Financial planners warn of ruin as stock trading takes off

The individual investor has never had more power. Platforms like Robinhood have made it possible to trade stocks – for free – from your phone. Millions have signed up, and many have jumped into the trading habit around the GameStop stock in the last few weeks. But what played out in the market did not seem to invest too many financial planners. “I would almost say it’s like gaming,” said Paul West, Managing Partner at Carson Wealth. “The best long-term investors look so far into the future instead of what’s happening today.” For many of those armed with trading apps, this is not what is happening. Free trading and easy access on mobile phones have created a new class of day traders. West says a central theme of day trading is a desire to ‘stay rig-fast ‘. He notes that it rarely works. Nevertheless, traders seem to be hooked. And West attributes it to the way apps, like Robinhood, are designed: bright red and green screens for losses and gains, warnings about industry watchdogs have called it ‘gamification.’ “So why do apps invest in gamification? To get people to keep coming back, “he said. Warren Buffett’s longtime business partner Charlie Munger put it more bluntly at a meeting in February 2019.” I consider it roughly equivalent to trying to get a bunch of young people to to start with heroin, “he said.” It’s really stupid. ” Robinhood, the platform most popular among these newly developed day traders, says its technology makes it possible to “invest for all” and that it is “on a mission to democratize financing for all.” The company pushed hard on ‘gamification’ criticism in a statement to Bloomberg: “Those who fire new and younger investors who come from increasingly diverse backgrounds, as unsophisticated or non-serious, continue the myth that investing is only for the wealthy. “Some in the financial industry say that acting like video games can actually be helpful to investors and the key to attracting younger people. Willis Towers Watson noted in a report that” gamification … can be a way .. “Engaging and educating future investors.” West is skeptical. “While it’s a good thing to get people aware of the market, the behavior of how they interact with it is very worrying,” he said. West claims that free stock trading on your phone is associated with a hidden price: Replacing long-term investing strategies designed to build wealth and support retirement with “FOMO” or fear of missing out. “Now I go shopping and I see 30 seconds later to see if I made money, “West remarked about the behavioral trades. learns on the app-based platforms. “So let’s say you have a farm and you plant an oak tree. Do you have to look every day to see how much it grew? No! You are not!”

The individual investor has never had more power.

Platforms like Robinhood have made it possible to trade stocks – for free – from your phone. Millions have signed up, and many have jumped into the trading habit around the GameStop stock in the last few weeks.

But what was playing out in the market did not look like investing for many financial planners.

“I would almost say the equivalent of gambling,” said Paul West, Managing Partner at Carson Wealth. “The best long-term investors look so far into the future instead of what is happening today.”

For many of those armed with trading apps, that’s not what happens. Free shopping and easy access on mobile phones have created a new class of day traders. West says a central theme of day trading is a desire to ‘get rich quick’.

He notes that it rarely works.

Still, traders seem to be hooked. And West attributes it to the way apps, like Robinhood, are designed: bright red and green screens for losses and gains, warnings about big moves. Industry monitors have called it ‘gamification’.

“So why are apps investing in creating gamification? Getting people to keep coming back,” he said.

Warren Buffett’s longtime business partner Charlie Munger put it more directly at a February 2019 meeting.

“I consider it roughly equivalent to trying to get a bunch of young people to start using heroin,” he said. “That’s really stupid.”

Robinhood, the platform most popular with these newly developed day traders, says its technology enables “investing for all” and that it is “on a mission to democratize financing for all.”

The company pushed hard on ‘gamification’ criticism in a statement to Bloomberg: “Those who fire new and younger investors who come from increasingly diverse backgrounds, such as unsophisticated or fuzzy, continue the myth that investing is only for the wealthy. . “

Some in the financial industry say that trading like video games can actually be useful for investors and the key to attracting younger people.

Willis Towers Watson noted in a report that “gamification … can be a way … to engage and educate future investors.”

West is skeptical.

“While it’s a good thing to get people to know the market, the construction of how they interact with it is very worrying,” he said.

West claims that free trade with your phone has a hidden price: Replacing long-term investment strategies designed to build wealth and support retirement with “FOMO” or fear of missing out.

“Now I go shopping and I look 30 seconds later to see if I made money,” West remarked about the behavior that traders learn on the app-based platforms. “So let’s say you have a farm and you plant an oak tree. Do you have to look every day to see how much it grew? No! You are not!”

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