A new generation of young investors had already arrived long before many of them were locked down in small apartments or their parents’ homes during the Covid-19 pandemic. But some of them got involved in investing just as government stimulus arrived from Congress and the Federal Reserve started pumping trillions into financial markets, fueling the most powerful market rebound in modern times.
The results were predictable. Twenty-somethings in the Robinhood generation had few outlets to spend their fun money. Restaurants, bars, nightclubs, sports events and sports gambling websites were all shut down, and the surging stock market beckoned.
Some, if not all, members of the older and purportedly wiser generation predicted it would all end in a sea of tears. But it’s worth putting this phenomenon in perspective.
When the Great Financial Crisis ended, the older, wiser people were voicing fears that millennials might save a lot, like their precursors in the Depression-era generation did, keeping all their assets in banks while avoiding equities like the plague. That narrative, like the current one, was overblown.
Advisors and regulators are right to question the gamification of investing promoted by Robinhood. But how devastating is it for young people?
I will confess that in my early 20s I took a wild ride in the options market and made a round trip from $2,000 to $8,000 back to $2,000 in about 15 months. It was a massive waste of time and energy, but I learned a lot, especially when I realized there was no way I, with a telephone and a Merrill broker, could compete over the long term against professionals sitting in front of Quotron machines. Most of you probably don’t remember those gadgets.
Some of the first-time investors I speak with today are almost as young and dumb as I was. But like me 40 years ago, few are endangering their financial futures.
Sports gambling and online betting are different from the stock market, where investment outcomes are rarely instant and binary. If young investors are attuned to what’s going on, they can gain a sense of the time value of money. It’s a lesson worth a lifetime.
Will this spawn a new generation of educated investors or produce a generation of people who got burned and turned off by investing? The guess here is that the ultimate outcome will be a lot more nuanced than most of us think.
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