Looking at Younger Investor’s Robinhood Account: Staying Curious and Humble

Paul Winkler: All right. Here we go. This is “The Investor Coaching Show.” A north wind is blowing into town.

Evan Barnard: It’s a bad day to wear a Hawaiian shirt.

PW: Oh, it really is. What on earth are you doing dressed like that, man? Come on, really? I’ve got my sweatshirt on and I’m cold.

EB: When you climb in the garage, you don’t realize how chilly it is, like, “Holy cow.”

PW: Yeah. Global warming can’t come fast enough for me.

EB: Bring it.

PW: I’m really looking forward to it. Yeah, I could use it a little bit, but okay, so we’re not here to talk about the weather. Good way to start a show, though, isn’t it?

Supreme Court Decisions and Investing

PW: In the world of finance and investing, what an interesting Friday we had. Okay.

So the Supreme Court comes in and says, “You can’t do tariffs. Oh, yes you can. Oh no, you can’t. Oh, yes you can.”

And matter of fact, we’ll give you one of the justices all kinds of ideas, things that he could do. I thought that was great.

My wife just told me that. She says, “Oh, yeah.” She’s like, “Here are all the ways you can get by and do what you want to do.”

So there were some people saying, “Hey, this is actually going to be great. It’s going to be really good for him. He has a win and blah, blah, blah.”

And I’m going, “Oh man, here we go.” You’ve just got to wonder how that’s going to play in the midterms, though, with the way it gets fun.

EB: You do. And given the message that we’ve had for whatever, 30 years now. Wow. When did you start the show?

PW: It was 25 years ago.

EB: Twenty-five years ago. It’s just more fodder for people.

PW: Sure.

EB: “Well, if I think the court is going to do this, I’ll put this in this category.”

PW: Oh, yeah.

EB: It gives the media tons to talk about, which gives us tons to talk about when they’re wrong.

PW: Well, it is. I mean, it’s because people feel like they have to respond to the news. “I’ve got to do something different. I’ve got to make a change.”

Reality of it is, before the smaller value stocks took off last year on the international side, and so far this year too — I mean, even U.S. — we owned it before it happened.

---

You just make sure that you have what is going to benefit from what’s happening going forward before it goes up, not after. 

---

Which is unfortunately what so many times people do. Evan is digging through a stack of stuff, but I actually had a situation where I was talking to somebody this week, and I don’t know if I’ve got it. I’ll find it if I’ve got it in here someplace. It’s probably in my stack of junk here someplace.

Should You Buy a House?

PW: I had a conversation with a young guy this week. Yeah, there it is. So it was a conversation, and I said to my son, “Do you think he’d be okay with me talking?” I’m not going to use his name.

EB: Sure.

PW: “Do you think it’d be okay?” “Yeah, go ahead, dad. Go ahead, talk.”

It was a friend of my son’s, and we got into a conversation, and he’s just a bright, bright, super, super sharp kid. I mean, master’s degree, does incredibly well, has a phenomenal career going.

EB: Cool.

PW: And saving, putting money away for the future.

EB: Is he single?

PW: Exactly. Yes, he is.

EB: Maybe you should share his fate.

PW: This is a matter of fact. All right. We’ll have a dating service going here too.

Why not? What else can we do as entrepreneurs?

EB: There you go.

PW: So he said, “Hey, can you take a look at what I’m doing?” He had a Robinhood account. I said, “Okay, just share: What are your questions?”

I thought it would be a good way to start the show. What are the young guy’s questions in his late twenties? Because they’re questions that other people have as well, no matter what your age.

One of them was saving money for a house. “Should I be buying a house?” I said, “As a single person …” And he lives in a different part of the country.

I said, “What’s your rent?” The rent was just shy of about $2,500 a month. I mean, it was for a small place too. We’re talking less than 1,000 square feet in this part of the country.

So we got to talk about, “Well, what does it cost to buy a house?” He said, “In this part of the country?” And I said, “Yeah.”

Well, because where he works, he’s got to live there. You could buy something like a less than 1,000 square foot place for about $500,000.

EB: Okay.

PW: It was literally that amount of money.

---

A lot of places around the country, real estate has gotten kind of ridiculous. 

