Is It Safe to Get Excited About Investing Again?
Investing used to be fun. There was that greedy voice in our heads saying: "Trust your gut! Take a risk!"
Then it all got ruined by the one-two punch of a tech bust and the worst recession in a lifetime. Suddenly, we were supposed to be sober: Who are we to bet our retirement on our skills as day traders? Calm down. Diversify. Lock your savings up in index funds, wait a few decades, and hope you can retire.
That approach—so smart, so boring—is enough for millions of people wounded by the financial crisis. But what about the next generation of investors, for whom Pets.com and Lehman Brothers are childhood memories?
A fast-growing app called Stash is trying to make money by making investing enjoyable again. Its co-founders, Brandon Krieg and Ed Robinson, say they can do that without inspiring their customers, most of them millennials, to do anything too stupid.
Stash, which celebrates its first birthday on Friday, has signed up 215,000 users and is adding more than 10,000 a week, putting it on track to double its users in the next six months. Many of these investors are beginners without much money to spare. While other investing options require thousands of dollars to start, you can open a Stash account with five bucks.
That makes the app accessible to people like Alejandro Acuna, a 22-year-old college student at Georgia Southern University in Statesboro, Ga. He has a campus job that lets him put $5 a week in Stash—“what I pay for coffee,” he said.
“It’s coming along,” Acuna said of the $200 in his account. “If I start right now, maybe later on in life it will take me somewhere.”
While most traditional brokers assume you know the difference between a stock and a bond, a large cap and a small cap, Stash assumes its new clients know just about nothing. It offers only 36 investments, most of them exchange-traded funds, all renamed for beginning investors. Delicious Dividends is Stash’s more appetizing name for the Schwab U.S. Dividend Equity ETF. Roll With Buffett gives you a fractional share of Berkshire Hathaway Inc. That lets Stash's investors—average age 28, 80 percent under 34—invest alongside Warren Buffett, Berkshire's 86-year-old chief executive officer.
Stash encourages people to invest in things they understand or care about: Clean & Green is the iShares Global Clean Energy ETF. Defending America is the iShares U.S. Aerospace & Defense ETF. Social Media Mania gives you the Global X Social Media Index ETF, with its healthy chunks of Facebook, Twitter, and LinkedIn.
Betting a lot on hot social media or solar companies might sound like a classic investing mistake from the old days. Wouldn’t it be more responsible to put everyone into an index fund, as other robo-advisers do?
“We think it’s important for users to make a choice,” Krieg said. Letting investors choose gets them engaged and excited, prompting them to save more and learn more about how investing really works, he said. “They’re getting off the sidelines and into the markets.”
When Vivienne Peng, 26, decided she wanted to invest some money outside her retirement account, she wasn’t sure how to do it.
“I didn’t know anything, so it was very intimidating to me,” said Peng, who lives in Brooklyn and works at a nonprofit group. Stash is “almost like a game,” she said. “They kind of hold your hand through the process.”
Peng automatically withdraws $20 a week from her bank account and, after 10 months, has about $600 in Stash, which includes Roll With Buffett (“I’ve always heard my parents talk about Buffett”) and Modern Meds, a biotech ETF. Her second-biggest investment is now Aggressive Mix, a diversified blend of bonds and international and domestic stocks that Stash recommended to her.
After users sign up and fill out a short questionnaire, the app encourages them to buy Aggressive Mix or two other diversified ETFs, one moderate and one conservative, which are similar to the offerings at other robo-advisers and in 401(k) target-date funds. Pop-up notifications on the app, which is currently available only on mobile devices, tell them that the recommended investments are a good way to diversify.
“We can’t force them,” co-founder Robinson said. “We have to guide them.” He said it's working because, while Stash users are young, they’re “very cautious with their money.” The three ETFs are Stash’s most popular investments. There’s also an appetite on Stash for even more conservative investments such as Uncle Sam, an ETF of super-safe U.S. Treasuries, and Public Works, a municipal bond ETF.
With $12.25 million in venture capital funding and 25 employees, Stash is run out of a one-room office a short walk from the Flatiron Building in New York. It makes money by charging users $1 a month, or 0.25 percent per year on accounts over $5,000. The first three months are free.
Robinson, 33 and from Sydney, met Krieg, a 42-year-old from New York, when they were both working at Macquarie Group, the global investment bank based in Australia. At one point, Robinson said, “I used to not pick up the phone for a less-than-$10 million order.”
Things are a little different now. The money comes to Stash in batches of $20 or $30 at a time, not unlike donations to Bernie Sanders. The company says it has received 750,000 individual bank transfers over the past year. Stash declined to disclose the size of the assets it manages.
The average Stash user earns $45,000 a year. Common employers include Wal-Mart, Uber, the U.S. Postal Service, and, especially the U.S. military, with service members making up one in eight users. The app seems to spread by word of mouth on bases, ships, and even submarines, Robinson said.
Darrin Graham, a 25-year-old soldier, puts about $25 a week in his Stash account and has two Army buddies who use the app. Like Peng, Graham has a separate retirement account, through the military. He thinks of his Stash account, now with $620, as “play money,” an affordable way to learn about investing.
At first, he said, he made mistakes, picking Stash ETFs based solely on past performance, selling when they dropped, and then missing out on their recoveries. He's learning “patience,” he said. “I was just a little too quick to give up.”
Additional startup investing services are accessible to a younger audience without many resources. Robinhood offers free stock trading with no account minimums. Motif Investing, which requires a $300 investment to start, lets users buy small baskets of stocks and ETFs based on a theme, for a flat $10 commission. These apps are designed mostly for amateur traders.
“This is not a trading app,” Robinson said emphatically. The Stash app has a "Learn" section with articles on dividends, “the power of compounding,” and ways to invest in stocks and bonds. It occasionally intervenes to keep its clients from buying high and selling low. For example, on the morning in June after the U.K. unexpectedly voted to leave the European Union, stocks were plunging. Stash sent a notification to users warning of the turmoil and added:
“This is an opportunity to keep adding to your Stash at lower prices. Remember you’re in this for the long term.” Users responded by putting $325,000 into their accounts, about four times the inflow on a typical day back then.
Peng had tried other investing apps. She felt they were aimed at “someone who actually knows what they’re doing.”
The irony is that many of Stash’s users are too young to have learned what many of us learned in the dark days of 2008: When it comes to investing, hardly anyone knows what they’re doing. The best you can do is make an educated guess, save diligently, hope for the best, and maybe have a bit of fun along the way.