Big Companies Encourage Small Investors

by on Jan 02, 2018

As brokerages continue attempts to attract new investors, Millennials remain reluctant to engage with incumbent firms. According to a recent Bankrate study, only 17% of 1,002 Millennials surveyed said they would invest in the stock market, despite its ninth year as a bull market. Many worry that they do not have enough money or knowledge to open brokerage accounts or trust technology over Wall Street stalwarts, according to a Harris Poll-Stash survey of Millennials.

For this reason, micro investing services have become popular among young adults, and large companies like PayPal and Fidelity have noticed. This fall, PayPal announced an integration of Acorns investing to its services while Fidelity helped fund a startup that offers gift cards for fractional shares of big-name stocks.

PayPal

Already a well-known online payment system, PayPal is looking to expand into the investing sector. The company announced its plans to connect its users to Acorns investments in November, a year after taking a minority stake in Acorns Grow, Inc., an automated savings and investment service specializing in micro investing. Users can elect to have their PayPal account automatically round up transactions, invest the extra change with Acorns and then monitor their investments from the PayPal mobile app. Acorns portfolios consist of diversified ETFs, with users choosing their desired risk tolerance from conservative to aggressive.

Since Acorns takes care of the actual investing and uses pocket change that will hardly be missed, Millennials may see this as an easy way to start saving. For those willing to invest more than just their spare change, PayPal also provides the option of making a one-time or recurring transfer to clients’ Acorns accounts. Money can also be withdrawn from Acorns and returned to PayPal at any time through the mobile app.

Fidelity

In September, a Fidelity-backed venture capital fund helped in raising $30 million for startup Stockpile, Inc., which allows investors to own fractional shares of big-name companies like Microsoft, Facebook and Amazon. Stockpile gift cards debuted in big box retailers two years ago but can also be purchased through the Stockpile mobile app or website. Once users register their gift card, the card’s amount is invested in the chosen company, and additional trades can be placed with a 99-cent fee per trade.

Stockpile reports that two-thirds of its customers are under the age of 35, and many parents gift the cards to children as a way to introduce them to the stock market. Unlike with other custodial accounts, minors have full access to their investments and can place trades themselves. Parents are alerted of any activity and must approve or decline a trade, but the decision-making falls largely on the child, helping establish good investing behaviors early in a person’s financial life.

While these small investments won’t matter much to the large companies Acorns and Stockpile allow users to invest in, they will get young traders interested in and comfortable with investing, something that appeals to banks and financial companies. By investing in smaller companies like Acorns and Stockpile, traditional financial institutions could see an increase in brokerage accounts opened by Millennials after they adjust to the idea of investing and reach the natural limits of micro investing platforms.