Updated: Feb 15
Sorry guys, I am sure many of you are huge Robinhood fans, but I really am trying to do you a favor with this one...
For those of you that have not heard of Robinhood though, let me give you a quick rundown. Robinhood Markets, Inc. began as a financial services startup in 2013 that acted as a disruptor in the financial services industry. They revolutionized personal investing in the stock market by offering commission-free trading which was a first among similar investment brokerages. They gained popularity in 2016 with about 80% of its users being Millennials. Robinhood absolutely changed the game and led all the big investment brokerages to eventually get rid of their own commissions (which were typically $5-$20 at the time). Even though this was great for the Little Guy like you and me, it really did mean Robinhood shot itself in its own foot because they lost what made them unique.
Now you are probably asking yourself, is this guy just butt-hurt because his free Robinhood stock was a $3 company that no one's ever heard of? Well, while I would have much preferred to get Apple Stock, that is not my motivation for writing this post. Robinhood is a growing company, and because of that, they underperform compared to the bigger investment brokerages. Companies like E*Trade, Fidelity, TD Ameritrade, etc. all now have commission-free trading, and offer more in terms of reliability and tools to improve your trading. If you are going to trade individual stocks, which I don't recommend and will explain why in future posts, then you should use a more established brokerage.
What Large Brokerages Have, That Robinhood Doesn't
Reliability. While all Gen Z investors should only be trading for the long-term, many still use Robinhood for day trading. This is a disaster waiting to happen for multiple reasons, but specifically, because Robinhood cannot instantly execute trades regardless of volume. In my own experience, I had to wait 3 days for one share of a well-known company to be sold. For someone day-trading and following share prices by the minute, this can easily make the difference between striking gold and losing it all. Even for those who are not trying to be a Wall Street stock-picking pro, a delayed quote or inaccurate price can be devastating. Moreover, Robinhood has proven to not be able to handle high volume trading. The company suffered a system-wide outage on March 2nd, 2020, during the largest point gain in the Dow Jones's history. This meant that as the S&P 500 climbed almost 5%, traders could not open or close any trades. The system had another outage on March 9th of the following week. The larger brokerages do not typically have these outages during high volume trading because they have the systems to support this.
Resources. Most large brokerages have tools that can aid you in your investing. Whether you need to do research on a company using a stock screener or want to practice your skills with paper trading, Robinhood does not stand up to its rivals.
Various Account Types. As you will see me preach throughout this blog, I strongly recommend maxing out your IRAs and other tax-advantaged accounts because I believe in long-term investing. Robinhood does not offer any of these accounts and only allows you to invest through a post-tax account. Until Robinhood creates accounts like these, they will pale in comparison to their larger competitors who offer a range of products for the customer to use.
If Not Robinhood, What Should I Use?
*Disclaimer: I am not endorsing any of these products, only speaking from experiences that I have gained on my own investing journey.* I personally use E*Trade for my individual stock trades because they now have commission-free trading and awesome customer support. I find their mobile app to be very user-friendly (although it is not as pretty as Robinhood's) and in general, I have had minimal issues with the company. For my more long-term/retirement accounts, I prefer using Vanguard as I like the funds they offer and they have the lowest expenses that I can find. To practice trading stocks and see if you truly are the next Warren Buffett, I recommend you use TD Ameritrade's ThinkOrSwim paper trading platform. It is the most comprehensive paper (fake money) trading platform that I have used and allows you to make real-time trades with actual market data. They also have a ton of educational videos explaining how to invest and get yourself comfortable trading with actual money.
Do not feel limited by these choices, instead, do your own research and compare fees and services offered. There are many large investment brokerages who offer very similar products and I encourage you to find the one that works best for you.