Want to earn a million while you’re young? There is an application for that

Before preparing for his final accounting exams last month, Byrne – who lives with his parents – was spending at least nine hours a week researching investments for his quantitative portfolio.

During the pandemic, he co-founded The KickStart garage, a business and investing podcast, after noticing an “explosion” in peer interest in trading and investing. But he’s worried that Gen Z will overtake them.

“A couple of friends came to me and said, ‘I don’t make money with the money on deposit. What should I do with it? ‘ Byrne says. “People got bored and saw friends and neighbors making a lot of money from the business and deciding to go for it.

“But I have friends who thought they were buying stocks when they really were buying CFDs [contracts for difference].

“What has changed since I started is everything is amplified by social media and Reddit’s WallStreetBets, and it’s easy to see the earnings people are making.

“I saw a video on YouTube where kids were teaching other kids how options are a great place to start trading.

“It is the blind leading the blind.”

A wave of inexperienced Gen Z and Gen Y investors who racked up savings during the Covid-19 lockdowns have flocked to the growing pool of zero, low-commission trading apps in Ireland in search of returns – and excitement – amid worries about inflation and low interest rates eroding on the value of money on deposit.

But there is growing concern that novice investors are exposing themselves to excessive risk by buying everything from stocks to CFDs to cryptocurrencies at the push of a button, without any training or experience, in particular. if the markets falter.

Last week, the UK’s Financial Conduct Authority (FCA) launched a campaign called InvestSmart, aimed at warning young investors to make rash financial decisions based on advice and ideas from sources such as the media social and “influencers”.

In the UK, 16% of 18-24 year olds started investing for the first time during the pandemic, according to a survey conducted by Halifax. Earlier this year, the FCA sounded the alarm after discovering that young investors were taking too much risk when investing.

In Ireland, the Central Bank’s Derville Rowland last May, while warning against cryptocurrency investments, said the bank and the European Securities and Markets Authority had had discussions about so-called ‘gamification »Investment in equities.

Emmet Savage, co-founder of MyWallSt, agrees with her. Its app aims to demystify and analyze U.S. stocks and offers a subscription service with handpicked stocks for investors of all skill levels, including Savage recommendations.

He claims that MyWallSt has 33.8 million users worldwide, 11% of whom are based in Ireland and the UK, and the median age of users is 31.

“The gamification of investing is there to create a habit that you repeat often,” says Savage.

“A successful investment is made by making a little every now and then. But if you trade frequently because you are using a platform designed to make it attractive, then this is one step too far.

“Addictive quality is not something that should equate to an investment in the stock market.”

Traditionally, retail investors had limited market access, compared to institutional investors with deep pockets, and faced high fees and barriers to entry. They were encouraged to read the Financial Times and comb through corporate earnings reports and announcements.

When in 1996 Savage bought his first shares – valued at $ 60 in Dell – he had to call an American stockbroker from his parents’ house. The commission itself was $ 60 and then there was the cost of the phone call to the broker.

These days, savvy users of apps like Degiro learn to invest through online tutorials and then seek advice on Reddit.

Last week, on an Irish personal finance subreddit, a user in his mid-30s who feared inflation could erode the $ 175,000 he had hidden in a checking account to buy a house asked for advice on the amount of the lump sum in which he should invest. Vanguard Fund via Degiro.

Reddit was instrumental in GameStop’s short squeeze in January that inspired a trading frenzy among young amateur investors.

GameStop was a struggling video game retailer that had been gutted by the Covid closures, and its shares had been sold short by a group of hedge funds. His stocks are falling rapidly.

If GameStop’s stock had continued to fall, the hedge funds that had bet against the survival of the company would have become even richer.

But a team of Reddit day-traders were concocting a revenge plot to drive up the share price, punishing hedge funds and forcing them to hedge their position by rushing to buy back shares, which would push the market even higher. share value.

When the stock shot up in a matter of days, ordinary investors followed suit, buying through commission-free apps like Robinhood. In response, Robinhood and Interactive Brokers froze new stock purchases, as well as other memes stocks such as movie group AMC (the most traded stock in Ireland in May on Degiro).

This gave hedge funds precious time to recover, but novice investors who bought at the top suffered care losses.

Peter Brown of Baggot Investment Partners, who was responsible for education at the Institute of Investing and Financial Trading until Covid hit, says: a portfolio of stocks.

“But the problem with things like GameStop was that there were some really smart people who speeded up GameStop but were right at the top of a pyramid scheme. They took on the big guys and the hedge funds and went up against each other. realized that they could motivate people to buy and increase a bad stock.

“But there are very few people who are smart and tech-savvy enough – and can spend hours and hours studying this – to make any money out of it. Unlike investing, trading is really tough and the math is against you.

The name Robinhood is a nod to the access of the “poor” to the domain of rich traders, “thus democratizing finance for all”.

But the app, which is not available to Irish residents, has received its fair share of criticism.

Alex Kearns’ family settled a lawsuit with Robinhood following the 20-year-old management student’s suicide in 2020, believing he lost $ 730,000 through the app. His account was in fact in credit, to the tune of $ 16,000. But a notification on the app showed a staggering negative balance, likely due to a complex options trade.

There had been speculation that the frenzy of sharing and investing that surrounded the GameStop saga was just a fad. But new listings at Freetrade, a British neobroker growing in Ireland, suggest a longer-term trend among young investors.

“January was a banner year for us, but October, until today, has broken this record, with 11 days left in the month,” Freetrade spokesman Shiv Talwar said. last Wednesday.

The Irish version of the Freetrade app currently has a waiting list of over 2,000 users. Talwar says that once the investment app obtains its European license from the Swedish regulator to operate there, it will move its services to Ireland. This will likely happen in 2022, he says.

Freetrade will target Generation Z and Millennial Irish investors – rather than speculative traders, Talwar says.

Adam Dodds, Founder and Managing Director of Freetrade, says: “Ireland is a key region for us, given its largely untapped population of novice and semi-sophisticated investors.

Freetrade’s entry into the Irish market follows the summer launch of the Dutch app Bux. Meanwhile, Irish Life is launching Smart Invest, a digital investment app to enable young consumers to take advantage of the multi-asset portfolio funds provided by Irish Life Assurance for just € 100 and advice from Irish Life Financial Services.

“We have found that the average amount of deposits has increased from € 3,500 to € 24,000 since the start of the pandemic,” explains Susan Gibson, head of digital and innovation at Irish Life. “We have seen a strong interest among 25 to 44 year olds since we launched SmartInvest on the market in August. “