Analyst’s three Issues for Behavioral Investing at Reddit Retailers
The trading frenzy in the stock market fueled by Reddit could produce undesirable results for even the most successful retail investors, behavioral finance analyst Dan Egan told CNBC’s “ETF Edge” this week.
People searching for connections online during the pandemic and the rise of commission-free trading have given way to a speculative boom that raises retailer burn concerns, he said in an interview Monday.
“It feels like the markets are on a vodka Red Bull,” said Egan, vice president of behavioral finance and investing at Betterment. “You need the Red Bull for the energy and intensity and the vodka for the questionable verdict.”
Given the multitude of retailers now sitting on big gains like GameStop, there were three concerns from Egan.
First, he feared that those who had significant returns and were sold out would not only have to pay a heavy tax burden, but would also develop a high level of confidence that they could get the same result in another stock – a relatively unlikely bet.
Second, he feared that those who realize they will owe high capital gains taxes after closing their positions will get stuck in their positions waiting for them to depreciate in value or for tax rates to fall, thereby detaching them from potential gains on other investments restrict.
Third, he was concerned about those who might have been burned and never trust the stock market again.
“”[They’re] They are going to miss out on the core economic engine of growth for the rest of their lives that could have helped them with their retirement savings, “Egan said.
While Reddit forums are far from new, their recent popularity in the investment world could accelerate the mundane shift towards more personalized Separately Managed Accounts (SMAs), Stephen Mathai-Davis, CEO and co-founder of Q.ai said in the same “ETF Edge” . Interview.
“During that period there was a worldly movement for digital financial investment tools out of traditional finance,” said Mathai-Davis, whose robo-investing platform uses artificial intelligence to research and measure the market.
“It’s definitely counter-cultural, in my opinion, to see this movement towards decentralized online communities where people learn from each other,” he said. “These online communities are growing exponentially.”
As investors increasingly seek to focus on specific themes and millennials enter a phase of massive generational wealth transfers, “bespoke” investments through SMAs should become more important, the CEO said.
“It’s customer-centric and focuses on how they perceive value,” he said. “I think too often the financial industry is really focused on the value we bring to the user rather than on what the user really wants as value.”
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