Have you heard that you need a lot of money to invest or investing is for rich people?
I initially thought that, too, so I just opened up my Roth IRA with Vanguard until I had enough in the money market to transfer money into a mutual fund.
In the past, you had to have a certain amount to invest and if we go back to times before the internet you had to call a broker to make an investment.
Well, thanks to apps like Robinhood, no longer do you have to have $3,000 to invest and you don't have to call a stockbroker to help you invest.
So if you're new to investing or looking to see what Robinhood is all about, here is a first-person review of the Robinhood app and my experiences with the popular app.
First, What is Robinhood?
Robinhood is a popular investment app used primarily by the millennial demographic to trade stocks, ETFs, and Bonds on their phones (Update for 2020: Robinhood recently redesigned their web platform to make investing simplified).
The app is a popular alternative for millennials that want to invest with little money or without having to buy a mutual fund through a typical brokerage account or day traders.
Robinhood – Changing The Industry
The app differs from other platforms as it has commissioned free trades.
The app has changed the industry, and big brokerages have taken notice and cut fees and commissions on funds. They are benefiting investors across the board, as fees can cut into your investment earnings.
As Investopedia said in their review of the Robinhood app,
Robinhood's claim to fame is that they do not charge commissions for stock, options, or cryptocurrency trading. Due to industry-wide changes, however, they're no longer the only free game in town. The firm’s target customer base is young people new to investing, who are drawn to the app by advertising that leans heavily on words such as “free” and “democratization.”–Investopedia
Free is good when it comes to trading, here is why. Take this LinkedIn post by Ramit Sethi, author of I’ll teach You To Be Rich on how brokerage fees add up. Just a 1% fee can reduce lifetime returns by 28%…
All this to say, Robinhood is worth considering especially if you're a beginner when it comes to investing!
Pros & Cons of the Robinhood App:
Like any financial app or investing technology, there will be pros and cons when it comes to the platform.
For Robinhood, here are revered pros and the not so friendly cons of the platform:
Pros of Robinhood App:
- Hands-on easy to use platform
- Exposure to International Stocks
- Options to invest a variety of ways, stocks and risky alternatives
- Robinhood Gold feature for extended trading
- Partial Shares options
- Dividend Reinvestment
- Categories such as Top 100 stocks
- Free stock for joining and referrals
- Cash Management (Although currently low-interest rates in the current market)
- Learning experience
- *Can create passive income capital gains and dividends (Also potential for loss, due to volatile markets. No guarantees with individual stock investing)
Cons of Robinhood App:
- Delayed time on stock trades (doesn’t seem always to trade real-time, can be seconds off from my experiences)
- Occasionally glitches
- Customer Service not Great
- Had an issue with the server in March leading to lawsuits
- Doesn’t teach how to invest
- Isn’t as tax efficient and Roth IRA at brokerage such as Vanguard Fidelity, Charles Schwab.
- For inexperienced investors can be particularly risky
- Easy to get anxious and make poor decisions
- Waiting for funds to start trading or withdrawing after the sale. (6 trading days after the sell of securities can you withdraw money into your bank)
- Others in the free investing space such as:
- Robinhood doesn’t have to invest advice or help other apps provide.
- Robinhood doesn’t offer tax-loss harvesting, a strategy used by other apps to sell stocks that lost money at the end of the year that may have lost money to reduce taxes. (Typically this would likely be done in December) Once you sell a stock, wait 30 days before you can repurchase stock to qualify for capital loss. Otherwise, it is considered a wash sale.
Who is Robinhood for?
Typically, Robinhood is poprular with Millennials, but the app is designed for anyone interested in trading stocks. Simply put, people who have money to invest and risk investing are suitable matches for Robinhood!
Robinhood doesn't require a minimum investment and the sign up process is simple and straight forward:
- Go to Robinhood here to download the app
- Create a login consisting of your email
- Provide your name, address, and phone number
- Add your birthday, employer and social security number (it is an investment platform, so for taxes, you need to provide this info)
- Start investing and trading once your application is approved
- Get a free stock just for joining!
What's cool about Investing with Robinhood:
When you invest with Robinhood, you can invest in products you have an interest in (unlike traditional index funds where you have less say).
Humans enjoy the concept of being shareholders in a company that we consume products and services from. For example, if you buy the latest iPhone, maybe you’d consider an Apple stock, or if you like coffee, instead of $5 latte perhaps consider Starbucks stock instead.
All of which are made easy with the Robinhood app.
And if you don't know where to start when it comes to individual stock investing, a safer – more conservative approach – would be to start with ETFs or electronically traded funds.
Traditionally, ETFs and stock index funds are safer bets and require less investing knowledge! When it comes to ETFs you may decide to invest in a sector or basket of companies, all made possible with Robinhood too!
