If you’ve spent much time online, and particularly in the finance space, you’ve likely heard of Robinhood. It’s the no-commission trading app that’s changing the investing game for the regular Joe’s out there like you and me.
A little context should help illustrate why.
Historically, stock brokers charge a fee to trade stocks for you. You’d go to E*Trade, or Fidelity, or whatever broker and say I want to buy X number of stock in a particular company. They would say sure, that will cost you however much the stock costs, plus a fee for the trade, usually around $7-$10.
These fees aren’t a big deal if you’re trading in the thousands of shares, or thousands of dollars. But if you don’t have a lot of money to invest, or you’re just getting started, $10 might be a large percentage of your investment.
I think you should start investing as early as you can, with as much as you can afford, even if it’s only $20 per month. But you can see how investing $20 per month with a $10 fee cuts your investment power in half. Why would you make those trades? You wouldn’t, and neither would I.
Along comes Robinhood. They don’t charge a fee to make trades for you, so now your $20 investment each month can actually buy $20 worth of stock, or, if you invest like I do, $20 worth of index funds. No wonder the company has exploded in popularity.
How do they do it? They aren’t a charity, Robinhood absolutely makes money, but it’s too much to explain in this post. I’d suggest you listen to this podcast with Vlad Tenev, one of the co-founders and current CEO of Robinhood, to find out more.
The other thing Robinhood has done that’s incredibly valuable to the regular investor is fractional shares. Historically, stocks were traded in whole units. You bought 1 share, or 100 shares, or whatever number of shares you could afford. As I write this, a share of Amazon costs over $3,400. To own a single Amazon stock, in the past, you would need to have at least $3,410 (see the fee sneak in there).
Robinhood will let you invest whatever amount of money you have, in whatever stock you want. So if you’ve got $100 to invest, they’ll sell you 0.029 shares of Amazon. Or 0.25 shares of SPY, the S&P 500 ETF fund (currently trading around $400).
Full disclosure time, I don’t do a ton of investing with Robinhood yet. I don’t think you should invest much of anything outside your 401k and IRA until you have enough capital that you’ve maxed out those account contribution limits. I haven’t done so yet, so that’s where my investment focus is. But I have the app on my phone (it’s really slick), I’ve been on the platform, and I’ve thrown a little petty cash around because why not? It’s free to trade.
If you want to try Robinhood, go ahead. If you use my referral link to join, we’ll both get some free stock: https://join.robinhood.com/chrisc3887
What do you think about Robinhood? Are you already using them? Will you try them out? Let me know.