Is the Robinhood investment app a good way to purchase stocks? -Alex K. ’20, risk management and insurance major
Erkis: Robinhood is popular with students since it’s easy to use and has no minimum investment. You can transfer money to your Robinhood account and easily purchase stocks, options, Exchange Traded Funds (ETFs) and cryptocurrency.
An ETF can own many types of assets and conveniently trades on a stock exchange. The flexibility of ETF investments means it is very important to read the prospectus before investing so you know what you are purchasing. The prospectus is the legal document that contains information about the ETF including what it will invest in, who is managing the ETF and the expenses paid by the underlying fund to the people managing the ETF. These expenses decrease your return on the ETF.
ETFs can be a low-cost investment, but it normally will have higher expenses than a similar mutual fund sold by an investment company like Vanguard, TD Ameritrade, Charles Schwab Corporation and Fidelity Investments. A mutual fund is an asset where an investment manager invests the money deposited in the fund for the benefit of the investors.
Robinhood does not have the option to purchase mutual funds using the app. However, you can purchase some ETFs run by the major investment companies using Robinhood. As we discussed in a previous column, it is better to start with more than just one or two stocks because the price of one or two stocks can go up or down quite a bit; this is called volatility. Owning many stocks is called diversification, which is a good thing when investing. For example, an ETF that owns all of the stocks in the S&P 500 Index is diversified, so it should go up and down by much less than just a few stocks.
Robinhood’s customer service is not as expansive as what is offered by the major investment companies. It is really more of a self-service choice. For example, there is not currently an option to speak with a customer service representative if you need assistance. If you would like better customer service and a more expansive choice of investments, then one of the major investment companies might be a better choice than Robinhood.
Lubomirski: I think part of what makes this app attractive to college students is the idea that an app seems more convenient and more relaxed, or less intimidating than the major investment firms. However, convenience should not be the reason for choosing any app over a firm such as Charles Schwab or Vanguard. In deciding whether to use Robinhood or not, I found that major investment firms also provide apps that function similarly to the Robinhood app. Robinhood is easier to get started but this benefit is offset by the lower quality of customer service and fewer investment options.
Nothing stated in this column should be considered investment advice or an offering of securities. Stock investing has risk and you should do your own research before investing. If you have a question that you would like answered, please send them to [email protected]
