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Robinhood is the only one among the new batch of fintech startups that encourages active trading. Their entire UI is built to optimize for ease of trade rather
by tysonzni 9y ago
Robinhood is the only one among the new batch of fintech startups that encourages active trading. Their entire UI is built to optimize for ease of trade rather than thinking in terms of portfolio objective and diversification.
Contrast that to Wealthfront, Betterment, or Acorn - they're all built on the "buy and hold" philosophy. They use technology to automate allocation, tax reduction and rebalancing, while investing solely in index funds. How these two trends play out is fascinating to watch.
- charlesdm 9y agoWhat remains to be seen is whether passive investing will also be the way to go for the next 20 years. One idea I often hear is that the more money that is being managed passively, the easier it is becomes for an active manager to "abuse" gaps in the market (i.e. when all these funds liquidate all their assets the same time, across the board -- not looking at whether you're selling Google or SmallCapX).
- infinite8s 9y agoThat's not abuse, that's a valuable price discovery mechanism. If the whole market was passive there would be no way to determine the true price of an asset.
- tysonzni 9y agoThe universe of passive funds or ETFs includes those that track specific industry/sector, size, region and other factors. Even if the whole market is passive, traders could still vote on the valuation of an asset by buying/selling those funds. If everyone is passive, price discovery would be harder but not impossible. But there will always be traders who think they can gain an edge by going active, right?
- infinite8s 9y agoThat edge is what drives price discovery.