Under the Hood with Dave Buten Co-Founder and Co-CEO: Robinhood and GameStop

Robinhood and GameStop: young investors or young gamblers?

It has been one of the biggest investing stories in 2021 and possibly the entire pandemic. It is now mid-March of 2021 and some time has passed to reflect upon what happened and more importantly, why?

Short selling, squeezing the short, and buying on margin were the dominant headlines in an epic investing battle between hedge fund managers and many young investors that joined forces through message boards hosted on Reddit.

Whether you were rooting for the ‘big guys’ or the ‘little guys’, many people on either side stopped to ponder whether it was wise for young people to be investing in this way.

Short-term, high-risk, leveraged, options-related trading ranks dead last in behaviors we would like to see in young investors. This is especially troubling because this new trend appears to be replacing and not supplementing retirement investing in young adults. In a recent TD Ameritrade survey, 66% of millennials said they don’t feel on track when it came to saving for retirement. With the end of defined benefit pension plans, nearly all of today’s young adults will be completely responsible for their own retirement. So, one has to ask, why is this form of investing becoming so popular with young investors?

Financial planners are certainly not recommending it. Are there new social-media investing influencers that are pushing this? Is there a best-selling new book guaranteeing quick riches through leveraged investing? Or maybe, they are just doing what they were taught in school?

It is hard to say with certainty, but if you are familiar with the traditional stock market games, you will immediately see an unsettling connection with recent investing trends. Could this be the result of the entertainment-over-education approach of the popular stock market games? It is certainly possible because these games skip over teaching students about long-term diversified investing in a tax-deferred retirement account. Instead, they show students how winning involves buying high-risk single-stocks on margin to maximize short-term investing gains. This style of education, if introduced today, would be received as warmly as Driver’s Ed taught by NASCAR or Nutrition taught by the IFOCE (go ahead, Google it). 

Times are changing and it may be time to acknowledge that this fun-over-fundamentals approach has a serious downside for young investors. The good news in all of this is that these educational trade-offs we all have grown to accept are no longer necessary. This is because you are about to have a choice in how investing is taught. We are in the process of beta-testing a completely redesigned stock-market experience inside of Budget Challenge that only focuses on the proven aspects of investing necessary for a young investor to be successful. It’s called Budget Challenge Plus Investing and we welcome everyone to see what the next big thing in investing education looks like.