By John Drachman
First, do no harm.
The stock market universe was shaken last week by the death of a 20-year-old Robinhood day-trader. Believing he had a negative $730,000 balance in his account, the University of Nebraska student had committed suicide.
Complicating the tragedy, he had been trading in options and not stocks. His negative balance, according to Forbes, “may not have represented uncollateralized indebtedness at all, but rather his temporary balance until the stocks underlying his assigned options actually settled into his account.”
This cautionary tale is a chilling reminder of the potential risks associated with investing during our wild and wooly pandemic era. A multitude of other discount brokers like E-Trade, TD Ameritrade, Charles Schwab and Fidelity likewise dangle commission-free trading and zero-minimum balances to attract younger customers into their colorful apps and platforms.
Put Your Interests Ahead of Costs
Whether you choose a robo-advisor, a discount or full-service broker, cost should not be your only consideration. In fact, the degree of influence cost should have is inversely proportional to your expertise as an investor. In the case of the unfortunate Robinhood client above, Forbes reported, “his note said he had ‘no clue’ what he was doing.”
In addition to your knowledge of financial instruments, how you invest depends a lot on your age and your investment objectives.
Unlocking the Investor Inside of You
The younger you are when you begin investing, the more time you have for increasing your personal wealth. As you progress over the decades there are certain investments you should make to manage risk and give your investment a chance to compound. At each step of the way, investing still comes with risks that are critical to understand – either on your own or with the help of a financial professional.
An advisor can help with questions like these:
- Would you prefer having someone manage your account on an ongoing basis or will you want recommendations for a few stocks, bonds, mutual funds and ETFs?
- What other types of services do you want down the road?
- How do you wish to pay for services and investments?
Investment Advice in Your Best Interest
With the onrush of investors to new low-cost apps and platforms like Robinhood, it’s fortunate that the Security and Exchange Commission’s (SEC) Regulation Best Interest (Reg BI) is hitting the street this summer.
Designed to provide more transparency to investors about fees and potential conflicts, Reg BI promises to evolve the brokerage business toward a more holistic standard that puts the client’s Best Interest first. The rule draws heavily from key fiduciary principles, while elsewhere the SEC offers a list of questions to ask an investment professional before enlisting a professional.
Ultimately, how you invest throughout the decades will be dictated by the progress you’re making toward your financial goals. By investing as early as possible today through a combination of digital convenience and professional advice you’ll have a better chance of securing your financial future tomorrow.
John Drachman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. John is an IABC award-winning writer, who applies his 30 years of financial marketing experience toward advancing the dialog between investors and investment professionals.