---

I said, “Okay. So we take that and you’re going to have to borrow most of it, right? So what is your interest going to be on that at today’s interest rates?”

We figured out, based on current interest rates, about $30,000 of interest. Then we figured, “Okay, and what are the property taxes?” Property taxes are about $5,000.

Then I said, “Okay, how about the difference in cost of renters insurance versus homeowners insurance? Now you’ve got a few thousand dollars right there.”

Then we started adding up cost of upkeep, making sure that you have the place, the upkeep of taking care of. If anything breaks, you’ve got to fix it. We talked a little bit about that.

Just as we got into the conversation, he was like, “Oh my gosh, between interest …” Then we talked about, “Because whoever you meet, she’s not going to like your place. You’re going to hate it and you’re going to have to move. So you had commission to buy the place.”

We talked about the commission on the buying side, and then we talked about the commission on the sales side. Before long, he’s sitting there going, “This is crazy. Why would I own right now?”

EB: Two thousand five hundred is a great deal.

PW: It is exactly right. Exactly right. So that was one part of the conversation.

EB: Wow, okay.

Are You Actually Diversified?

PW: Then we got to talking about not having emergency money. He had his money on the side that was in an investment account, a Robinhood investment account, and he’s a saver.

We got into talking about, “Do we do a 401(k)?” He goes up to the match on the 401(k). He wanted to put extra money aside. His income was too high to deduct the contribution to an IRA.

EB: Wow. Good for him.

PW: Yeah, exactly. And that can be one of those things where you look at that and say, “Hey, do I do something off to the side?” Sometimes people should. It might make some sense to do that where you have a 401(k), and you have limited choices in your 401(k).

---

You don’t have the diversification that you would have when you’re doing an IRA, because the world is your oyster when it comes to the IRA. 

---

If you’ve gotten past the match, it may be a good idea to do some form of IRA, whether it be a Roth or pre-tax. So we talked a little bit about that.

Then I said, “Okay, show me the account. What do you got?” And he said, “Okay, here it is.”

And he starts naming investments. And he had a SPDR, S&P 500. Sure. ETF.

Had Apple, individual stock. Alphabet, NVIDIA, had Joby Aviation, Iron Limited, Paycom Software, Tesla, Invesco QQQ.

EB: Sure.

PW: Invesco, S&P 500 equal weighted. Vanguard Total Stock Market ETF, VanEck Morningstar Wide Moat, Vanguard Real Estate, had iShares Russell Top 200 growth, Motley Fool 100, and had some gold shares. Roundhill Magnificent Seven, Vanguard Total World Stock, and Vanguard FTSE Emerging Markets. So, of course, what’s the first thing that I do with them?

EB: Do an intersection?

PW: Yeah.

EB: Stock intersection, yeah.

PW: After asking the question, “What are the rules of investing?”

EB: Right.

PW: It’s like, “Well, I don’t know. Buy low, sell high.” Good. Okay, excellent.

“What else?” “Diversify.” “Right.”

“What are bonds for?” “Bonds are there for safety and those types of things.” So we go through that, and we do a stock intersection, and NVIDIA is owned by 10 of those holdings.

EB: I was going to say he’s got the MAG 4 plus duplication in almost everything you said, except gold, maybe.

PW: Yeah, Apple was held by all of them. Tesla was held by all of them.

EB: Wow.

PW: Paycom software was owned by three of them. And then Microsoft was in there. Nine of them. Nine of those holdings had that.

Amazon, 10 of them had it, and Meta platforms, and so on and so forth. So I did that, and he’s going, “Oh my gosh, it’s not diversified.”

I said, “Perfect. Exactly. That’s what I wanted you to see. Okay, so we’ve got to fix that.”

Equal-Weighted Funds

PW: I said, “Okay, good. What was the first rule of investing you said?”

And he said, “Well, buy low, sell high.” And I said, “Good. Okay, great. When did you get these holdings?”

And he told me when he got them. And I said, “So just year to date.” For example, you have the Roundhill Magnificent Seven ETF.

How was the performance versus the standard benchmark? And it was under by about 3%.

EB: I was going to say 5%.

PW: About 3% for the first month and a half of the year. So right there, you have a relative loss.

And that benchmark didn’t do so great either. Let’s just face it. If you look at the S&P, it’s up less than 1%.

