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Fidelity Rolls Out Worst Product in History of Investing

Just when you thought the stock day trading mania couldn't get any worse, Fidelity Investments decides to help teenagers day trade stocks by rolling out the "Fidelity Youth Account".  You can read about the whole silly concept here.  

A Recipe For Disaster

One of my favorite writers, P.J. O'Rourke, has a famous quote about politicians.  "Giving money and power to government is like giving whiskey and car keys to teenage boys."  Change the word "power" to "day trading apps" and the word "government" to "children" and you end up in about the same mess.

Look, I'm a huge fan of educating young adults about personal finance and responsibility.  I think our schools have done a terrible disservice to young people in recent years by removing mandatory education in basic life skills like cooking, woodshop, sewing, typing and balancing a checkbook.  I still can't sew to save my life, but I have a deep appreciation for those who are skilled at these things.  No matter how much calculus you know, you won't get very far in this world wearing a shirt with no buttons.  And that fancy college degree isn't of much value if you blow up all your savings by day trading stocks.

But is Fidelity really in the best position to educate our children?

But, Fidelity Says They Care About Children!

In Fidelity's announcement they were careful to stress that:

  1. Parents must have an account.  Why?  Because they've been such great investors themselves and will provide wise counsel and supervision to their teens?  Last time I checked these parents were pretty busy with their careers and running the kids to 87 different "travel" sports teams.  Not sure where they're going to find the time to debate the merits of Jeremy Siegel's or Benjamin Graham's methodologies with the kids.
  2. Teenagers won't be able to trade options.  Gee, that's comforting.  NOBODY, at any age, should be trading options.  Of course, as soon as the kids turn 18, this account restriction is lifted.  So, no options trading at age 17, but totally cool at age 18 when wisdom and rationality suddenly fill the kid's brain.  Yeah, sure.
  3. Kids won't be able to borrow on margin.  Seeing as margin is an extension of credit, and that lenders generally only extend credit to people who have jobs and income, this doesn't even warrant discussion.  Oh, and borrowing on margin was also the primary cause of the Great Crash of 1929, but who cares about history when we're making a killing by day trading, right?  Of course, margin lending is enabled when the kid turns 18 (and still has no job or income).

Fidelity of course goes to great pains in their press release to stress that they are only doing this to "educate and support the next generation of investors" and "encourage young Americans to learn through action and foster meaningful family conversations around financial topics".  I find with my teenagers that the less action they take on important topics, the better.  Fidelity wants kids to take more action, not less.

It almost gives you a warm, fuzzy feeling inside, doesn't it?  It's so nice to know that this $3.9 billion behemoth is watching out for our children.  Maybe Fidelity should open up free day care centers so they can teach these kids option trading at age 6!

Let's cut the crap.  Fidelity isn't running an educational charity.  They're hoping to get kids hooked on the dopamine hit from quick and easy cash. Fidelity does well as long as kids keep spinning that roulette wheel.

Investing Isn't a Game

Apps like Robinhood and Coinbase have introduced "gamification" to stock investing, and it's a recipe for disaster.  Apps are designed with colorful graphics that look great on kids' iPhones, and offer powerups and bonuses for continued playing.  Most importantly, these apps tap into teenage narcissisms by making it very easy to advertise one's winnings on social media.  It's all very exciting.  It's also the basis for a mania.

Internet chat rooms dedicated to pumping up stocks like Gamestop and Bitcoin have removed any relationship between the underlying holding and it's actual economic value; all that matters is the price action.  It's no longer about investing, it's about specualtion.  People who don't know the difference between investing and speculation (and, trust me, these kids don't), shouldn't be putting money at risk out there.

There's a Reason Kids Shouldn't Have Brokerage Accounts

Sure, every once in a while there's an Alex P. Keaton out there who invests as a teen and does well.  How many of those kids did you know growing up?  

Here's a list of things society has decided you shouldn't do as a young teenager:

  • Can't drive until you're 16
  • Can't vote until you're 18
  • Can't buy a gun until you're 18/21
  • Can't enter into a legal contract until you're 18/21
  • Can't drink until you're 21
  • And, until Fidelity's brilliant idea, can't open a brokerage account until you're 18

Why do you think society put these rules in place?  Was it just to be mean to young people?  No.  It's because young teens are DRIVEN BY IMPULSE.  Their brains literally haven't finished developing yet physiologically.  They simply are not fully formed adults and, therefore, society has set rational limits on the things teenagers are allowed to do.  For heaven's sake, even LAS VEGAS doesn't let you into the casino until you're 21 years old because they know how addictive their product is.

But that's not going to stop Fidelity, no sir.  Not when there's money to be made off all those impulse trades.  But, of course, the Fidelity marketing people have backed all this altruism up with focus groups and pilot programs.  I'm glad they can sleep at night after unleashing this Kraken.

Seek Out Independent Fiduciary Advice

If you're ready to have an adult conversation about your money, make sure it's with somebody who's on your side.  The investment professionals at Oxford Financial Partners are fee-only fiduciaries and fiercely independent.  We only work for you, placing your interests above our own.  Click here to schedule a free get acquainted meeting.