Guest Post by Vanessa O.
You’ve suddenly come into a surplus of liquid assets. What’s your first response? (Other than seeking out the help of TWC, of course). If it’s depositing your money into a high-yield savings account, consulting with wealth management professionals for investment advice, or simply stashing this cash beneath your mattress, you’re already on better track than most other new inheritors. I, for one, can’t say I’ve ever had a large surplus of cash to indiscriminately spend, but I would also be lying if I said that, amid pandemic boredom, I didn’t blow a few thousand dollars trying to figure out what the Greeks meant.
If getting a degree in Anthropology from Columbia University taught me anything, it’s that I should have taken more classes in finance. No, really. It’s one thing to understand how the emergence of agrarian society set forth the necessary pre-conditions for our current global capitalist economy, but it’s another thing entirely to understand how capital is conjured up, amassed, traded, and regulated. While knowledge of the former has proven useful for me in academic lecture halls and at dinner parties, I now realize that knowledge of the latter is what will ultimately lead to my financial and personal freedom.
Queue March 2020, or what was supposed to be the second semester of my sophomore year of college. My self-produced film on Andean immigrants in Queens was about to premier at New York University’s May Sumak Cine Film Festival, and I had just been promoted to managing editor of the Columbia Journal of Literary Criticism. For the first time in my academic career, I felt a sense of complete security. I had planned to spend the next two semesters working and developing my Quechua (indigenous language of the Andes) skills in preparation to begin my thesis research in Ecuador, and later apply for fellowship programs in South America in hopes of working towards my PhD.
Then, the pandemic hit. In a matter of days, the city implemented strict mask requirements and forced business closures. Not more than a week later, campus-wide shutdowns ensued. Unable to afford an off-campus apartment, I found myself back in my childhood bedroom in Florida sitting through Zoom lectures during the day and waiting tables at my local Chili’s at night. After countless years of working towards academic success and finally affording to leave my hometown, I was back at square one. Something had to give, and in a moment of sheer desperation, I put aside any reservation I had at participating in the very system I once viewed as contributing to my working-class upbringing. With history’s largest point plunge for the Dow Jones on the horizon, I downloaded the Robinhood app and moved my entire savings into it. And for a while, it worked.
In truth, I tried my best to do my due diligence. I scoured online forums, researched options trading strategies, memorized the differences between ETF and index options, and learned how to interpret Greek values. Within my first few months of trading, I more than tripled my savings. Each time I was in the money, on-screen confetti would deliver a rush of dopamine to my brain. Despite being a $0 broker-fee retail platform, Robinhood had provided me with the tools to learn how to maximize my savings growth. At the time, larger investment platforms failed to provide similar levels of access to smaller investors. I was seduced and became bold, but fortune only favors the bold for so long.
With more savings than I knew what to do with, I heedlessly took investment advice I found on R/WallStreetBets (you can laugh, it’s okay) and placed an all-or-nothing call on one of the most highly volatile and contested stocks at the time – AMC. Luck had favored me for almost a year at that point, why not risk a slight loss for the chance to make thousands of dollars overnight? (Spoiler alert: that plan didn’t quite work out.)
Following an unexpected surge in trading volume for stocks such as AMC, GME, and BB, among others, Robinhood restricted platform users’ permissions to closing out positions only (no buying), despite the fact that other trading platforms continued allowing users to purchase at current prices. Following the controversy, Robinhood CEO Vlad Tenev told CNBC reporters it was forced to slow trading because it lacked enough cash to hedge against growing investment risks. Yet this wasn’t the first controversy Robinhood was implicated in that year. In December 2020, they paid a $65 million civil penalty after being charged by the SEC for intentionally deceiving clients about how they make money. Similar complaints against Robinhood filed by state regulators have since forced the company to make fundamental changes to its platform, such as removing its celebratory confetti-tossing feature and other virtual gimmicks leading to the gamification of investing on the platform.
While as a new inheritor you should feel empowered to take matters of personal finance into your own hands, there are many likely safer ways of going about it than by using retail trading platforms such as Robinhood. Goldman Sachs has Marcus, E-Trade was acquired by Morgan Stanley, and TD Ameritrade is now run by Charles Schwab. There are various publications and websites you can reference to learn all about options trading strategies and to view market data in real-time, but when it comes to where you place your bets, take it from me: hire a professional.