Investment Apps Gain the Home Field Advantage
How intuitive mobile apps have recently reshaped the industry.
People have long been intimidated by high costs, potential risks, and the learning curve of navigating investment markets. But, intuitive mobile apps have given the investment industry a more welcoming face that’s attracted new players of all types — from sports fans to future-focused Millennials.
Whether people have been waking up to their financial insecurities, or just keeping the idle-mind at bay, let’s look at why mobile could be a star player in the post-pandemic investment industry.
Wake Up, The Future Is Calling
With retail trading rising from 10% in 2019 to around 25% of stock market trades in 2020, the pandemic seems to have average people active in the investment space more often. In fact, every time COVID-19 cases doubled, retail trading activity was up by 13.9%.
Robinhood is the shining example of fintech in the pandemic. Notably, it’s reached record highs on daily trades, outperforming major incumbents in the investing space. Ditching high trading commission fees and showing up with an intuitive, minimal, clean interface clearly helped it appeal to novices. The app has spawned nearly 3 million web-trading accounts in the first half of 2020. Ultimately, Robinhood has acquired 13M total users as of May.
Millennials Seize Opportunity
This generation (in their mid-20s to late 30s) is brimming with self-proclaimed investors. Business Insider held a survey in which 47% of Millennials deem themselves as such, while 34% say apps played a role in their intro to investing.
For some, investing has been an act of boredom. Especially in the absence of sports, some may have moved from betting on games to betting on stock growth. This wouldn’t be surprising as boredom has been noted to promote gambling habits.
Investing vets usually take advantage of market dips, but new investors aren’t usually the ones to jump in. This has changed as tons of tech-savvy Millennials know that post-crash market rallies are filled with opportunity.
Necessity might be pushing Millennials into action just as much as their ambition. Investment app growth could possibly be a result of job losses, as nearly 1 in 4 young adults became unemployed from February to May. Unemployment can lead to more idle time and more need to “supplement income,” according to Dan Egan, Betterment’s managing director of behavioral finance and investing.
Buy-and-Hold vs. Active Investing
Buy-and-hold investing is recommended by many experts. For the average person, diversifying and keeping a portfolio balanced across securities — i.e. low-cost investments in index funds and ETFs — is a financially healthier route than getting into actively managed funds.
Acorns , as a very ‘set-and-forget’ type of investing service, has helped new investors including Millennials get into the market. Acorns’ growth has been strong in the past, but the COVID-era has given the app an activity boost from 6.2M users to 8M since late 2019. On March 18, Acorns welcomed its biggest single-day bump with 9800 new users, ironically as one of the worst days in stock market history.
According to a Robinhood spokesperson, many of its users also take a holding strategy, buying more than they sell. But, the app’s performance suggests otherwise. At 4.3M daily average revenue trades (DARTS) in June, the app reached it’s all-time trading high. Robinhood has been performing high above E-Trade (1.1M DARTS) and traditional brokerages like Charles Schwab (1.8M DARTS).
Some are critical, claiming investment should not be gamified with nudges to watch the market and celebratory confetti when users trade. Novices may be tempted towards short-term trading, costing themselves long-term gains and potentially losing their money.
Many young new investors are using their false confidence from easy-to-use mobile apps to jump into active trading, putting themselves at major risk. Simulator apps like Invstr help educate new investors, but aren’t always the best reflection of real-world market performance.
Betterment seems to strike a compromise between the two schools of investing. This app leans into longer plays, while allowing users to tailor their risk tolerance towards a more aggressive portfolio if they choose. It’s low-cost upkeep has drawn a 25% rise in account openings in Q1 2020 versus Q1 2019. Notably, younger consumers make up 60% of its users.
New, young investors may play a hefty role in the future of the investment app market. And despite many jumping in blind, they appear to be here to stay — for better or worse. In breaking down the gates of the old finance world, fintech has an unspoken responsibility to keep its users safe and savvy. Education and support are key opportunities that app developers could tap into as the market evolves for a post-pandemic world.
Originally written by Dane White. He writes about finance and technology. Learn more about him at: bydanewhite.com.
