As many of you may know, I've been doing an ongoing evaluation of all of the free trading apps. I'm (clearly) not a professional trader. I'm a Paramedic that also happens to be a husband and father, and that wants to provide for my family in the event that I can't anymore, and I want to be a savvy investor. As with all things, this blog is simply my opinion and experience.
So, Robinhood. The darling of the the everyman investor, so it seems. I know that I was hearing about Robinhood long before I heard of any of the other trading platforms that I am currently using. In fact, I had an account for over a year before I ever decided to fund it and start investing, which I started in December 2021.
While I had heard/read about it online, it wasn't until a public speaking class that I ever heard anyone talk about it at length, which is what prompted me to give it another look, and even dig a little deeper. That was fall of 2020. One of my class mates wrote his persuasive speech on why you shold start investing, and how easy it was to get into it because of the advent of brokerages like Robinhood. Indeed, I seemed to be late arriving to a movement that was already in full swing.
I already had a Fidelity Rollover IRA that I hadn't paid any attention to since I opened it (which I'll dicuss elsewhere), but I had just recently peeked in on it and found that I had some spare cash lying around to be invested, which I did, and I think that may have started the stirrings on curiosity on the subject.
I'll admit I was somewhat uneasy starting this journey. Perhaps it was the historical perception of the stock trading industry, but I had long visualized big names like Charles Schwab, TD Ameritrade, E-Trade, and Fidelity as being the way and place to trade stocks. From what admittedly little I know about the company overall, Robinhood was started to try to topple that image. They started in 2013 with the goal of "democratizing finance," and their big claim to fame was 0 commision trades in stocks and ETFs. Now, I was already a skeptic and on-edge at the whole "free trades" idea. As with much of the internet (Google, Amazon, Facebook, etc) if the product/service is free, You are the product. So I had to know how Robinhood made money.
Wikipedia tells us that their income stream is actually three fold: "interest earned on customers' cash balances, selling order information to high-frequency traders (a practice for which the SEC opened an investigation into the company in September 2020) and margin lending." (So, they're still selling my info, but at least I knew a little more about it. That's some relief, I guess.)
Robinhood seems to have been successful in their goal of democratizing finance (even though some think that that may have been a double edged sword). Their meteoric rise in the beginning of 2020 was apparently equal to their entire existence up to that point. Their dominance and influence eventually led the other big firms to cut trading fees in order to keep up.
So that's all the boring stuff. What's the meat and potatoes? What does this mean for those working on public service salaries, or your friendly neighborhood cashier down at the local grocery? Well, beyond disrupting the market as a whole, and making investing through even the larger firms more accessible, they still have a little something that makes them appealing... at least to me.
Robinhood makes the actual investing near painless. It's a cinch to link an accout, and once done, funding the accout is near instantaneous (since they essentially forward you the money until the actual transfer comes through) letting you be off to the races in a single afternoon (for better or worse).
I found their app/user interface to be very simplistic. Maybe that's all you want. It seems to have done well for many, but I just found it lacking. It felt like a cheap toy compared to other apps/brokerages.
On the subject of their desktop/browser platform, subjectively, I feel it's a little spartan, honestly: a simple, perhaps oversimplified, view of your portfolio. Objectively, I can't say that I get anything any more detailed out of any of my other apps, and I'm not even sure what else I want them to put on it.
I would hazard to guess that it's set up to work like your social media apps, to encourage you to "check-in" on it regularly. You know... just to see how it's doing. Have you made any money yet? How about now?
That's probaby on purpose. You get that dopamine hit from seeing your chart turn green and start climbing. It just happens to also churn your stomach in knots when you watch it fall... like it did for the first three weeks of this year.
Now, I may not be a smart man, but from what I've read, emotional investing leads to losses. Now, fair, even calculated purchases of individual stocks can lead to loss (and, in fact, does... a lot), but in general, the stock market trends upwards. That may not be true of your favorite stock, or your favorite company, but on the whole, that graph always looks pretty. Even if the market does have a downturn, you haven't actually lost anything until you sell the stock at the lower price.
And the first rule of investing: don't sell stocks for a lower price. (Unless it's a stop loss, but if you're setting stop losses, you're probably not interested in my thoughts on Robinhood).
I use my Robinhood account to play around with trading stocks, but on the whole, if you want consistent returns, most everyone I've read steers you towards index funds. Index funds come in two flavors: mutual funds and exchange traded funds. Guess what you can't trade on Robinhood: mutual funds. While you can't invest in mutual funds, you can purchase fractional shares of stocks and ETFs which allows you a lot of the safety of diversification, without having to drop your life savings on it. Whereas mutual funds come with management fees and minimum investments (usually a few thousand), on Robinhood, you can invest as little a $1 (and make it a recurring investment), making it about as painless as Acorn (but without the subscription fees).
I think that makes Robinhood the most easily accessible of the brokerages. Whereas Webull requires $10 minimums, and SoFi requires $5 minimums, dropping $1 on Robinhood and putting it to work instantly, helps you start that journey earlier, and make it a habit. If you're someone who doesn't make a lot, $10 may feel like a decent chunk of change, but it's a whole lot harder to miss $1. Something simple like that could payoff over time, offering you a small cash flow when you really need it, or it can be the start of you taking your retirement seriously and starting down that path of making sure you'll have security when you're older.
Robinhood does have a little more to offer for those with more experience and knowledge (more than me). They offer crypto trading, and they also allow margins. I do have a little invested in crypto on Robinhood, but only for kicks and giggles. It's not a large or important part of my portfolio. If you're into trading the margins, they apparently also have a subscription based premium service that gives you access to margins, "in depth research and analysis" and "Level II Market Data." That's over my head.
Originally, I wasn't a huge fan of Robinhood. However, I've found myself doing a lot more "mirco-investing" (for lack of a better word) on it than any of my other apps. I don't pay for the premium membership, because I'm not a day trader, and I'm not doing technical stock analysis. I've got money in a few companies/industries that I think would/should do well, and that I want to do well. I like aerospace, so I bought a little of JETS, Rocket Lab, Northrup Grumman, Boeing, etc. However, the bulk of my money is still hiding safely inside of market index ETFs like QQQ, DIA, and VOO.
This is an ongoing review, so I'm not yet content to pass a final verdict on it. However, I will say that, like an ugly puppy, it's still somewhat endearing. (Probably that repeated dopamine hit.) I'll continue to let everyone know how it goes.
I hope you gained something from this. Please feel free to share your own thoughts and experiences. I'm on this journey to learn, and if you're farther along the path than I am, then please share your insights.
Robinhood offers a rewards program for inviting new members to sign up. If you're interested, then signing up with my link: join.robinhood.com/ynbkxea should give both you and me some free stock. Doing so is definitelty appreciated.
You can find my write up of Webull here.
You can find my write up of SoFi here.
You can find my write up of Public.com here.
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