EB: Flat. Yeah.

PW: Yeah. It’s pretty much flat for the year so far. Right. Motley Fool. Which is interesting because we have quoted those guys, and sometimes you’ll see stuff from them that is rational.

But then you have a fund that’s named that, and then you see so much of their material having people stock pick and market time and encouraging people to do that. And it’s like talking out of both sides of the mouth, which is very frustrating. And that’s what I find is frustrating about the industry. I mean, look at mutual fund companies.

---

They’ll give you stock picking, market timing, but if you want to have a buy-and-hold investment that indexes, they’ll have that too.

---

And if you want an equal-weighted fund, they’ve got that too. And by the way, I described equal-weighted TOLL, and he said, “Yeah.” I said, “You bought that.”

And he goes, “Yeah, I saw something that said I should own equal weighted.” I said, “You got rid of the problem of overweighting really huge stocks in an index fund.”

So those of you who don’t know what I’m talking about, if I own an index fund, it has, let’s say, one company that is twice the size of another company. If you look at the total value of the company, one is twice the size of the other one. They’ll put two times as much money in the one that’s twice the size.

Owning Big Companies

PW: Well, where do I expect more return? I expect more return in smaller companies that have more room to grow.

But that appeals to people. They like the idea of just owning those big companies. Just that familiarity.

So what I did is I said, “Well, it’ll take, let’s say, the S&P 500, and it’ll have 1/500 of your money go into one stock, another 1/500 of your money go into the next one and the next one and the next one.” I said, “Think about the implications of this.”

I said, “Now you have to run a mutual fund where you’re always holding the stocks as best you can in 1/500 amounts. Let’s say stock A goes up more than stock B, now I’ve got to sell some of A and buy more of B to make sure that I don’t have too much of my money in one. And it’s almost like rebalancing on a daily basis in a way.”

EB: They do, yeah, kind of.

PW: 

---

But the problem is the expense. You’re having to trade all of this stuff, get rid of this stock, buy this stock, get rid of this stock, buy that stock.

---

If it’s a taxable account, that’s even more problematic. So you have this triggering of all this expense in there.

And the mutual fund industry loves this stuff because where do they make money? Trading stuff. So they love it.

So what does that one do? Well, it was under two-and-a-half percent so far just this year to date, under the benchmark by that much.

So you look at that and go, “Oh, gosh. Well, I guess that wasn’t so great.”

And then the third fund in there was a VanEck Morningstar Wide Moat. And that one, well, it was only under by 0.27% so far this year, but it was under almost by 5% last year.

EB: Wow.

Aligning Advisor’s Interests With the Client’s

PW: So you look at that and go, “Wow, over and over again.” And the point is: What drew him to buy these particular funds and these particular holdings? And I would submit it was past performance.

This is what the investment industry does. And I’ve been talking about this a lot.

I was on Channel 5 this week and I said, “There are a couple ways to run an investment firm.” One is, and you hear this all the time, Evan. This is something, I don’t know if you and I have talked about this at all, but I’ve been saying it drives me crazy when I hear investment firms go, “Well, we do better when you do better.”

And you see these commercials all the time, “We do better.” And there’s some good stuff there. Yeah, it’s good to align the interest of the advisor with the client, but there are two ways to align that interest.

One, that’s not so good for the client and that I would submit is mainly what I see and what I have seen in well over 30 years in this business. They align. They basically say, “If we can increase our assets under management, we do better.” No question, the investment firm.

But how do you increase the assets under management? How do you increase it?

---

Do you increase it by making sure you invest well and grow the portfolios, or do you do it by attracting new assets for new clients? It is the latter.

---

How do you attract new assets from new clients? Show past performance and get people to believe that maybe that performance will continue into the future. Where do we see the flows?

And I talked about this on Channel 5. I actually had the data where all the money flowed in late 2024, I had where the money was flowing into mutual funds. The top 10 places that money was flowing into.

Guess what it was, Evan? Guess what asset class it was all flowing into?

EB: Oh, large U.S.

PW: Exactly.

EB: I was going to say it wasn’t international small value.

PW: That is exactly right. It was not what did best.

EB: Right.

What’s Taught in the Investment Industry

PW: It was all flowing to that area of the market. And that was case in point. If these fund companies and investment managers were really walking the walk and talking the talk, that’s not where the money would be all flowing.

