Content of the material
- Best For
- Make ETFs Part of Your Portfolio
- About the Author
- Robinhood Fees
- Where Robinhood Falls Short
- Transparency and Reliability
- No Mutual Funds
- Margin Trading
- Does Robinhood Carry Index Funds?
- Pros: Where Robinhood stands out
- Free trading
- Account minimum and quick funding
- Robinhood Gold
- Fractional shares
- Robinhood investors are smarter than you think
- Robinhood Compared to Others
- How do ETFs Work?
- Our Most Popular Articles
- Free trading
- Options trading
- Customers who prefer trading from a mobile device
With an app offering free trades on stocks, options and even cryptocurrency, Robinhood has grown briskly over the past few years. It’s not just those features that appeal to newer and less well-heeled investors, and Robinhood offers an easy-to-use mobile interface, fractional shares (for purchases and dividend reinvestment), and low-cost margin loans as part of its Robinhood Gold program. Potential customers should balance those pros against limited free research, limited account types and a total lack of mutual funds. The value proposition is much less clear when other online brokers have moved to a no-commission model and yet offer better features.
Still, Robinhood is a solid option for those looking to execute a trade at the lowest possible cost.
If you’re looking for a comparable app, check out Webull, which offers similar and sometimes better features. Fidelity Investments and Charles Schwab are solid customer-friendly brokers that offer a ton of features as well as strong research and education.
Make ETFs Part of Your Portfolio
An ETF is a simple way to diversify your investments, and its transparency adds further protection. Investing in an ETF through Robinhood is simple, helps increase your net worth and adds liquidity to your assets. Please return to Benzinga for more information on investing, personal finance and much more.
About the Author
Cynthia Paez Bowman is a personal finance writer with degrees from American University in international business and journalism. Besides writing about personal finance, she writes about real estate, interior design and architecture. Her work has been featured in MSN, Brex, Freshome, MyMove, Emirates’ Open Skies magazine and more.
Services that feature roboadvisors are designed for investors focused on the long term rather than trading on a day-to-day basis. Investors are offered a selection of ETF portfolios that are monitored and adjusted automatically over time. They are another low-fee alternative.
Betterment charges management fees that range from 0.25% to 0.40%, compared with 1% to 1.5% for an average financial advisor. Both apps walk users through the process of setting up a portfolio of ETFs based on their answers to a series of questions regarding risk tolerance and investing preferences.
Wealthfront and Betterment offer diverse ETFs, from simple ones that track broad U.S. stock indices such as the S&P 500 to specialized instruments like emerging market and real estate investment trust (REIT) funds. Both platforms also allow for an easy setup of tax-sheltered retirement accounts, such as IRAs.
You can read more about Robinhood’s pricing on its fee schedule.
|Trading and commission fees||Stocks, ETFs, crypto, and options: $0 (there may be fees tacked on to stocks on global exchanges through ADRs)|
|Account minimum for brokerage and trading services||$0|
|Account maintenance fee for brokerage and trading services||$0|
|Inactivity, data fees||$0|
|Account closing fee / ACATs (automated customer account transfer service),outgoing||No closing fee, but $75 to transfer funds out of your account|
|Gold pricing (in-depth research reports, Level II data, access to margin)||For 30 days (plus $1,000 of margin): $5Margin for $1,000+: 2.5%|
Where Robinhood Falls Short
There are some points on which Robinhood could use some improvement.
Transparency and Reliability
In light of the lawsuits and accusations from account holders over the last couple of years, Robinhood has some work to do regarding its policies. It is still unclear whether halting trading of certain stocks, leaving investors stuck with shares or missing out on opportunities, was a one-off situation or could happen again.
In addition, charges from the SEC that Robinhood potentially makes money by executing your trade orders at a less-than-favorable rate show that the young brokerage may need to be more upfront about its practices. The company paid $65 million to settle without admitting or denying fault, Forbes reported, and noted that it had “significantly improved” its execution practices.
No Mutual Funds
Robinhood doesn’t offer mutual funds, the backbone of a diversified portfolio. You could trade ETFs, which are somewhat similar.
Although margin trading is available, you will need to pay a $5 subscription fee to access it, on top of the interest charges on the money you borrow.
Does Robinhood Carry Index Funds?Robinhood carries a variety of index funds that trade as ETFs. Users can buy or sell shares of these funds at any point during regular trading hours. Among other funds, Robinhood users can choose from index funds offered by Vanguard, SPDR and iShares. You will find both domestic and international index funds available on Robinhood.If you’re bullish on future Chinese growth, for instance, you can buy the iShares China Large-Cap ETF (FXI). Exploring the variety of index fund ETFs available on Robinhood will take some time, but you’ll also be introduced to a wide range of investment opportunities.
