Weekly Wrap: Robinhood's IPO, Cheap Small-Cap Picks, and Funds With Power

Editor's note: Read the latest on how the coronavirus is rattling the markets and what investors can do to navigate it.

Robinhood made its stock market debut this week. The terribly popular online brokerage allowed users of its app to participate in its IPO, which is pretty novel--and seemingly in line with the company’s mission to “democratize investing.”

The idea of democratizing investing is noble--and the list of those who’ve done so is impressive. For instance, the late Jack Bogle did his part to democratize investing by launching The Vanguard Group, which focused on low costs and indexed products for retail investors. Charles Schwab democratized investing, too, by offering inexpensive, no-frills trading services to individual investors. And Morningstar founder Joe Mansueto wanted to democratize investing in his own way back in 1984--by making in-depth, independent information about mutual funds accessible to individual investors.

There's certainly room to make investing more accessible to more people. In a column earlier this week, my colleague John Rekenthaler discussed how a rising stock market has essentially provided high-wage earners (who are more likely to invest than lower-wage earners) with a second income--concluding that the wage gap is only one reason why we're experiencing a tremendous wealth gap in the United States. Against that backdrop, Robinhood's free trades and no investment minimums should be welcome, because they put investing within reach for pretty much everyone.

But from my perspective, making investing accessible to all is just part of the challenge--providing investors with the information they need to successfully accumulate wealth over time is another.

Earlier this year, portfolio strategist Amy Arnott examined some of Robinhood's most widely held stocks and found the collection to be a pretty volatile bunch, tiny in market cap, and of lower quality with less-than-stellar balance sheets. Not exactly the types of core investments most would advise new investors to start their wealth-building journey with. As respected author and advisor William Bernstein noted in a recent episode of the Long View podcast, those who've enjoyed gains by trading meme stocks and cryptocurrencies via easy-to-use platforms like Robinhood believe that wealth is "effortless." Those of us with more experience know better. It takes time, discipline, and a decent savings rate.

Is it fair to expect Robinhood to better educate its users about the dangers of gamifying investing and to instead advocate for a less-risky way of building wealth? I guess we can add these questions to the list of legal and regulatory questions around Robinhood. But at the end of the day, democratizing investing should result in more people accumulating wealth. Only time will tell whether Robinhood contributes to that goal in a meaningful way.

--Susan Dziubinski

Editor's Picks

Where Investors Are Putting Their Money in 2021 These seven charts show bond markets recovered, and stocks posted broad gains. Why the Rich Have Become Richer Wage disparity is only half the story. 19 Elite Small-Caps on Sale These wide- and narrow-moat small companies are undervalued according to our metrics.

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Mutual Funds and Exchange-Traded Funds

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Rekenthaler Report

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The Long View Podcast

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Commentary

Speculative Trading Is Like Eating 'Nothing but Twinkies' Author and financial educator Manisha Thakor discusses recent trading frenzies and the financial well-being of young investors and couples.

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