Robinhood CEOs Baiju Bhatt and Vlad Tenev.
I was born behind the Iron Curtain. For people in my native Bulgaria, managing money was a simple proposition with only two options: keep savings on the state bank or stash it under a mattress. Investing was off the table, of course, as was access to a line of credit. And financial education, even for economists like my father, involved a lot of quick talk to get hold of counterrevolutionary texts like Adam Smith’s “The Wealth of Nations.”
The Berlin Wall fell when I was a child, and my family’s move from Bulgaria to the Commonwealth of Virginia is a uniquely American story of opportunity. In the US, my family found a country that celebrated choice as the cornerstone of the capitalist system. Competition and access made the US stock market the greatest driver of wealth creation in the history of the world.
But while the market is in theory open to everyone equally, some people have better access, better tools, and a clearer invitation to participate. Others have been stopped. Only 10 percent of US households own 87% of the total value of stocks, and barely half of US households participate in the stock market at all.
We came up with Robinhood in the wake of the Occupy Wall Street movement to level that playing field. We pioneered commission-free trading, enabling millions of disadvantaged people to become more involved in the economy and make choices to shape their own financial futures. Because of our impact, an entire industry has changed – and now most brokerage platforms offer commission-free trading.
2020 was an unparalleled year in American history. COVID-19 rocked the country, increased unemployment and led to loss of income for millions of Americans. In these turbulent times, it gives us tremendous satisfaction that Robinhood has expanded access for many to begin their investment journey during the market rally. While most of these gains have not been realized and will certainly take its own turn in 2021, we are proud to have enabled our clients to participate in the markets and enable them to progress towards their own financial independence.
Many Robinhood merchants buy and keep
Not everyone shares our optimism. The pandemic has raised concerns about the increasing market participation of private investors. Observers have noted that these new investors look different from the generation that came before them, and question whether investing has become too easy. Should there be additional gate requirements to mitigate risk for investors learning the ropes? Does the average American have sufficient knowledge of financial concepts to navigate the markets responsibly?
I would say that those who question the capabilities of retail investors are not taking to heart the interests of ordinary Americans. It is wrong to see the arrival of more and more private investors in the market with dismay. It is short-sighted to argue that financial instruments that are an integral part of the investment strategies of the richest Americans should be left in the exclusive hands of the old guard.
Look at Robinhood’s clients seven years after our founding, they are not a group of reckless, wild-cattering investors. Instead, we see evidence that many are classic “buy and hold” shareholders whose portfolios, according to the National Bureau of Economic Research, consist of larger, highly liquid companies and whose investment tactics acted as a small but active market stabilizing force. during volatility in March. Claims of gamification by people who have never used our app are missing the point. Those who criticize these investors should keep in mind who they really are – hardworking, pragmatic individuals making wise, firm choices, rather than holding on to some hackneyed stereotype of brotherhood home smartphone sports betting.
The answer is not to limit access
Investors today are younger and more diverse than when Robinhood started. They have taken their financial education and economic fortune into their own hands. Our approximately 13 million customers have an average age of 31, many are in the early stages of building long-term wealth, hopefully leading to financial independence and security for them and their families.
We all have a responsibility to encourage greater financial literacy. But we must recognize that the greater danger to our society is not that individual investors make the wrong decisions. More importantly, individual Americans are not encouraged to increase their financial confidence or not enabled at all to participate in the market. At Robinhood, it seems clear to us that the answer to the problem is not to limit access, but to find new and creative ways to teach people to participate responsibly. Otherwise, we reinforce the bias of a decades-long exclusionary pattern that has only recently turned in a positive direction.
Our mission is to democratize finance and is rooted in American idealism. America has always prided itself on the ability to promote upward mobility and opportunity with few barriers. This national ethos of the “American Dream” is as old as the nation itself. The 20th century was all about home ownership, driven in part by the 30-year fixed mortgage. With the commissions and minimum gone, the stage has been set for a new American dream, one in which nearly 100% of our citizens are investors. Let’s make it together.