A few popular ETFs include:
- VOO S&P 500,
- VTI Total Stock Market,
- QQQ (100 stocks on Nasdaq including Tesla)
- BND Total Bond
- Or you can with your values such as social responsibility fund like ESGV that tracks stocks that do suitable for environmental and or social issue
How does Robinhood stack up against the competition
A few key metrics of our review of the Robinhood app and here is how Robinhood stacks up against the competition:
- Right now, Robinhood is the most popular downloaded mobile investment app.
- Behind Robinhood is Stash, the 2nd most popular mobile investment app. Stash is educational and might be better for beginners as Stash encourages more EFT trading. ETF trading is usually is safer than individual stock trading as far as ETFs being less volatile, having a mix of companies to diversify and less background knowledge is needed.
- Comparison of Robinhood vs Stash: Stash charges $1 month for service, which makes the app more expensive ($1 vs FREE) to use than Robinhood. Stash has fractional shares and automatic weekly payments into ETFs and stocks.
- Acorns is another app suitable for beginners who want to choose the aggressiveness of their investments. Acorns is also great for savings as purchases you make round up to the nearest dollar and save for you automatically. In theory, this helps you invest your “Spare change.”
- Betterment and Wealthfront are more diversified portfolios or pies that offer help from financial professionals and Robo investing. These apps have excellent benefits. Robinhood doesn’t include pie portfolio and tax loss harvesting.
- Other apps comparable to Robinhood are WeBull and M1 Finance, which have a similar setup and app platform!
Cool Things to Know About Robinhood
Overall, Robinhood is a game-changer for investors that can now invest instead of waiting on the sidelines.
People with no experience investing can now get into stocks, even partial shares of companies. A popular Robinhood feature includes the 100 Most Popular Stocks held by users on the app such as FAANG (the most popular 5 stocks in America:
But also other popular stocks such as Microsoft, Tesla Starbucks, and Disney (to name a few blue-chip stocks).
While this is not recommendation to buy these stocks, it is cool to see what is most popular to perhaps consider those or others!
The Robinhood app has created fresh ideas when it comes to the investing industry, such as:
- cash management,
- cryptocurrency trading,
- international stocks from around the world,
- options trading, and
- dividend reinvestment options.
Where Robinhood can stand to improve:
According to some users of the Robinhood app, customer service is lacking. Robinhood can be difficult to contact over the phone.
Also, buying and selling shares may be sold at a higher or lower price than you initially went to swipe /slide for trade (In day trade stock that can make a massive difference on timing).
Also, Robinhood could provide more material to educate prospective investors to help them make wiser investment decisions.
While not neccesarily Robinhood's fault, the Robinhood app is so easy to use, it can be somewhat addicting to watch on your phone and routinely check the app. This is not always good for people who like to gamble or buy and sell on impulse.
Robinhood is still in the early years of development, and they are trying to appeal to many types of investors and evolving and growing.
However, helping investors make wiser decisions is more important in our review of the app, then being the most popular! The app trades stocks, ETFs, but doesn’t allow users to buy mutual funds and index funds.
This is an advantage of brokerages with retirement accounts such as Vanguard and Fidelity that each offers a variety of low-cost funds that track the market.
Not to mention, it is tough to time the market, and most stock pickers – even professionals – will underperform in the market index over ten years. Warren Buffett famously won a bet with a hedge fund manager by having S&P 500 vs. hedge fund with higher fees and more trading.
Final Word on the Robinhood App:
Robinhood is a great app and game-changer for the millennial generation and younger. By allowing younger people to begin to take steps towards wealth accumulation sooner, Robinhood is making positive waves in that regard
While many people will make a lot of money using Robinhood; many others may be better with a more passive investing approach such as dollar coast averaging.
During a bull market, you might feel like a genius with stocks. But during a bear market, or recession; you may lose a good chunk of your portfolio and might be tempted to sell as the market bottoms out.
Robinhood is not for the faint of heart that panics and sells at lousy news or stock trading lower. New investors may want to practice on stock simulations or more conservative apps like Acorns or Stash where you can learn first.
Robinhood is a fantastic app for people that do proper research on stocks and have money to invest and can tolerate losses on the money they don’t need in the short term.
Especially now in the current economy, stocks fluctuate significantly in the short term. Not to mention, there are plenty of alternative investments out there!
Still, in a long time, most stocks go up as, on average, historically, the market (measured by index funds such as S&P 500 and Total Stock Market) has returned 7.2% after inflation, even accounting for recessions.
If you have the right temperament and don’t panic, sell, and buy, Robinhood is an excellent app for you to help you increase your cash flow with the potential for capital gains and passive income.
JD grew up in Des Moines, Iowa and ran college track before transferring to Iowa State to finish out his college career. JD claims he got his “Frugality” from his dad who also taught him about credit cards, saving money, and building credit. Personal finance is a passion for JD and he has an enthusiasm for finances. He regularly contributes to his workplace Roth 401k his personal Roth IRA, and loves finance apps such as Robinhood, Personal Capital, and Credit Karma! In his spare time, JD is an avid runner/biker!