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Investment Apps: Yay or Nay?

November 12, 2021

Once upon a time, not so long ago, when communication among two parties was in order, a phone call or a postal service-delivered letter was placed. Until email, texting, and social media provided alternative (and far easier) options for communication. Once upon a time, when a family vacation was in order, Mom or Dad would venture off to the local travel agency and make their plans based on the recommendations of their travel agent and pay them to book said appropriate travel arrangements. Until platforms like Expedia and TripAdvisor empowered consumers to research, compare prices, and book travel all from the comfort of their phone. And once upon a time, when one had a bit of disposable income and wanted to invest it, it was a time-consuming and expensive proposition that involved stockbrokers and trade tickets. Until the 21st century rolled around, and along with it a whole suite of tools and technologies designed to make investing more widely accessible. The Rise of Investment Apps

Robinhood was the first investment app to get major traction. Robinhood’s mission was reminiscent of that of a certain Nottingham outlaw hero, to ‘provide everyone with access to financial markets, not just the wealthy’. Launched in March 2015, Robinhood initially announced a 1.25 million waitlist of eager customers, and currently has 31 million users. In 2016, the investment app industry brought in $3.2 billion (based on stock trading revenue); last year revenues hit almost $11 billion.

COVID-19 was friendly to the investment app industry. While the industry was experiencing steady growth since 2015, like with so many other technologies, COVID-19 fast-tracked its widespread adoption. Robinhood continues to lead the charge with volume of users, followed by eToro, Fidelity Investments, and E-Trade.

“In general, I believe investment apps have been a positive development as they open up the market to most people now,” Craig MacFarlane, WealthCo Financial Advisor shares. “Anyone with a phone can open and fund an account with basic personal information. Investors with limited funds or time can download an app and invest fairly quickly. However, these apps can also lead to issues and unexpected losses.”

The Darkside of Investment Apps

While there is some undeniable value to having more of the populace involved in the investment space through these apps and taking a heightened interest in the financial markets, there are some dangers as well.

“Investing successfully in the market takes time and experience that your average retail investors don’t generally have,” MacFarlane explains. “Less experienced investors typically join these apps believing it is a way to ‘get rich quick’, when the opposite is usually true.”

One negative aspect in particular, which played out in spectacular fashion in the first quarter of 2021, was what has been referred to time and time again as the GameStop saga. GameStop, a struggling video game retailer with a history of lackluster stock performance, ended up at the centre of a frenzy when a group of Reddit users from the page r/wallstreetbets banded together to buy up the stock and, in turn, sent the stock prices soaring, hitting a high of $483 on January 28 (up 4,327% from their 52-week low of $10.91). What ensued can best be described as chaos, with:

  • Major capital firms announcing 100% losses on the stock;
  • Retail trading platforms (including Robinhood) restricting GameStop transactions;
  • A statement from the SEC reinforcing their commitment “to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws”; and
  • A GameStop (or as he put it, Gamestonk!!) Twitter shout-out from Elon Musk rounding out the madness.

“This herd mentality that we experienced with unsophisticated investors messing with the natural rhythm of the markets, leads to short-term volatility,” MacFarlane states, weighing in on the madness. “Online forums are great when they spark an interest and get people thinking about getting involved in investing. But when these members are investing in companies for the wrong reasons, investing as a joke, investing in companies that have no fundamental value investment-wise, it’s problematic.”

Investment Apps: The Bottom Line

MacFarlane sums it up well. “You can have some fun with these apps by investing money that you can afford to lose. When it comes to the money that you need and the money that is key to your financial future and survival, it’s best to leave your financial planning and retirement planning to a trusted advisor.”

How WealthCo is Integrating Technology

While the value of the personal financial advisor to client relationship cannot be overstated, WealthCo believes strongly in being a tech-enabled company and has embraced and implemented many technological tools in our quest for integration, superior customer service, and heightened productivity.

The introduction of Conquest Planning’s financial planning software is a major recent implementation worth highlighting. This flexible platform uses artificial intelligence to empower our financial planners to build living financial plans in collaboration with their clients faster and with a higher degree of accuracy.

And coming up in 2022, WealthCo will be launching a new website and platform for our Integrated Advisory accounting firm partners to use that will provide them with a fuller picture of a clients’ financial life, allowing them to have more effective planning conversations so they can provide the best solutions to their clients based on their unique requirements.

Stay tuned for more details on these exciting developments!

Note: this article is part of our four-part series on Millennial Investment Trends. Check out the other articles in the series:

Millennial Investment Trends

The Great Wealth Transfer: Is Your Family Ready?

Growth of the Sustainable Investing Movement