When I tell people that they should start investing earlier rather than later, a common response I get is "How?" Today I introduce you to a relatively new investment brokerage that has quickly become my favorite - Robinhood.
What is Robinhood?
Very much a newcomer, Robinhood launched onto the online brokerage scene in late 2014 on the back of venture capital (Notable backers include Jared Leto, Snoop Dogg, Linkin Park, and Nas). The idea was to become the brokerage for the new generation who are constantly connected, smartphone-obsessed and shall-we-say, too poor to pay up to $10 per trade through the traditional brokers. The company claims
"Our mission is to democratize access to the financial markets."
Despite its catchy name, Robinhood has nothing to do with the heroic English outlaw who robs the rich and gives to the poor.
What type of investments products does Robinhood offer?
Robinhood offers traditional taxed brokerage accounts. Currently they do not support joint, custodial or IRA accounts. You can trade U.S. registered securities (Stocks and ETFs) and they are in the process of expanding to Australia.
How does Robinhood work?
Robinhood works similar to other brokers you may be familiar with: you open an account, you deposit some money, and then you trade securities with the money in your account. However there are 2 major selling points:
- Commission Free - $0 COMMISSIONS!!! $5-10 trade commissions may not seem much when you are trading tens of thousands of dollars, but for individual investors like me who are trading a few hundred dollars at a time, those $5-10 adds up.
- Mobile-centric design - Currently Robinhood is only available as an iPhone or Android app. As you can see in the images taken from the iPhone app below, they have put a lot of work into making the traditional stock trading experience not only compatible with, but enjoyable to use on a mobile device.
How can they offer FREE trades?
Robinhood makes money by collecting interest on your uninvested funds. There are plans to support margin accounts in the future. But for now, Robinhood operates much like a silicon valley startup - thriving on venture capital money.
Robinhood is designed for you to do everything from signing up for an account, making your first trade to accessing your account statements all on your smartphone. I applaud the Robinhood team for brilliantly transforming what usually requires multiple large monitors to properly display onto the mobile form factor. The app is really fluid and I have yet to encounter any bugs. It is quite a beautiful piece of software. In fact, you don't have to take my word for it, the largest company on earth - Apple, awarded Robinhood with their Apple Design Award.
- Expanding features: since launch, Robinhood has consistently expanded its offers to become more competitive with full-featured traditional brokerages. Recent additions include: limit and stop orders, an Apple Watch app, automatic deposits and a brand new Android app in August of 2015.
- Paperless experience - from sign-up to your first trade, no trees were harmed.
- Did I mention? $0 COMMISSIONS!!!
CONS - some if not all will likely be addressed in future updates.
- Lack of different account types. For example, no IRA accounts.
- No Broker-to-broker transfers. As of this posting, Robinhood does not support Automated Customer Account Transfer Service (ACATS).
- Lack of a Dividend Re-Investment Plan (DRIP).
- Despite Robinhood's beautiful mobile interface, some information is just better viewed on a bigger screen. Currently the only way to access the platform is via a smartphone.
- $0 commission may encourage frequent trades - which is a poor choice for most investors.
- Questionable sustainability - Robinhood isn't the first company to try $0 commission trading, remember Zecco?
My personal experience with Robinhood
I've been a customer of Robinhood since December of 2014. Since that time, I have slowly transitioned to using Robinhood for all new non-IRA trades. I don't having a lot of free cash lying around to invest with so the $0 commission really makes all the difference. The iPhone app is brilliantly designed and a pleasure to use. In fact, I cannot wait until Robinhood supports ACATS and IRA accounts. As soon as that happens, I plan to consolidate all of investing with Robinhood.
Should you try Robinhood? WHY NOT?! Sign up at Robinhood.com