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Start Small and Stay Small: Anchoring in App-Based Investing

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  • Jennifer Itzkowitz
  • Jesse Itzkowitz
  • Andrew Schwartz

Abstract

Stock trading apps have encouraged millions of people to begin micro-investing. While investing is beneficial in the long-run, we demonstrate a potential downside to the micro-investing trend. Using a novel data set of stock trades from an app-based broker, we show that anchoring leads to lower wealth accumulation when investors start their journey with a small first purchase. A unique feature of the broker’s platform allows us to disentangle anchoring from a rational repetition strategy: stock gift cards. Since the value of a stock gift card is determined exogenously, the amount of that gift card represents a true external anchor for the recipient, affecting subsequent behaviors. Over one year, a $1 increase in the amount of an investor’s initial stock purchase results in a $4.63 increase in the total amount that an investor contributes to their investment account, all else equal.

Suggested Citation

  • Jennifer Itzkowitz & Jesse Itzkowitz & Andrew Schwartz, 2024. "Start Small and Stay Small: Anchoring in App-Based Investing," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 25(4), pages 464-480, October.
    • Handle: RePEc:taf:hbhfxx:v:25:y:2024:i:4:p:464-480
    DOI: 10.1080/15427560.2023.2209233
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