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Founded in 2013, Robinhood is a free platform that makes stock market trading easy — too easy, according to some experts and regulators. And it doesn’t offer the tax-advantaged investment accounts essential for building wealth over the long term.
The app has 21 million customers and over $102 billion in assets and strives to be “easy, friendly and approachable” for its customers. The average age of users is 31 and about 50% of them are new investors, a Robinhood spokesperson said.
While its low cost and usability will certainly captivate users, investors should be wary of Robinhood.
In recent years, Robinhood has faced fines, public scrutiny, and lawsuits. In 2020, Robinhood was hit with a $65 million fine by the Securities and Exchange Commission (SEC) for misleading customers. (A representative at the time said the settlement “relates to historic practices that do not reflect Robinhood today.”) In June 2021, Robinhood was fined $70 million by the Financial Industry Regulatory Authority (FINRA) for malfunctioning and misleading its customers. (In response, Robinhood said it had “invested heavily in improving platform stability, enhancing our educational resources, and building our customer support and legal and compliance teams.”)
Earlier in 2021, Robinhood settled a lawsuit for wrongful death about the death of a 20-year-old user who committed suicide after seeing an incorrect negative balance of $730,000 on the app. (A Robinhood spokesperson said: “We were shocked by the death of Alex Kearns. Since June, we have made improvements to our range of options… We remain committed to making Robinhood a place to learn and invest responsibly. .”)
For a list of cheap and accessible alternatives to Robinhood, see NextAdvisor’s Best Online Brokers of 2022. Or read on to see some more pros and cons of the Robinhood app.
Pros and Cons of Robinhood
- Free platform: the account is free to use and users can create an account in minutes.
- ractional Shares Available: Ability to buy partial shares of a company’s stock.
- No costs to trading cryptocurrencies: Robinhood offers 7 coins in 48 states.
- Minimum $0 account Easy to use
New pension or tax-advantaged accounts – Robinhood only offers taxable brokerage accounts, so if investors are looking for tax-advantaged investment accounts like Roth or traditional IRAs, they should look elsewhere.
Gamify investing and trading — Regulators have accused Robinhood of pushing new investors into “unnecessary trading risks” with features like digital confetti intended to celebrate trade. (Robinhood retired the confetti feature prior to the IPO.)
Lack of learning resources — Educational resources for new investors are limited to a newsletter and some articles on the Robinhood website. In-depth reports are only available with a Robinhood Gold membership ($5 monthly fee).
Lack of some diversified investment products — No mutual funds or bonds, which can make it difficult to build a well-rounded portfolio.
Robinhood at a glance
Self-directed investment app Two main accounts available: brokerage and cash management Available investments include more than 5,000 stocks and ETFs listed on US exchanges, more than 650 stocks on global exchanges via ADRs, options, gold, crypto Gold price offers Level II market data, in-depth research reports from Morningstar, larger instant deposits Educational articles on the basics of investing in the “Learn” section No minimum account opening or account maintenance fees 24/7 customer support phone line
Who is Robinhood best for?
So is Robinhood any good? Well, it can be attractive to newer investors without a lot of money to invest with. With no trading or commission fees, no account minimums or account maintenance fees, it’s an inexpensive way to get wet with the stock market.
However, the app’s gamified approach to investing makes it too easy to trade quickly and often. Robinhood users are nine times more likely to trade than users of other low-cost brokers like E*Trade, according to a November 2020 survey by behavioral finance experts. other studies have shown that passive investing – also known as buy and hold – builds more wealth in the long run than taking active trading decisions. So Robinhood’s ease of trading can work against you.
Another reason to look elsewhere? Robinhood does not offer Roth IRAs or traditional IRAs. Financial experts love these accounts because they help protect you from taxes while building wealth. Other discount brokers allow you to make the same investments you could with Robinhood, except within a tax-advantaged retirement account.
Robinhood may be a good option for people looking to invest in cryptocurrency, although it lacks some of the more advanced features you get with cryptocurrency exchanges. Financial experts advise investors to limit their crypto holdings to about 5% of their total portfolio and achieve other financial goals first, such as eliminating high-yield debt, building an emergency fund, and investing in a traditional retirement account.
While some discount brokers offer in-depth reports and detailed research, online workshops, and virtual trading to help newer investors learn the basics of investing, Robinhood’s educational resources are limited to an in-app Learning section. While it is a robust library of content, novice investors could benefit from accessing more learning resources for free.
Finally, those looking to get AI-powered guidance through a robo-advisor, or have their portfolios managed by a professional, will also have to look elsewhere.
Open an account with Robinhood
1. Research discount broker platforms and apps. If you are looking for an inexpensive way to start trading, start by doing your homework and looking at various discount brokerage platforms. What kind of services, products and investments do they offer?
2. Compare rates. Look beyond commission trading fees and see if there are any account maintenance fees, account opening minimums, or other fees. Consider the expense ratio of each stock or fund you plan to invest in.
3. Submit an application through the Robinhood app. You must provide personal information such as your tax ID and financial information. Within a few days you will receive an email approving your application or asking for more information. Should Robinhood need to verify your identity, the process could take another five to seven days.
During the application process you have the option to preload your first deposit. That way, the money will be ready to use when your application is approved.
Frequently Asked Questions
What is the monthly fee for Robinhood?
Robinhood has no monthly fees, no account maintenance fees, and no trading or commission fees for stocks, ETFs, and cryptocurrency.
Is Robinhood good for beginners?
Robinhood makes it easy for new investors to get started. There are no minimum amounts to open an account, nor commission fees. But younger investors will benefit most from tax-advantaged investment accounts like the Roth IRA, which isn’t available on Robinhood, and a buy-and-hold strategy to maximize compound interest, which goes against Robinhood’s incentives to trade often.
How do I get my money out of Robinhood?
The limits for withdrawing funds from your Robinhood account are as follows:
- Up to 5 withdrawals per business dayWithdrawal up to $50,000 per business day
- When you deposit money, it can take up to five business days for the transaction to be processed. Once the transaction is completed, you can withdraw the funds.
- After a sale, there is a settlement period from the trading date, plus two trading days before you can withdraw funds.
Is it safe to buy on Robinhood?
Robinhood is a registered brokerage and member of the SIPC meaning that as an account holder your assets will be protected if the brokerage becomes insolvent. It also protects against unauthorized trade or theft. In these cases, assets in your Robinhood account are covered up to $500,000 per customer. This includes $250,000 in cash.
There are also standard security measures, such as two-factor authentication on the app or SMS, and encryption of sensitive information.
There are always risks associated with investing and there is no protection against the ups and downs of the market.