The U.S. stock market is providing incredible returns to just about every type of investor, from the gold bug to the Texas tea drinker, from the tech geek to the bond king. If you put your hard-earned dollars into any kind of investment over the last couple of years, you have witnessed a profit. Is this enough to get every American into the stock market? Not quite. The latest poll numbers suggest 55% of Americans own stock, down from the 62% average prior to the economic collapse. The reasons for not transferring your cash into stock ownership may vary, but the latest trends in the industry suggest the average person no longer has an excuse to ignore the equities market.
Vanguard pioneered the investment industry by keeping trading costs as low as possible, thanks to the vision of the late Jack Bogle. The revolutionizing Wall Street titan has joined its competitors by eliminating stock commissions. Moving forward, if you wish to purchase shares in the FAANGs or in an over-the-counter penny stock, then you no longer need to fork over a commission for the brokerage firm or trading platform.
The company did not make too big of a deal of the measure, noting in a statement that this is just “business as usual for Vanguard.”
“For 45 years, we’ve been dedicated to lowering the cost of index and active funds, ETFs, advice, and brokerage services to help investors achieve better outcome,” said Karin Risi, managing director of Vanguard’s retail investor group, in a press release.
It also plans to redesign its mobile application and give the website a makeover.
In recent months, several companies have ditched commission fees. Charles Schwab announced that it was getting rid of commissions for stocks and exchange-traded funds (ETFs) listed on North American stock exchanges. TD Ameritrade followed suit shortly after.
When the Robinhood Goes Bob Bob Bobbin’ Along
A new trend has engulfed the finance industry: fractional stock-trading. This is when passive investors purchase a fraction of a lucrative stock. For instance, you may want to acquire $100 or half of a share of Amazon stock instead of paying for its current full price ($1,892). The barrier to entry is immensely diminished and it reduces the skin needed for the average person to test stock exchanges out.
A handful of companies in the last few months have gotten in on the action, including Charles Schwab, Square, SoFi, and Stash. They all share the same goal: offering trading to the masses. Whether it was inspired by other financial giants or not, the $7.6 billion Robinhood became the latest to offer the same program, betting that “this will empower even more people to invest.”
With asset price inflation, this is a smart development for the industry and the average investor. So much for the statements that these entities are only interested in greed and ripping off common folk.
This is a great way to dip your toe in the market without having to put all your assets into a single stock. If you have $25, $50, or $100 to spend on individual trades, you no longer need to look for the cheapest stocks possible. Plus, you can have a diversified portfolio as you now can buy any stock you wish
“There’s definitely a small expense for us, but we learned through our research that customers really wanted this and we did a lot of work to manage that risk and be able to offer this product within our own systems,” said Robinhood CEO Vlad Tenev in a statement.
Hedge Funds for Common Folk
Do you want to play like the big boys on Wall Street and be a hedge fund kingpin? If you have some extra change in your pocket and an appetite for risk, you will have an opportunity to start putting your money into hedge funds. And you do not need a fancy office in the financial capital of the world – you can do it in your pajamas as this product is being marketed to the common folk.
Citigroup and digital platform YieldStreet announced a new collaboration. As part of this agreement, the bank and the website will make approximately $2 billion in assets available on the platform over the next 24 months. This could potentially be a huge deal for all the parties involved. YieldStreet has more than 300,000 members, Citi has a chance to generate major revenues, and the typical retail investor can see what it is like to put money into private credit markets.
Some analysts have reservations. The main concern is that assets in this market can be illiquid and unconventional, so run-of-the-mill investors could get themselves into trouble. To limit those fears, the partnership will offer detailed information on every investment sold to the public.
Is Skepticism Justified?
While you can likely thank fintech innovation for this development, you cannot help but wonder if these companies are doing this because the big money is expected to absquatulate from financial markets. According to a UBS Global Wealth Management study, wealthy investors around the world are preparing for turbulence this year and putting a quarter of their assets into cash. They cite volatility, geopolitical risks, and trade uncertainty; and Bloomberg thinks the Chicago Board Options Exchange (CBOE) Volatility index is too calm, slumping from as high as 37 in December 2018 to 12 in December 2019. It should be noted that 69% of global big-money investors are optimistic about long-term returns. Instead of depending on pillars of the finance community, the industry may start relying on mom and pop traders.
Sitting on the Sidelines
Following the market crash more than a decade ago and the extreme spikes and plunges in equities over the last year or two, it is understandable why investors, especially young people, are hesitant about diving into stocks. Millennials witnessed their parents lose everything twice (dot-com bubble and housing crisis) and they see leading indexes up triple digits one day and then down triple digits the next day. Any expert will recommend refraining from concentrating on day-to-day performances, but for those who are not intimate with finance, how could you not? Hopefully, more people jump into markets amid these new products and services. Why sit on the sidelines and miss out on all the fun?
Read more from Andrew Moran.