prevents average people from accumulating wealth.
This is ridiculous. High-quality, virtually zero-cost index funds that track the market (or various subsectors of the market) are available to essentially every American and have been for decades. These investments have produced returns well in excess of the average performance of the overwhelming majority of investment professionals.
Further, their risk-adjusted returns have been second to none. Throwing novice investors into the deep end of the pool with the consolation that some small fraction of them will beat the market and some minute fraction will win the lottery doesn't help "average people" accumulate wealth. Every available metric we've tracked has repeatedly shown that "average people" have the best performance from low-cost index funds with a long-term buy-and-hold strategy. Every other strategy has demonstrably worse performance on average.
> If an average person is allowed to walk into Vegas and put their whole life savings on black, or spend it on lottery tickets why shouldn’t they be able to buy a stock? Less nanny state, please not more.
It is wild to me that every single person detracting from my comments seems to believe that "retail investors should not be investing in individual stocks" is some sort of call to have the government step in and prohibit individuals from investing in $TSLA.
Nobody is asking for that.
We're saying that Robinhood is playing an extremely dangerous game with their clients' well-being by promoting risky and irresponsible decision-making around their livelihoods. This has been a successful strategy for them so far, but it has relied entirely on the unprecedented bull market we've found ourselves in. I'd bet large sums of money that their internal metrics show their customers perform significantly worse on average than the market overall, and I'll double that bet that their customers will fare amongst the worst when the next correction hits.
What exactly are you proposing then? You literally said no retail investor should be purchasing individual stocks. It's not a giant leap then to think that you want to prohibit retail investors from purchasing individual stocks. If that's not what you want, then what do you want?
> We're saying that Robinhood is playing an extremely dangerous game with their clients' well-being by promoting risky and irresponsible decision-making around their livelihoods.
How does Robinhood promote risky and irresponsible decision making? Robinhood doesn't force anyone to buy stocks. Retail investors have been able to buy stocks since the stock market existed. Robinhood's innovation is to let them do it for $0 commissions, which dramatically decreases risk for small investors.
For example, Vanguard charges a $7 commission per trade unless you have hundreds of thousands of dollars invested with them. If you want to invest $100, you will pay $14 in commissions - $7 when you buy and $7 when you sell. Now your investment needs to return at least 14% just to break even.
Compare to $0 commissions on Robinhood, now, if the underlying investment makes money at all, you make money. This is a huge benefit for people who only have small amounts to invest.
The $7 commission doesn't matter much if you're investing tens of thousands of dollars, it matters a lot if you're investing much less.
> What exactly are you proposing then? You literally said no retail investor should be purchasing individual stocks. It's not a giant leap then to think that you want to prohibit retail investors from purchasing individual stocks. If that's not what you want, then what do you want?
I'm not proposing anything. I didn't say anything to even suggest I'm proposing something.
All I said is that retail investors, by and large, shouldn't be trading in individual stocks. And they shouldn't! It's a demonstrably less-successful investment strategy on average than index investing. Especially for completely novice investors.
"Nobody should be feeding chocolate to their dog. " "No parent should use an iPad as a substitute for actually raising their child." "Nobody should buy a home warranty, they almost never end up paying out." Which of these statements do you think are even remotely close to advocating for government intervention?
> How does Robinhood promote risky and irresponsible decision making? Robinhood doesn't force anyone to buy stocks.
In what universe are "promoting" and "forcing" equivalent verbs?
Why can't it simply be true that encouraging financially illiterate people to day trade is just an unfathomably irresponsible idea? All of the available evidence supports this assertion. Sure, some people will do better than others; that's the nature of statistical distributions. But on the whole, day traders do measurably worse than buy-and-hold index investors.
That's not a claim that all of Robinhood's customers are financially illiterate. Nor is it a value judgment against those who are. It's simply a statement that Robinhood explicitly markets their services towards people with little to no financial background, and everything about their in-app experience is designed to encourage a style of trading that is drastically more likely to leave those customers less well off than more boring approaches. And—very potentially—less well off than just leaving their money under the mattress. Countless retail investors lost absolutely everything by selling during the recession. Do you expect Robinhood's customers to do better on average or worse than average in the next one?
> Robinhood's innovation is to let them do it for $0 commissions
Robinhood's "innovation" is gamifying the whole thing and taking advantage of meme culture. If they'd managed to do that for boring-as-shit index funds, that would have been an achievement of absolutely immeasurable value. Instead all they've done is found a way to bring fresh, unsuspecting bait to the sharks' feeding grounds.
> For example, Vanguard charges a $7 commission per trade unless you have hundreds of thousands of dollars invested with them. If you want to invest $100, you will pay $14 in commissions - $7 when you buy and $7 when you sell. Now your investment needs to return at least 14% just to break even.
No retail investor should be purchasing individual stocks.
Vanguard has $0 fees for index funds, which is where the overwhelming majority of retail investors should be putting their savings. And at those numbers, the transparent costs of expense ratios are essentially nonexistent.
I agree, but I would also not compare investing in stocks and starting a company.
Starting a company is not for everyone. It's a calling.
Being able to invest and get competitive returns should be democratized. It is a known fact that the richest have historically been able to invest their money and get high returns while the rest of us had to settle for savings accounts (0.5% return currently). And the trend is accelerating[0], inequality is growing. This is not sustainable and should be addressed.
> I agree, but I would also not compare investing in stocks and starting a company.
Neither did nor would I.
> Being able to invest and get competitive returns should be democratized. It is a known fact that the richest have historically been able to invest their money and get high returns while the rest of us had to settle for savings accounts (0.5% return currently).
It is already democratized, and your last statement isn't even remotely true. Low-cost, whole-market index funds have been available to Joe Public for nearly fifty years now, and in those intervening years have represented essentially the optimum in terms of risk-adjusted returns.
Robinhood has not democratized investing, they've democratized day trading. It's like praising Harrah's for removing the rake (the casino's cut) from their poker games and promoting Hold Em to complete novices. Sure, some of their new customers will make it rich. And there are plenty of highly skilled poker players who've made a career out of it. But that's not the norm; the net result is just bringing more chum for the sharks to feed on.
As I said elsewhere, if Robinhood had figured out a way to get people to buy and hold boring-as-shit index funds through gamification and meme culture, it would be an achievement of immeasurable benefit. Unfortunately that's not what they've done. They've rebranded day trading as investing and brought a heaping mass of fresh, unsuspecting victims to be exploited by financial professionals with entire teams of researchers backing their plays.
The only reason the whole thing hasn't completely disintegrated is because of an unprecedented, once-in-a-lifetime bull run where it's been virtually impossible not to make money. There's no way this works out in their customers' favor in the long run.
Agreed. And perhaps it's getting too philosophical, but one could argue that a big role of a government is to protect its citizens from everything that has a high risk of incurring sudden and effectively unbounded losses. Whether it's mandating installation of actual guard rails through health and safety regulations, or regulating away business models that tend to make regular people broke by accident.
Democratizing X also means commoditizing X by offering a minimum acceptable solution that will become what people are taught to expect. I am not sure there is a way around this to be honest.