Robinhood Review

Robinhood is a glimpse into what every bro­ker­age should be in a mobile first world. It’s got a nice clear inter­face that makes invest­ing fun, in a way that look­ing at bank state­ments is the oppo­site of fun.

It’s bewil­der­ing that every bro­ker­age has­n’t yet down­loaded the app and copied it to improve their own mobile trad­ing offer­ings. I’m lit­er­al­ly shak­ing my head in dis­be­lief at my own banks as I write this.

The only chal­lenge I have per­son­al­ly, and for the Elephant’s Paycheck com­mu­ni­ty, is that Robinhood does­n’t yet sup­port div­i­dend rein­vest­ing. That miss­ing fea­ture unfor­tu­nate­ly makes Robinhood a shiny bauble for me (pret­ty, but not good for much), at least until they ship a div­i­dend rein­vest­ing fea­ture (which they say is com­ing).

TL;DR

If I were to write review of Robinhood that did­n’t reflect Elephant’s Paycheck, it would be sim­ple:

Robinhood is the app that every mobile bro­ker­age should have writ­ten. If you invest in the stock mar­ket, you should stop read­ing this and go down­load it. It’s legit, it’s free, and it’ll give you a glimpse of the future of trad­ing.

There is some real inno­va­tion in what Robinhood has done (inte­gra­tion with StockTwits & Robinhood Instant), and more com­ing.

Because they don’t charge trad­ing com­mis­sions, it’s easy to invest small amounts and get start­ed finan­cial­ly. Unfortunately, cre­at­ing a long term invest­ing habit is a bit hard­er and they don’t do any­thing to encour­age long-term habit changes for new investors who want to do more. This is so crit­i­cal, not for a trad­ing app but for the ‘peo­ple’. Building lega­cy wealth does­n’t hap­pen eas­i­ly. Robinhood helps any­one take their first steps towards cre­at­ing a bet­ter finan­cial life and I hope they do more to help cre­ate healthy long-term invest­ing habits.

The biggest ques­tion you’ll prob­a­bly have is how they make mon­ey — and they answer that right up front on their FAQ.

As I men­tioned above, the lack of div­i­dend rein­vest­ing makes it a non-starter for peo­ple using the Elephant’s Paycheck Blueprint to build long term wealth. While it is easy to rein­vest div­i­dends man­u­al­ly (because there aren’t any com­mis­sions for trad­ing), the prob­lem for mod­est investors will come in if you don’t get enough div­i­dends to buy a whole share. You’d have to wait for mul­ti­ple div­i­dend pay­ments until you save up enough to buy one extra share. All that time, it’s too easy to miss the oppor­tu­ni­ty to appre­ci­ate how your pay­check grows with each invest­ment.

While small div­i­dends don’t mat­ter so much from an absolute val­ue, each pen­ny rein­vest­ed has a big rel­a­tive impact (per­cent­age increase to your Elephant’s Paycheck). The Elephant’s Paycheck Blueprint takes a human approach to invest­ing. Using the metaphor of a port­fo­lio ‘pay­check’ and track­ing how it grows as an alter­na­tive track­ing the total port­fo­lio val­ue (which makes gut-wrench­ing adjust­ments accord­ing to mar­ket volatil­i­ty) max­i­mizes the pos­i­tive rewards that help to rein­force good invest­ing habits.

If you’re new to this blog, you might be inter­est­ed in a pop­u­lar post about met­rics that help you have fun invest­ing that I wrote for the fan­tas­tic div­i­dend site Sure Dividend.

