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Robinhood is all the rage in investing circles these days (and has caused a lot of rage as well!). But is it really all that and a bag o’ chips?
The stock trading app has become the tool du jour for many millennials looking to make some moolah in the markets.
But is Robinhood really that good? Are there better options out there? And why is sandwich meat round yet bread is square?
We’ll answer most of these questions, plus some others (related to Robinhood, not lunch meat) below…
Robinhood launched in 2015 with the goal of making it fun, easy and more affordable for those of us who aren’t made of money to invest in the financial markets.
Their big claim to fame and popularity was, and still is, their $0 commissions. Since we’re huge fans of minimizing your investment fees, we’re totally on board with the free commission model.
Free commissions, cryptocurrency trading and an easy to use app have helped Robinhood’s popularity blast off like a SpaceX rocket. The site boasts over 10 million accounts, 3 million of which joined the platform in the first few months of 2020.
The $0 commissions though are really the biggest contribution Robinhood has made to the world of investing. Due to their popularity, most of the major brokerages no longer charge commissions on their trades. This saves investors a TON of money each year.
That’s money that now goes toward building your own nest egg instead of going toward the rent for a fancy apartment some Wall Street big shot keeps for his mistresses.
So, if nothing else, we owe Robinhood a huge debt of gratitude for that!
There’s a lot to like in what Robinhood offers. Especially for those in its target demographic… newbie, young investors that don’t have big dollars to invest.
We already mentioned the free stock trade. $0 commissions also apply to options and cryptocurrency trades.
Another nice feature is fractional shares. This is where you choose how much you wanna invest in a stock and Robinhood will covert that to parts of a share.
For example, let’s say you want to buy some Tesla stock (TSLA). You only have $400 to invest but the stock is trading at $800. You put an order into Robinhood for $400 worth of TSLA and you’ll end up with about ½ share of TSLA in your account.
Easy To Use
You can get started with Robinhood in under an hour. That includes verifying, and linking to, your bank account.
From sign up to trading to research to keeping track of your portfolio, you can do it all from your smartphone using the Robinhood app. They also have a web interface so you can use Robinhood that way if that’s the way you roll.
High Yield Savings
Robinhood offers a cash management account that pays 0.30% APY on any cash you have in your account. That’s a WAY better interest rate than many banks are paying these days in savings accounts.
While there’s a lot to like about Robinhood, there’s some, well, suboptimal aspects of it too.
This is a biggie. Robinhood is infamous for having reliability issues. The site has had frequent outages where it goes down leaving investors high and dry. Sometimes lasting an entire trading day!
Making this worse, these crashes seem to be more common on days where the market is seeing big swings.
Imagine the market is in a freefall and you wanna get out of some stocks you own only to find you can’t access your Robinhood account. You could end up losing a lot more of your moolah if that happens and you ain’t gonna be happy about it.
On the flip side, if the market starts soaring and you want to get in on the action, but can’t, you might miss out on some big profits for your portfolio.
Robinhood has apologized for these issues and has vowed to fix them, but this is a big concern for investors and one that is still happening from time to time as I write this.
Limited Investing Options
You can buy stocks, ETFs, options and cryptocurrency on Robinhood. But you can’t other types of investments including two super common ones… mutual funds and bonds. May not be a big deal for you, but it does limit your options.
Taxable Accounts Only
Want to start an IRA or other tax advantaged account where you money can grow tax free? Too bad! Can’t do it on Robinhood. Taxable brokerage accounts only.
Support is limited. You can get it through email or social media. You can’t talk to anyone by phone if you need help.
Robinhood has faced criticism and were even fined by the Financial Industry Regulatory Authority (FINRA) over the prices their users get when buying/selling a stock. We won’t get into the details here, but basically the complaint is when you buy/sell stocks through Robinhood, you don’t get the best price available on your trade. Robinhood did not admit to or deny this in settling with FINRA.
No Short Selling or Level 2 or Time & Sales
Robinhood is fine for what it is… a cheap bare-bones app that gives newbies an easy way to trade stocks and cryptocurrency.
But the main advantage it had over the competition, $0 commission trades, have been adopted by most of the major brokerages out there (Fidelity, Schwab, TD Ameritrade, etc.). Since you can get free trades from these places and also get access to more types of investments, set up retirement accounts, use more stable trading platforms, access better research, get better customer service and take advantage of more types of trades…
… most investors are probably better off going with one of these other options than jumping on the Robinhood bandwagon.