Pros: Where Robinhood stands out
Stocks, ETFs, options, and cryptocurrency. Check, check, check, and check! You can trade them all for free on Robinhood, and that’s a huge boon to investors, especially options investors. While investors can find free stock and ETF trades at most brokerages these days, the real differentiator for Robinhood is its free options trading.
As options traders know, it’s easy to rack up a huge bill if you’re trading in and out of the market. That’s because brokers charge a fee for each contract. That structure quickly piles on the costs. But at Robinhood? Zilch. It’s a great choice for options investors looking to get into the market.
Of course, beyond all these freebies, Robinhood allows you to trade some cryptocurrencies commission-free, too. As of our last count, you can get access to some of the biggest, including Bitcoin and Ethereum, as well as the popular Dogecoin. And you’ll be able to do so 24 hours a day, seven days a week. You can buy cryptocurrencies directly and not via futures. However, you won’t be able to take custody of your coins, as you can at some crypto exchanges.
Account minimum and quick funding
With no account minimum, Robinhood adds to its investor-friendly cred, but it’s funding process is even better. If you’ve ever tried to fund a brokerage account before, you know it can take a while to get the funds into the account, even if you move the cash in right as you’re opening the account. That’s why Robinhood’s funding stands out.
Robinhood gets some money into your account immediately. By using instant verification with major banks, Robinhood allows you to avoid the hassle of traditional verification of reporting tiny deposits into your bank account. This means the app can move up to $1,000 of any deposit into the account immediately, with the rest following a few days later. It gets you in the game faster.
Robinhood Gold is the company’s program to provide research and allow you to buy securities with borrowed money, or margin. Robinhood charges $5 a month for the program, which offers research on about 1,700 companies from Morningstar, Nasdaq Level II quotes and access to margin loans.
The subscription price includes the interest on your first $1,000 in borrowing, and subsequent amounts are charged at an annual rate of 2.5 percent – very cheap. The broker charges loan interest to your account every 30 days. If you don’t have cash in the account to pay the monthly fee, it’s rolled into your margin balance. Potential borrowers should note that any margin account must have at least $2,000 in it, per industry rules.
With Gold, you’ll have access to a higher level of instant transfers, up to the value of your portfolio, starting at $5,000 up to a maximum of $50,000. So you can quickly move funds into your account, beyond even the basic $1,000 available to everyone.
Robinhood is great for fractional shares, whether you want to buy or reinvest your dividends. You’ll be able to place a trade with as little as $1, and you can buy as little as one millionth of a share. Robinhood also extends this program to stocks that may not be featured in partial-share programs at other brokers. Most stocks trading above $1 per share and with a capitalization of $25 million are included in the program. Robinhood’s program helps you get all your money into the market rather than having to save up enough to buy that high-priced tech stock.
Robinhood investors are smarter than you think
Robinhood investors get a bad rap, but these ETF holdings are quite astute. The combination of stalwart S&P 500 index funds and some more aggressive plays on specific themes is consistent with a solid asset allocation strategy. If you think that energy and precious metals will do well, then adding an energy ETF and a silver ETF in moderation to a core of S&P index funds and a well-diversified active ETF is a perfectly reasonable way to proceed.
Robinhood Compared to Others
|Types of investing accounts||Self-directed brokerage and trading||Self-directed brokerage and trading, IRAs and other retirement accounts, managed accounts||Self-directed brokerage and trading, IRAs and other retirement accounts, college and education savings plans|
|Fees||$0 trading commission fees; other fees may apply||$0 trading commission fees on online trades for stocks, ETF, and option trades; other fees vary||$0 trading commission fees on online trades for stocks, ETFs, and Vanguard mutual funds; other fees vary|
|Account fees||No annual fee||No annual fee||$20 annual fee, mutual-only account fees: $20 if under $10,000|
|Index funds||Over 2,000 ETFs||Over 2,300 ETFs||More than 100 Vanguard index funds|
|Mobile app||Robinhood is primarily an investing app||Investing app available||Investing app available|
|Customer service||Customer support available 24/7 via phone (request on the app)||Account support available 24/7 via phone||Reps available via phone 8 a.m. to 8 p.m. EST. weekdays|
How do ETFs Work?
ETFs make their money by adjusting their makeup, selling shares and hoping to increase the fund’s value. ETFs trade throughout the day, and they provide you with a high level of liquidity. Anyone can purchase shares in the ETF, increasing or decreasing their stake in the fund. Money not paid in dividends to shareholders goes back to the fund manager.
As the ETF adjusts its holdings, it must publish those holdings for public review. You know precisely what you are investing in at any time, and you can review the ETF’s activity. Even as the ETF hopes to earn money, it is accountable to the public, making your investment safer.
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