Robinhood pros

• I love div­i­dends, so I’m putting this first. In the his­to­ry tab, you see upcom­ing div­i­dend amounts and the dates you’ll receive them. Simple, clean, and inex­plic­a­bly hard to find on a reg­u­lar bro­ker­age site.
• Free trad­ing means you can get start­ed mod­est­ly. Small invest­ments don’t neces­si­tate big returns just to over­come the trans­ac­tion cost. With a tra­di­tion­al bro­ker­age, if you buy a $30 share, and pay $8 for the priv­i­lege, at a reg­u­lar bro­ker­age you need about a 25% return just to break even.
• Robinhood Instant means that mon­ey trans­fers into Robinhood are avail­able to trade right away (with lim­its), no three day ACH delays. This is a seri­ous inno­va­tion, and they’re work­ing on sim­i­lar ease of use around mar­gin trad­ing as well.
• You can buy indi­vid­ual stocks, and aren’t lim­it­ed to ETFs or Funds (like with Stash). I like indi­vid­ual stocks, many do not. I like the way it’s easy to find out a lot about indi­vid­ual com­pa­nies, where­as I find funds/ETFs to be opaque.
• No min­i­mums to get start­ed. Amazing. They real­ly under­stand the impor­tance of remov­ing bar­ri­ers and help­ing peo­ple get start­ed. And since the UI is quite nice, it’s easy to get start­ed tech­ni­cal­ly as well as finan­cial­ly. What’s lack­ing is any­thing that helps moti­vate peo­ple to stick with invest­ing over the long-term.
• If you’re an expe­ri­enced trad­er, Robinhood will res­onate. It’s exact­ly what you’d think a bro­ker­age trad­ing app should be in the mobile age.
• Integration with StockTwits is like­ly a pre­view of what you’ll see more of in the future (in StockTwits sim­ply hit “add port­fo­lio” and it’s updat­ed so you can track your port­fo­lio. Really easy.) As I was tak­ing notes, mul­ti­ple times I wrote “great exam­ple of their tra­jec­to­ry”. I think Robinhood is real­ly inter­est­ing and very excit­ing. The oth­er com­pa­ny that comes to mind as a par­al­lel on the inno­vat­ing things they’re doing to help peo­ple get start­ed invest­ing is SparkGift.
• It’s on both iOS and Android.

Robinhood cons

• No div­i­dend rein­vest­ing.
• They’re not doing any­thing to make invest­ing more moti­vat­ing; so I don’t know if this will attract peo­ple who don’t trust banks, or who are “scared” of invest­ing. They’re not low­er­ing the emo­tion­al bar­ri­er to entry (the same way they have low­ered the finan­cial bar­ri­er to entry). They’re also not moti­vat­ing con­tin­ued par­tic­i­pa­tion (the way I think I am here with Elephant’s Paycheck and the way Stash does with auto-Stash).
• You have to buy whole shares of stock, you can’t just buy $50 of a com­pa­ny. And, you can’t auto­mate the process to invest $50/month as a way to build wealth.
• Email sup­port was a bit hit-or-miss, but they answered the phone right away.
• Phone sup­port didn’t give me the “con­fi­dence” I get from my bro­ker­age. This is a very per­son­al and sub­jec­tive thing. I’m old­er which affects my per­cep­tion and expec­ta­tions as well. I do trust Robinhood 100%, but if you’re an old­er investor you may have to put aside some uneasy feel­ings if you call sup­port (and I sug­gest that you do put them aside).
• I’m not a fan of some of the UI ele­ments and design choic­es. The card-based news items nev­er seem rel­e­vant or inter­est­ing, and it does­n’t feel very iOS-like.
• Doesn’t sup­port 1Password, which them means pass­words are going to be weak­er than they could be oth­er­wise.

What I bought

I bought 5 shares of $AFL (Aflac) and 19 of $ADM (Archer Daniels Midland), both of which pay div­i­dends this month (June)!

In closing

Pay atten­tion to the small details of what Robinhood are doing. The details are inno­v­a­tive in a sub­tle way. They seem to be designed to min­i­mize fric­tion. Minimizing fric­tion is what’s going to make it impos­si­ble for big banks to com­pete, and it’s going to be a fun fight to watch over time. (My mon­ey’s on Robinhood not the tra­di­tion­al bro­ker­ages.)

Also, I’m real­ly inter­est­ed in the inte­gra­tion with StockTwits and how they com­bine what they know you’ve done in your bro­ker­age (such as own­ing a spe­cif­ic com­pa­ny) with your social clout on the site. It’s going to change social invest­ing over the longer arc of time in ways that will deep­en Robinhood’s rela­tion­ship with mil­len­ni­als.

It’s free, it’s mobile, it’s fric­tion­less. what more do I need to say?

It’s the per­fect solu­tion for non-div­i­dend peo­ple who aren’t afraid of the stock mar­ket. And, I don’t give away ‘per­fect’ eas­i­ly.

I hope you like this review. I wel­come com­ments below and pri­vate mes­sages to dis­cuss.

Addendum

If you’re tech­ni­cal and use Gmail, you can use IFTTT to cre­ate work­flows that auto­mat­i­cal­ly pop­u­late a spread­sheet with your hold­ings to track your port­fo­lio (instead of hav­ing to track it man­u­al­ly).