Are Commission-Free Investing Apps Encouraging Reckless Behavior?

may have more than its share. This forum is stuffed with first-hand investor experiences of all kinds, including what I would call incredibly risky behavior. For example, some Redditors report maxing out their home equity lines in order to buy more stock in Tesla. Other Redditors report dropping out of college to invest full-time, or losing half their net worth overnight due to poorly times YOLO-style bets .

Low minimum account balance requirements can also help would-be investors get into the game when they wouldn’t otherwise. To invest with the Robinhood app, for example, you can get started with a minimum account balance of approximately $0. With M1 Finance, you only need $100 to get started, which is still low enough of an amount for most people to scrape up.

It’s also important for investors to understand that “free” is different from “very low cost,” says Dan Egan ofEgan says that, when investing is “free,” investors are more likely to over-consume it because they aren’t thinking about other costs like time, attention, or taxes. “These apps make money from your invested cash, payment from order flow, and more expensive ‘upgrades’ like leverage and out of hours trading,” said Egan.

The real risk of investing with an app is that the investor has not done his or her homework, doesn't understand the company fundamentals, and doesn't realize the potential losses, says Barbara A. Friedberg, MBA, MS ofFriedberg also points out that today’s investors may not be fully aware of the downsides and potential risk, but they could soon find out.

Source: Digital Coin News (digitalcoinnews.net)

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