Q: What is Robinhood?
A: Robinhood is a digital brokerage platform built to appeal to smartphone users. It advertises commission-free trading with no account minimums. It was founded in 2013, but has recently exploded in popularity as millions of Americans, namely millennials, have been stuck at home in 2020 with the urge to make money trading stocks (or fill the void left by a lack of sports gambling). It has very attractive qualities for first-time investors, such as one-click trading, easy access to complex investment products, the ability to trade cryptocurrencies, and game-like features such as emoji-filled phone notifications, falling confetti, etc.
Q: Should I use Robinhood to save and invest?
A: Robinhood is designed with beginner stock traders in mind and doesn't operate like traditional brokerage firms such as Charles Schwab and Fidelity, who provide customer support, services for advisors, and more robust research capabilities. In our view, Robinhood is a good place for individuals who want to dip a toe into stock trading as a hobby. For example, if you're going to save for an emergency fund, Robinhood is not your best option, because you don't want to trade stocks with money that you might need quickly.
Your emergency fund is better suited for a bank savings account with a competitive interest rate. If you are saving for retirement, we recommend seeking a financial professional's advice instead of doing it yourself via an online brokerage like Robinhood. If you start pouring significant money into stocks without a financial plan or understanding of risk, you can jeopardize your financial future. If you have a financial plan in place with a diversified investment strategy for the bulk of your portfolio and still have the itch to trade stocks with a small chunk of 'fun money,' then by all means, go for it!
Schedule a Consultation
We have helped our clients answer these questions and more. If you want a clear understanding of your financial future, and need help making changes to reach your goals, schedule a consultation and we can get started.