Young Investors = Easy Prey for Brokers

Years of investment advice boils down to (1) diversify your portfolio and (2) the easiest, cheapest way to do so is with low-cost, index mutual funds. Given this reality, where are brokers going to find new suckers clients? Enter Millennials. An article by Jefferson Graham in USA Today says the Snap, Inc. (i.e., Snapchat app) IPO on 3/2/17 was very popular with investors under 30. As with many IPOs, initial hype led to a strong opening (up 59% in two days). Once people realized Snap, Inc. hasn’t actually monetized Snapchat, several brokers released sell recommendations, and the stock plummeted.

The real winner was Robinhood, a trading app whose users average 30 years of age (median is 26). The company saw a surge in new accounts, and 43% of all its trades on 3/2/17 were for Snap, Inc.

Chapter 7 in my book, Basic Personal Finance, is the longest chapter in the book because we wanted to clearly lay out the case for our recommendation to use low-cost index mutual funds. This is the best after-tax and after-expenses investment for the majority of people. Picking individual stocks is essentially gambling and the brokerage fees will eat away at any gains you might get.

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