Robinhood Review 2020: Pros, Cons & How It Compares
Now Robinhood captures a lot of attention because it is completely free: $0 commission, $0 minimum account balance, so you could literally open up an account, fund it with $10 and start investing in stocks. However, currently, also the Robinhood competition such as Merrill and Ameritrade are offering free trading operations, this broker still has a powerful advantage because you can trade cryptocurrency without commissions and their trading dashboard is smooth and streamlined. The latter is an advantage for investors that want to close operations quick and ambitious beginners.
So there’s a lot of appeal to this, but what I really want to make sure you guys understand in this Robinhood review, is that it is a very limited platform and that’s kind of what we’re gonna get into here are the pros and the cons of this platform, why I like this platform, and also why I’m not such a fan of this platform at the same time.
Robinhood Review: The Bottom Line
First of all let’s talk about what Robinhood actually is. Robinhood is a free trading app out there that has really ballooned in popularity.
It allows you to invest in stocks, ETFs, as well as cryptocurrencies and options. Now the cryptocurrency piece is still limited to certain states in the United States, so if you are looking to invest in cryptocurrency through Robinhood, you’re going to want to make sure
it is currently available in your state.
Beyond that, Robinhood is a very basic investment platform. It is a 100% online platform,
meaning there are no physical storefront locations. So I’m sure you guys have seen the Charles Schwab or Fidelity locations around where you can go to a branch office
or you can call someone up on the phone.
With Robinhood it is completely electronic and online and so this right here might be a con for some people, the fact that you can’t call someone up on the phone or you can’t stop into a branch location to talk to someone but really, the difference here is the fact
that you’re not paying anything either as commission or as a maintenance of the account.
With the traditional online discount brokers you’re paying a fee for commission and they have a minimum account balance that is more or less what Robinhood eliminated. However by eliminating that fee structure they are not able to offer the personal attention that you might get through your other brokerage account where you can call someone on the phone
or stop into a branch location and enjoy a personalized customer service
So what can you invest in using the Robinhood app? First of all you can invest in publicly traded stocks or ETFs on the New York Stock Exchange or the Nasdaq. Therefore, right off the bat, that tells you that you cannot invest in penny stocks, you cannot invest in foreign stocks unless they trade through ADRs, and you cannot invest in stocks on the over-the-counter exchanges.
You can also invest in cryptocurrency, without commissions, through the Robinhood app if it is available in your state and currently this includes Bitcoin, Bitcoin Cash, Dogecoin, Ethereum, Ethereum Classic, and Litecoin. Robinhood plans to have this deployed all over the US. Check your state and see if it is available there.
Robinhood also now allows you to buy and sell options free of charge. So what this means is that there are no mutual funds available on Robinhood and there are no penny stocks or over-the-counter stocks.
Requirements To Open An Account In Robinhood
What are the fees associated with a Robinhood account, and what are the requirements?
Well the only requirements is that you do have to be a US investor, 18 and up, but beyond that, there are no fees associated with Robinhood.
It is completely free, no minimum account balance, and no commission cost for trading.
Robinhood Review: Pros And Cons
Okay, so what are the pros of this platform? There are pretty much two of them that I see.
Completely free: No Barriers To Entry In Investing
100% free: First of all it’s 100% free, which really lowers the barriers to entry to get started with investing. Traditionally if you wanted to open an investing account, it might be a $500 or $1000 minimum balance but with Robinhood, it is $0, you can get started with pretty much nothing.
In the comments, one user of Alabama with 19 years old could start operating with twenty dollars. It is easier and provides a faster ROI than other brokers where you already are paying commissions for the operations.
Streamlined Dashboard And Interface Application
Simple interface: The second pro for them is the fact that it has a very simple interface
pretty much anybody can jump on there, get started, and understand what it is they are doing but that in and of itself is also a con because the platform is extremely basic. And for any investor out there that’s really doing a lot of research. You are going to be extremely limited by this platform.
Regarding the offer of products, as of now they offer all the major stocks ETFs REITs and they have free cryptocurrency trading and free options trading as well.
you can invest in publicly traded stocks or ETFs on the New York Stock Exchange or the Nasdaq.
Portfolio Diversification Through Fractional Shares Acquisitions
In the past, you could only purchase whole shares of stock, so there are no fractional or partial shares available. And one platform that does offer both of these things, they offer a DRIP and they also offer fractional shares is M1 Finance, this is also a completely free platform and have reviewed it thoroughly in this link with a good result in my evaluation.
However, now Robinhood offers to possibility to acquire fractional shares. You would be paying, so to say, just one dollar for a small portion of a share, even if the price of that share is of a couple of thousands dollars. This feature is also included with Charles Schwab and Interactive Brokers.
We like to have this ability. You may position yourself with a quite diversified stock of shares in your portfolio, allowing you to purchase a plethora of other fractional shares even if you are not in position to perform a huge investment of money.
