Low-fee index funds vs everything else in these wild markets

At the beginning of last year I was like I’m going to figure out my finances stuff. Like forreal. I’ve always tried to and avoid it because the whole thing overwhelms me. All of the decisions for savings and investing and what if I pick the wrong thing. I’m getting older, I can’t keep putting this off.

So over the year not gonna lie I was super tempted to download Robinhood and start trading because everyone’s talking about it. But then also the markets are ??? I just felt like I’d get burned. What I was seeing around me during the pandemic vs the markets booming just didn’t make sense. I don’t have the time to keep posted on all these twitter accounts and reddit and watch Mad Money and read Barron’s and FT and WSJ to keep posted on what to do.

But tons of folks are getting into it and talking about it. Something felt off about the whole thing and then I saw Scott Galloway’s warnings about Robinhood. He’s written about it a few times over the last year, and here’s where he first went deep on gamification and addiction in Robinhood:

Facebook and Twitter do what CNN and Fox have been doing for decades, but better. I’m afraid Robinhood might become an addictive platform — Instagram for trading. Robinhood users skew young (32% of visitors are between 25–34). The firm reported 3 million new accounts in Q1 2020. Half were first-time traders. In addition, with Vegas and sports wagering all but shut down, OTPs have become the place where emerging gambling addiction can take root and/or a rehab facility where your sponsor is a dealer.

Learning to invest and understanding the markets are good things, as is connecting with friends online… to a point. Social media and gambling have the same addictive psychological mechanism: variable rewards (when you keep performing an action in hopes of getting a possible but unlikely reward). This is the type of behavior that’s the “most addictive and hardest to stop.” Robinhood management and investors have taken cues from Big Tech and made a conscious decision to disregard the well-being of our youth for personal enrichment.

The UX is harmful.

Similarly, I noticed certain patterns on Coinbase that felt… concerning. I recently participated in a web3 hackathon which involved a stake that would be returned after sharing a project. I like that method of accountability. To get some eth I hopped onto Coinbase and then noticed how much of the experience on the site is geared towards frequent trading. They make money on the fees associated with trading. They have incentives to get you back checking multiple times a day across different coins. And buy/sell/whatever.

While trying to understand how to approach investing and the markets two things have come up a lot:

  1. You cannot time the market.

Robinhood is pushing towards both of these behaviors, and Coinbase does the same for crypto.

I’ve resisted signing up for Robinhood. I’ll stick with the boring UX of Fidelity. It feels safe. I’ve resisted downloading the Coinbase app. Creating boundaries on a desktop site is much easier than in a mobile app.

What to do?

I love what Matt Levine shares here:

This is a general pattern in consumer finance. A lot of consumer finance stuff is … kinda bad. It is needlessly complicated and expensive and you’d be better off putting your money in a low-fee index fund and forgetting it for 30 years. But because the low-fee index fund has low fees, no one is getting rich selling it, which means that no one is coming to your house and pounding on the door and climbing in the window and saying “hey wanna buy a low-fee index fund?” Whereas people will cheerfully come to your house and sell you universal life insurance or variable annuities or other more controversial expensive stuff that pays them fat commissions.

Just get VOO or VTI or something similar and call it a day.

Bonus Reading!

During the research on low-fee index funds I came across this post by Matthew Chin in Towards Data Science. It’s just awesome to find this analysis 🙏

Note: This post is an opinion and is only for informational purposes. It does not constitute financial advice or recommendations. Seek a licensed professional for financial advice.

Writers @Medium, Editor of Creators Hub. Author of “Feeling Great About My Butt.” Previously: Product @embedly, Research @NECSI. http://whichlight.com.

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