If you’re just getting started with investing, you might be wondering whether the investment app Robinhood is good for beginners. The answer is relatively complex. Some things about Robinhood make a good fit for beginner investors, whereas other parts are more challenging.
Let’s explore the benefits and drawbacks of Robin Hood for beginner investors.
What’s good about Robinhood for beginners
One of the best things about Robinhood for beginner investors is the fact that the app is very easy to use. Legacy investment platforms usually offer the same stocks and ETFs that Robinhood does, but their interfaces can be clunky, and you may need to know a lot of financial jargon to understand them.
Robinhood makes investing super easy. You download the app, set it up, and search by the name of a company. You can then invest money in the stock of that company. The app also allows for investments in cryptocurrencies, which draws many new investors to the platform.
Another nice thing about Robinhood for beginners is the fact that applying for an account is very easy. You can do it in a few minutes, and you don’t need an a minimum amount of money to get started. Many traditional brokerages require minimums that could be $100 or even $1000, and opening an investment account often requires physically going into a branch, and potentially spending an hour or more working with a representative in person.
To Robinhood‘s credit, it has made the process of starting an investment account very easy. All of the aspects of providing identification, connecting to your bank, etc. and be done online. You can decide to download the app and start making investments within perhaps one hour.
One final thing that makes Robinhood good for beginners is the presence of an active community. There are many discussion forums for Robinhood users, and Robinhood itself publishes simple investment tutorials for beginners. That makes it easy to learn financial basics, and then to put them into practice using the app.
The downsides of Robinhood for beginners
That said, there are some downsides to Robinhood for beginner investors. The biggest one is the fact that Robinhood is reportedly set up to encourage frequent trading. This can be good if you’re practicing and just getting the hang of investing basics, and you want to make lots of tiny investments to learn the process.
For the long term, however, frequent trading can often lead to lower returns. Some beginner investors may be better off putting their money in a boring but reliable platform like Vanguard. If you feel like you’ll have trouble resisting the urge to trade frequently, Robinhood may not be the best fit for you.
Robin Hood is also optimized to provide a lot of information about your investments. Again, this can be great if you’re using the app to develop some basic financial literacy. If the app’s frequent alerts, however, cause you to make rash investment decisions or to move frequently in and out of investments, that can be a negative thing. It’s possible that in the beginners would have more trouble avoiding these temptations, since they’re less used to managing constantly-changing investments.
The biggest issue with Robinhood for beginner investors is the fact that it offers a relatively limited number of investment account types. Currently, Robinhood does not offer any retirement accounts. For many new investors, putting money into an IRA or 401(k) may be a good choice (check with your own advisor and accountant first, though). Taxable investment accounts like those offered from Robinhood may not be the best choice for some investors.
The Bottom Line
In summary, Robin Hood‘s ease-of-use, its lack of minimum balances, its simple interface, its community, and its emphasis on investment in individual, recognizable securities can make it a good choice for beginners.
On the other hand, beginners who would be best served putting money in a retirement account can’t do that on Robinhood. If you’re the kind of investor who has challenges resisting frequent trading, or seeing the balances of your investments fluctuate frequently, Robinhood may not be a good fit either. A traditional brokerage that sends you a statement once per month and that deliberately makes trading more challenging could work better.
That’s why it’s essential when considering Robinhood or any other platform for investment to talk to a trusted, professional advisor before making a leap. Robinhood can be a great fit for beginners, but you have to understand all of the considerations as they relate to you personally to get the full picture.