Promotions Offered: One free share
Very versatile: Accessible Through Desktop And Mobile Application
Limited Platform: But Streamlined Enough For Smart Investors Who Perform Quick Operations
So that right there is the first con I see for Robinhood. That platform is extremely basic
and I have used Robinhood before. I still have some investments with Robinhood but what I would find is I was doing all of my investment research on other platforms
and in this website.
It is fine if you come to this website or somewhere else to do your research and then you move to Robinhood dashboard to perform the actual operations as Robinhood does not have all the bells and whistles of other brokers.
I was only using Robinhood to buy and sell my shares and I really, would rather have the ability to do that all in one place where I’m on an app that allows me to do research and learn about investments and then do my transactions as well.
Limited Securities: No mutual funds or bonds
Another con for some is the fact that Robinhood does not offer mutual funds so if you are looking to invest in mutual funds you are not going to be able to do that through Robinhood.
No retirement accounts
Now a big con is the fact that they do not offer retirement accounts and this right here is a huge problem in my opinion because you cannot open any type of retirement accounts.
You can’t do the self-directed Roth IRA or a traditional IRA through Robinhood and I think a lot of people don’t understand the difference here between investing through a retirement account where you can be tax sheltered or investing through a traditional brokerage account where you’re paying taxes and you’re paying at the maximum rate in some cases.
So really educate yourself on investing through retirement accounts if you are a long-term investor, especially as a young person and understand the advantage of investing and being able to do so through a retirement account.
This means that if you are looking to open up any retirement accounts like Roth IRAs or IRAs then definitely you cannot do it with Robinhood. This is because as of now, they do not have any tax sheltered accounts so just don’t even bother with that kind of accounts so just plan on using Robinhood for all the different types of investments that don’t involve a retirement account.
No pre-built portfolios or social trading options
Another con is that there are no pre-built portfolios with Robinhood, so you can’t really go on there and start investing in a portfolio that was built by somebody else. They’re putting all of that power in your hands to decide what you’re going to be investing in and you also really can’t build a portfolio or automate that process at all.
No Dividend Reinvestment Plans
Another con is that Robinhood does not offer a DRIP or dividend reinvestment plan. A lot of other brokerage accounts out there allow you to reinvest your dividends automatically and Robinhood does not do this.
No Automation Of Investments: Very manual
You can’t automate deposits into your account, you can’t automate investments. Really, it’s as basic as it gets here with this Robinhood platform, and that is the advantages that some
of these other platforms offer out there, it’s the fact that you can automate your contributions or automate your investments, or automatically reinvest those dividends
that are paid out by the stocks you’re investing in.
If you plan on doing any type of automated investing where you don’t have to do much at all don’t use Robinhood for this kind of stuff because as of now everything is fully manual with them and that’s just how it is.
Robinhood only offers the very basic order types. If you are somebody who’s looking for the more complex order types, you’re gonna wanna look somewhere else but for the most part these order types are all you would need as a beginner.
Not Many Research Options Without The Gold Package
How Does Robinhood Compares With Other Brokers?
If you guys are on the fence between Robinhood and maybe something else, I would highly recommend taking a look at M1 Finance because in my opinion that is a superior platform and M1 Finance is my favorite investing platform out there for beginners who are not looking to pay for commissions when they are trading. So that review is linked up here.
For Whom Is Robinhood A Good Platform?
Moving on for whom is Robinhood a good broker and who is it not for, let´s see.
Robinhood is a good platform for beginners who are looking for a very basic investment platform but like I said, I would recommend doing your due diligence looking around at a couple of different platforms, particularly M1 finance.
Also it is good for investors that already arranged a portfolio and have a strategy under execution, they just want a streamlined platform as they do research elsewhere
Who is Robinhood not for?
It is really not good for the research-oriented investor. If you’re looking for candlestick charts, if you’re looking for more information about companies, if you’re looking to do fundamental analysis, you really can’t do any of that here with the Robinhood app.
You’re going to have to do that on different platforms and you’re probably going to be disappointed with that very basic platform.
But understand that is what Robinhood was built for, it was meant to be the most basic
and simple investing platform out there. So I’m really not saying it’s a bad platform, it was just built to be very basic for beginners and if you’re a little bit more advanced as far as investing goes, then you’re probably not going to be happy with Robinhood.
How Does Robinhood Make Money?
You might be asking yourself, well how does Robinhood make money?
What they do is they offer a feature called Robinhood Gold, where you are offered margin, you can buy stocks on margin, and you can also have after hours or extended hours trading and you also have the availability to have instant settlement with your funds
rather than waiting for funds settlement when you are selling your position.
Typically you would have to wait for those funds to settle to withdraw them or to reinvest them, but Robinhood can offer that instant settlement with their Gold Package.
So that is how Robinhood is actually making money.
Now let´s study below their Gold package. For only five dollars, it offers you much more options.
If you guys are curious about different investing platforms out there and you’re doing your research, I’ve linked up to all the different reviews that we have done so far.
So I do encourage you to shop around, look at the different options out there, and really consider the features and benefits of each investing platform and then figuring out which one really best suits your needs.