Dear Dr. Per Cap:

Are investing apps like Robinhood and Acorns the best way for a first time investor to buy stocks?

Signed,

Eager Beaver

Dear Eager

There’s no denying investing apps are taking the world by storm.  New investors are pouring into the market in record numbers and their influence is felt in meme stocks, cryptocurrencies, and other fast paced trends.

Let me say I’m a fan of any movement that encourages people to invest.  Moreover, many financial technology or fintech apps make it very easy for a novice investor to get started with little or no money upfront.  Consider this.

• Individual investors in the U.S. now own more stocks than any time in history.
• Millions of new brokerage accounts were created during the pandemic.
• The stock market has hit more than 50 record closing highs this year alone.
• Lockdowns and stimulus provided people with time and money to invest.

This all sounds great but I worry some apps are oversimplifying the investing process by turning it into more of a video game and entertainment experience than an investing mindset.  Spend a few minutes scrolling the investing apps mentioned above and you’ll know exactly what I mean.

Another trend we’re not hearing about as much is the fact that margin debt to buy stocks is also at record levels.  This means many new investors are speculating using borrowed money and that’s had bad consequences for more than a few.

The first step before investing any money is always to take time to learn what you’re doing.   I know you’re raring to go but really – slow down.  Set some goals, identify an investing time frame, and establish your risk tolerance.   Unfortunately some investing apps are a little light on this part.  For example, I’ve used Robinhood and it has educational tools, but you have to search for them.

So before making any trades please do some homework and check out other investing apps and websites before picking one.  There are some older, more established online brokerages that offer similar features while also providing more resources to help you make investing decisions.  I’m not saying one is better than another.  Just that different apps approach investing differently and each has pros and cons.  Pick the one that best suits your needs.

To learn more check out this video I made with Sequoyah Fund, a really cool tribally led financial services provider.   It explores the investing app craze and some alarming trends.

Ask Dr. Per Cap is a program funded by First Nations Development Institute with assistance from the FINRA Investor Education Foundation. For more information, visit www.firstnations.org. To send a question to Dr. Per Cap, email askdrpercap@firstnations.org.