Does Robinhood Lead to Investing Addiction?
I do believe Robinhood is a game changer for those seeking low cost entry into the stock market. It is a highly enjoyable platform, but does it have a dark side?
Quick Swipe Investing
We have written a lot about Robinhood investing over the last year. I do believe it is a kind of game changer for those seeking low cost entry into the stock market. It is a highly enjoyable platform on many levels.
But, with any new technology, one should ask, is there a dark side? Does it have the capacity to distract us from our core investment values? We explore this and more in the post.
What is Robinhood?
We are not talking about a guy in green tights frolicking through the forest and robbing the “rich” to give to the “poor”. But, if used properly, the platform can save a person thousands of dollars in trading commissions. First, for those who do not know what Robinhood investing is, please check out our earlier post and review of the platform:
Here is a quick snapshot of what Robinhood offers:
Zero costs/fees to trade stocks, ETF’s, options etc.
Easy to use and fun online platform, perfect for mobile
Great way to slowly build positions in desired companies, saving hundreds in fees
Again, the service is truly free, no hidden fees
Here is how it fits into my overall portfolio picture?
For me personally, Robinhood is a 10% and no more of assets thing. What I mean is, most assets should be kept in traditional 401k’s, real estate, IRA’s, Roth IRA’s, etc. You know, the boring old tried and true stuff.
Robinhood is fun to me. It is a chance to take no more than 10% of assets and buy dividend stocks, ETF’s, and make a few fun “gambles” on hot stocks like Tesla. Therefore, it is a learning tool. A way to learn more about interesting companies, investing and the world through hands on experience. I get to learn, perhaps make a little money in the long run and slowly build positions commission free.
I would not be able to have this “fun” money account with a traditional commission based service. There would be $5–7 trading fees every time I took an action. There is an immediacy to Robinhood. The platform is very modern and simple to swipe!
Are we swiping too much?
This brings me to the potential dark side. Investing in individual stocks and options is highly risky and volatile. I do not believe most people should use a platform like Robinhood for the majority of assets that will go to retirement. It becomes too easy to swipe around and either buy or sell on impulse. Remember a key aspect of building wealth is getting out of your own way.
I tend to be more of a buy and hold type investor. I also seek high quality dividend stocks. That said, I probably tend to buy a little too much through Robinhood because in a way it can be fun and exciting.
Robinhood Initial Public Offering
Robinhood appears to be preparing for an IPO. This would give investors the chance to actually invest in Robinhood itself.
The push for an IPO comes after five years in business.
The company has solid earnings and revenue thanks to its Robinhood Gold subscription service.
The company makes money by collecting interest on funds that are stored with it by investors.
Robinhood doesn’t take out fees from its users that trade via its service.
This may not seem like as a strong of a way to make cash as adding transaction fees, but Robinhood gets around that due to its large number of users.
The company currently has over 5–6 million users, which is a large amount for it only having about 250 employees.
A Robinhood IPO may also make sense for the company as its value has grown to a total of about $6 billion.
The main concept here is to consider the platform for a couple things. First as a game changer in terms of reducing fees for the average investor. Second as a potential platform for building your own low cost portfolio of stocks. But remember it is tempting to swipe on impulse. And third, consider the company itself as a future investment.
Also keep in mind that this platform should only be used after all other fundamentals are well managed. For example, solid budgeting, emergency fund, employer sponsored 401k etc.