EB: Yeah. Two comments on that. One of the reasons we know this so well, and that we’re passionate about it, is that this is what I used to do 30 years ago and eventually figured out, “Hey, this isn’t a way to do this.”

PW: It’s what you’re taught to do.

EB: “Replacing a fund because it tanked and then I’ll put someone in a fund that had a good track.” I mean, that’s how I was taught. It’s how pretty much everyone in the industry is taught.

PW: It’s not that Evan used to be evil.

EB: Right.

PW: It wasn’t that. It was what we were taught to do.

EB: Yeah. The other thing is more of a question: How did he respond to going through the fact that he was overlapped and so forth in the portfolio? How did he take the news?

PW: Totally humble.

EB: Cool.

PW: And I think a lot of it is a setup. So when we started the conversation, I said, “Hey, look, I’m going to show you some things and I am going to tell you it’s not your fault. It is not because you are dumb, because you are clearly not. You’re incredibly intelligent.”

And this is something I talked about on Channel 5, I think. Matter of fact, Ben and I were talking about this.

---

I said, “People will not sue the industry because typically they’re so embarrassed by what they’ve done and what they’ve fallen for.”

---

They won’t do that. And I said, “So do not put this on yourself. It is great that you’re sitting in here and going through this process and just recognizing, ‘I don’t know everything.’ There’s no shame to not knowing everything. Ignorance isn’t bad.”

I’m ignorant in physics. I mean, really ignorant.

Embarrassment Around Investing Questions

EB: It’s interesting because it’s always good to have a great source. You talked about people being embarrassed so they’re not suing, they won’t sue the industry.

I was at a conference this past week and one of the stats that came out, because we were talking about AI some and how it’s going to be in the industry and how it would affect it, and I forget who did this survey. I can’t remember the source, but 75% of people who go to ChatGPT for a financial question do it because they’re too embarrassed to ask their advisor.

PW: That makes sense.

EB: Which I believe.

PW: I do too.

EB: But that’s a shame. It’s like, “Hey, certainly if you’re one of our clients, if you’ve got a question, call us.”

PW: No, I love that.

EB: But most people, it’s not even, “Hey, I’m curious.” It’s, “I feel too stupid to ask the question and so I’ll go to ChatGPT.”

PW: Wow. That is right up the line with what I’m saying there. They don’t sue. And now I’m starting to see stuff on index annuities and lawsuits and that, and I’m like, “It’s about time.”

But people do, they get embarrassed because they feel like, “I fell for something.” Why do they get embarrassed? Think about it. Some of these products promise high returns with little or no risk.

EB: That’s new.

PW: If I admit that I fell for this, then I am seen as greedy.

EB: Or unintelligent.

PW: Oh, yeah, right. Who doesn’t? Oh, yeah, unintelligent. I think about that. Phil Donahue and, oh gosh, Milton Friedman.

EB: Milton Friedman.

PW: Yeah, Milton Friedman, thought of it at the same time. It was like when Phil Donahue was trying to defend socialism and trying to push socialism, Milton Friedman was like, and he said, “Well, we need to. It’s greedy. Well, are you not greedy?”

I mean, isn’t everybody? Everybody, we have a fatal flaw. Everyone falls short. Reality of it.

EB: I’ve heard that somewhere.

PW: Yeah, it is. It is written in some good book. So anyway, it’s interesting. We do.

EB: That’s good. That’s a good story.

PW: 

---

We want to actually recognize that, no, people are ignorant. We’re all ignorant, just in different areas.

---

You’re a lot smarter than I am in many areas that I would have no clue about. Now don’t even think that.

Are Tariffs Horrible?

PW: So remember, we talked about tariffs a little bit.

EB: Yeah.

PW: What else you got on that? Because I had something else on it.

EB: Well, just some interesting data. I was in a presentation with Dr. Marlena Lee, who was a VP of research for a large fund company.

PW: Okay.

EB: And the subject of tariffs came up in her discussion and tracking, “Okay, it went down in April when the tariffs came and market rebounded.”

PW: Right, right, right, right, right.

