Based off of a recommendation from a friend, I recently started trading with the Robinhood brokerage app. I had been working off of Fidelity, which still contains the majority of both my investing account and an IRA that I started awhile back. I figured it wouldn't hurt to add a new account to my portfolio so I gave it a whirl. This has quickly become one of my favorite apps and is perfect for a dividend growth investor like me.
First things first, the draw to Robinhood and why I recommend it, is $0 trading fees. Traditional brokerage firms usually charge anywhere from $6-$9 every time you buy as little as one share of stock, which gets pretty expensive in the long run. Robinhood is able to get by without these fees because of a variety of reasons; including investing any money that is not used in someone's account as well as low overhead costs due to not having traditional brick and mortar stores. I don't really care how they do it as long as it’s sustainable and my money is FDIC insured inside my account (which it is).
So let me tell you why $0 trades are so freaking awesome for our philosophy at MonthlyCents:
Invest whatever you want, whenever you want. I used to wait to invest once a month so I could invest a large enough amount to make the trade fee a minimal percentage of my stock purchase (if you buy 1 share of stock at $80, and pay $8 to do so, you are giving away 10% of your money). So I would usually wait to have at least $1,000 to invest. Buying with regularity and paying trading fees is completely unfeasible for people who might have $1,000 to invest every 6 months. As we’ve discussed, we need to see progress to maintain motivation. And if we are only investing every 6 months, it has the potential to completely kill our motivation. We need to see some constant fucking progress every time we save as little as $50! No one wants to save money for 6 months without seeing any progress being made. With $0 trades, those of us who save $20, $30, $50 per paycheck can get that money to work right away by buying a share or two of stock, without giving any of our hard earned money to the brokerage. With each trade we make, we are closer to getting to our goal, so it’s important to maintain cash flow into our account whenever we can. So in this regard, $0 trades allows for an entire motivational strategy that wouldn't exist if we were paying per trade and had to invest a larger sum each time.
Another thing that $0 trades allow us to do is spread our money across multiple companies, therefore diluting our risk. It's inherently more risky (I didn't say very risky at all, but still more risky) to invest $500 in Coca-Cola than to invest $100 each in Coca-Cola, WalMart, Target, Procter & Gamble, and Chevron. That trade between 5 stocks would have been a whopping $40 in trade fees if done in a Fidelity account. Having no trade fees lends itself to the strategy I discussed previously for Beginners, where we choose 5 stocks and put 20% of every deposit into them to start your portfolio.
Another positive for Robinhood is that the mobile app is awesome. The functionality and appearance are both wonderful to use. I'll get into some of the features that the app provides. I didn't want to make the pictures too big, but you can click on them to enlarge:
Security: The app requires that you sign in once to get started, and then enter in a pin each type you open it. In other words, no one can pick up your phone and use your cash to put in an order for a piece of shit mutual fund! That was a poor attempt investing joke....they'd most likely just try to steal all your money and buy Miley Cyrus albums with it.
Account Overview: Again, this looks very nice visually.
Informs us of the basics:
Total Value in Account
Total Buying Power (cash available to spend)
Portfolio Overview: Updates in real time when the market is open. Nice red/green color scheme change for when our portfolio is up or down (of course we won't let day to day volatility affect our mood!). Easily change the time period between 1 day, 1 month, 3 month, etc. Scroll down on this page and you can see your stock holdings with a little graph of how they are doing for the day and the current price of each. It really looks slick, in my opinion, although the tiny individual graphs are hard to read.
Dividends Section (!): Of course, I am most excited about this section. I’ve only been investing on here for about a month, so I don’t have a whole lot of dividends on my list. I expect a couple more to start showing up in the next week or so. Obviously, this section is great for tracking the income we get and plan to get in the near future. Motivation in full effect on this screen! Fidelity buries dividend income within the “activities” section of their page. This is front and center in a section and I enjoy monitoring it.
Buy/Sell Button: Every time you search for a stock you want, there is a buy button that shows up automatically. If you already own the stock there will be a sell button as well. The default buying method here is "Market Orders" which is a minor inconvenience, but you can easily change that to put in a limit order price. There's something we haven't covered so I'll explain further:
Market Order - buys your stock (almost instantly) for the price that it’s offered in the marketplace by a seller.
Limit Order - what I recommend. Inserting the price at which you want to buy the stock. This limits the chance the stock jumps up 50 cents - 1 dollar (happens more when market opens at 9:30) and you getting stuck paying a higher price. This distinction is clearly more important when you are buying a larger amount of shares. If your limit price is too low and the market never reaches that number, your order will not be filled until it does (you can set your order to expire at the end of the day, or until it gets filled).
Okay, now it’s time for the cons of Robinhood:
#1 Money Transfer is slow. At Fidelity, I could transfer money and instantly have it available in my account to buy stock. Therefore, when the market crashes a day or a certain stock drops significantly down to a great price, I could just transfer money from my bank account and that instant be able to purchase shares. With Robinhood, it takes 2-3 days to transfer money, which is certainly a "1st world problem", but c'mon, there's a big difference between instant and 72 hours! To compensate for this, those of us who are fortunate enough to have a cash reserve for investing, it would be wise to maintain a cash balance within your Robinhood account for cases which I described. If you don't see this as a problem, curse my name and continue living your life J
#2 No website. For those of you who hate mobile apps and want a website to operate off of, Robinhood does not yet have a site to work with. The only thing you do online is actually sign up for an account, then its 100% mobile afterwards. I'd imagine the site is coming, but haven't heard too much news about it. This hasn't been a problem for me at all; I still use other sites for stock evaluation because I find doing so on a computer screen to be a bit easier than on an app (also see con #4).
#3 No retirement accounts yet. I already have retirement accounts set up elsewhere, so this also wasn't a big deal for me. They only offer taxable investing accounts as of now.
#4 Incorrect Stats (especially Dividend Yield). I don’t know why this is, but their dividend yield stats are almost always off. I’m not sure how they are calculating them, but they are different than every other site. I wouldn’t do my research on Robinhood, but that won’t stop me from doing all my trades with it. The information is generally easier to look at on a full computer screen. I find it easier to look at stock trends, find stats, and decide which prices are suitable for each stock outside of using the app.
That's it for cons. I think Robinhood is great. I recommend using it if you buy into our dividend growth investing path, because as I said, you can invest whatever you want, whenever you want and see the progress before your eyes. It really will motivate me to see my dividend payout schedule coming up in the next few weeks.
If you’d like to get started on this app, go to robinhood.com and fill out the information. They need your social security number, just like any other bank that you open an account with. After your account is set up, it goes completely to the mobile app, where you can make your first deposit and get started!
Full Disclosure: I am not being compensated at all for recommending Robinhood. Any brokerage site works pretty much the same, but I have chosen to use this one for the reasons above. Happy to answer questions about Fidelity as well!