No affiliate links or payment for this post. I really use this, and really love it. I do recommend finding an affiliate link if you want to sign up, though, as it will get you a free stock!
Some of my investments might be visible in the pictures. You’d be silly to take specific investment advice from me.
I’ve mentioned in several net worth updates that I’ve started a “fun” investing fund with extra personal spending money. This fund differs from the more conservative total market index investments that we’re using in our retirement vehicles. Instead, I am buying single stocks. I’ll talk more about the “why” and “what” I’m investing in later, but today I wanted to talk about the “how.” Let’s talk about Robinhood!
What is Robinhood?
Robinhood is a brokerage where you can buy stocks, like Fidelity, Vanguard, TIAA-CREF, and other names you may have heard. The key difference is its pricing model. Buying, selling, and even options trading are 100% free with Robinhood. Compare that to Fidelity or Vanguard, where trades are $4.95 a piece. There is also no minimum portfolio size.
So how do they make their money? They offer a Robinhood Gold monthly subscription service (I believe it currently costs $6) which offers after-hours trading and allows you to borrow money to invest, rather than pre-supplying your account with money from your checking account. This is an optional service that I’m not using. The other way they make money is by collecting interest on the holdings in the accounts, similar to a bank. I have used Robinhood since March, and have yet to pay to use the app.
What I Like About Robinhood
The interface on both the phone app (the original access point) and the new website is minimal and streamlined. It tells me exactly what I want to know, and nothing that I don’t. The app is basically a long window with four parts: a graph of my portfolio’s performance over time, a swipeable news box of app alerts and news about the stocks I own, and a clickable list of the stocks I own followed by the “watchlist” of stocks that I am considering buying.
The app is designed for beginners not just in its pricing model, but also in its design. There are no pages of reports to sift through, and the app is free of investing jargon. It’s a refreshing change compared to Fidelity’s website, where I often have to click through multiple pages to make a simple transaction or find the information I want.
The news feed is very fun for me. I do not normally think it’s a good idea to check on your investment accounts daily, but I enjoy skimming the feed on my work breaks. Once you buy a stock, the app feeds in news about that stock from various sources. Since it only does this for the stocks that you own or watch, the news is automatically tailored to your interests. And, since the user has to click through, they self-select the type and volume of news item they are interested in. I think this is a genius way for Robinhood to allow users to self-educate at their own pace with little cost for themselves.
What Robinhood Doesn’t Do
Robinhood is not a research portal or advising service. While it offers the news feed, it won’t tell you what to buy. The website does now make suggestions based on your previous purchases. If you want to know more than a rudimentary blurb about what the company does and its past stock performance, you’ll need to Google. I prefer this, since I would be Googling anyway, but I could see others feeling a little frozen about what to choose.
Robinhood does not offer fractional shares or dividend reinvestment plans (DRIP). If you want a share of the stock, you need to buy the whole share. Your dividends will post to the account for either withdrawal or manual reinvestment. To my knowledge, they don’t offer tax-advantaged accounts. There is no Robinhood Roth IRA, for instance.
Why Robinhood is a Game Changer
I initially learned about Robinhood by talking about investing with some of the manufacturing operators where I work. Operators are typically high-school educated, blue-collar folks. One of them is a money nerd, like me, who showed his buddies how easy it is to get the Robinhood app on their phone and start investing. Since it’s totally free, most folks were willing to try it.
Now we have whole teams of operators who regularly discuss stock picks on their lunch break. The financial section of the newspaper is one of the most sought-after sections in our cafeteria. The money nerd who started it all recently told me that he liquidated one of his investments in Robinhood, cashing in about $2,000 profit.
For some, removing a $4.95 fee and having no account minimum is no big deal. When you’re buying a $130 stock 10 shares at a time, that fee is only .3% off the front end. Good on you if you can do that, and I understand why you’re not sweating it too much in order to keep your shares with one brokerage.
As a dabbler, though, I might only buy a single share in a month. Suddenly that fee is 3% in the scenario above, and even more if I am buying a cheaper stock. I have two shares in a company worth $4.85. Would I have purchased those if I had to pay a $4.95 trade fee? Of course not. I would probably still not have a single share if there was an account minimum, since I previously felt the cost to play too high for my experience level.
Trade fees and account minimums are a barrier to entry for people who feel unsure about investing in single stocks (like myself), and for folks without much disposable income to invest. They also have the potential to impact what and how those people invest in ways that those with more means don’t even have to consider. Removing the trading fees really is a revolutionary change, empowering those with lesser means to use the incredible wealth-building tool that is the stock market.
Where I see Robinhood’s biggest potential impact is in its ability to offer freelancers, low-income folks, and young people easier access to ETFs. ETFs (exchange-traded funds) were already a godsend by allowing investors to invest in a mutual fund at prices more akin those of a single stock. By removing the account minimums and trading fees, literally anyone with the cash for a share of an ETF can get one. Anyone who can save a few hundred dollars has access to a well-diversified investment to grow those dollars. That is game changing in destroying the barriers to entry that perpetuate wealth inequality.
The best part of all is that, despite its cheeky name, Robinhood is open to everyone, including the mega-wealthy. No one loses but a financial system that profits from the arbitrary gatekeeping of wealth-building tools.
Have you tried Robinhood? What do you like or dislike about it?