EB: Well, we had all this conversation about, “Well, tariffs are going to ruin this and that,” and it was interesting. Our three biggest trade partners, Mexico, Canada, and China, their returns in the midst of all of the tariff activity, the market returns were 56, 36, and 31%, respectively.

PW: I think that is fascinating because I noticed that in the data, it was just not what you would think.

EB: Right.

PW: And you would think they’re getting hurt by this economically. Their stocks should not be going up.

EB: Yeah.

PW: Yeah, for sure.

EB: So it was just, we hear this and think, Oh, tariffs are horrible. Well, it depends on what you’re looking at. There may be an individual corporation, there may be a consumer that is hurt by them, but in the aggregate, you really can’t forecast what’s going to happen on any of this stuff.

PW: You can’t. That was so counterintuitive. Makes no sense. Well, Jeremy Siegel, a Wharton professor, was actually talking about tariffs this week as well, and had a little segment from something that he had actually said regarding this.

Joe Kernen: People think that their growth estimates are too low, but the CBO came out and said the legislation, the Big Beautiful Bill, is going to widen the deficit, but it’s going to be offset by the tariff revenue.

---

So there’s some positives in terms of getting debt to the GDP down based on some of the proceeds from the tariffs.

---

PW: And so, of course, we’re talking about if we have more spending on the government level, and the taxes didn’t go up, because you had the 10% and 12% tax bracket was going to go to 15%, and then you had the 22% and 24% was going to go to 25%, and you were going to have tax increases that supposedly — and they always think this — aren’t going to increase the revenue coming in. Not necessarily, not necessarily, because you forget about economic growth, but the CBO was putting stuff out there about economic growth going out into the future that was incredibly pessimistic.

Tariffs and Taxes

PW: I don’t know if you remember that, but they were literally projecting forward growth in the economy at something like 1%, as I recall. I mean, it was incredibly low.

EB: Oh, gosh.

PW: Yeah. It was very, very misleading as far as that goes. Yeah, the idea being we have tax rates, they’re going to be lower than what we thought they were going to be. And of course, you’re going to start to lose revenue because there’s some expenditures going out there.

Can this be made up by tariffs? That’s basically what he’s talking about right there. What Siegel said was interesting, because remember, I often talk about when it comes to people doing Roth IRA conversions, and it’s funny, the investment firms were pushing Roths like crazy, and sometimes conversions make a lot of sense.

EB: Right.

PW: But they were pushing it because it was imminent that the tax rates were going to go up. And I was sitting there here on the show going, “Don’t get too excited. Find out what’s going to happen before you go and start doing things based on what you think the tax rates are going to be going, where they’re going in the future.” But anyway, so Siegel hits something that I talk about an awful lot here and have talked about over the years.

JK: So there could be some negatives.

Jeremy Siegel: Oh, there’s no doubt about that. Tariffs are like consumption taxes. As I say, every other country in the world, a major country has what we call value-added taxes. The United States is one of the very few that doesn’t, and their very value-added taxes do include tariffs.

PW: Uh-huh. And that is something I’ve talked about. What if all of a sudden you’ve gone and converted a bunch of stuff over, paid taxes at a high rate, and then you get more thinking, well, Trump’s tariffs. He’s like, “We’re going to make up the difference using tariffs.”

What if a future president decides, “Hey, everybody else in the world’s using VATs and consumption taxes”? So value-added tax. Basically, you buy a car, and at every step of the process of building that car, there’s a tax added, and you don’t have to raise income taxes.

You might be able to even lower income taxes, and now you’ve gone and paid taxes at the old high rates just to avoid a lower rate in the future. You just don’t know, but that’s the point he’s making.

JK: If it wasn’t regressive, the Democrats should love it. It’s higher taxes. They love higher taxes. I don’t get it.

Because it’s regressive. I guess because it’s regressive.

JS: Because Trump initiated them.

PW: There’s the real truth, right? Siegel just kind of hit the nail on the head with that one. Wharton professor, Jeremy Siegel. Anyway, so funny.

Advisory services offered through Paul Winkler, Inc an SEC registered investment advisor. The opinions voiced and information provided in this material are for general informational purposes only and not intended to provide specific advice or recommendations for any individual. To determine what investments are appropriate for you, please consult with a financial advisor. PWI does not provide tax or legal advice. Please consult your tax or legal advisor regarding your particular situation.