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Since its launch in 2013, Robinhood has become a popular way of investing in stocks and exchange-traded funds (ETFs). The app’s big selling point is its commission-free structure: you don’t have to pay a fee to execute trades with Robinhood.
But while free trades are great in theory, they come with several downsides. Here are several reasons why you may not want to invest with Robinhood despite its enticing commission structure.
1. Lack of Integration With Other Apps
We’ve consistently extolled the virtues of using personal financial management apps like Mint, Quicken, and Personal Capital. They help you keep a better handle on your financial life. You can use them to pay down debt, track spending, and budget for future expenses.
The apps will sync with your banks, credit cards, brokerages, and other financial services; you never need to enter a transaction manually.
Unfortunately, Robinhood does not integrate with any of them. Given how much your portfolio can fluctuate in value, entering the figures yourself is inefficient and time-consuming.
2. Unshared Interest Profits
Modern brokerages double as giant lending organizations. They use the cash balances in clients’ accounts to fund margin accounts and buy low-risk bonds.
Most mainstream brokers (think TD Ameritrade, Interactive Brokers, Charles Schwab, et al.) pass on some of the profits made using those cash balances to their customers in the form of interest payments.
Robinhood doesn’t—it keeps all the money for itself. It’s one of the ways the company covers the cost of offering free trades. With interest rates expected to rise over the coming months and years, you could be missing out on a significant revenue stream if you have a sizeable portfolio.
3. Delayed Stock Quotes
If you read Robinhood’s FAQs or independent reviews of the service, you will see that the app has real-time quotes.
That’s only half true. Yes, your orders will always be completed at the real-time price, but the charts and data you see on screen are often delayed. This will prevent you from getting in and out of trades in the most efficient manner.
There are a few factors at play. Most notably, Robinhood uses the same provider as sites like The Motley Fool, Seeking Alpha, and StockTwits for its quotes. It’s cheap, barebones, and limited to a handful of exchanges. Robinhood does this to save money.
If you have an account with another broker, open the same stock on both apps and you’ll see the differences for yourself.
4. Poor Customer Service
Robinhood’s customer support is notoriously bad. Users complain of waiting weeks for an answer in the app’s Help section, lengthy queues to speak to someone on the phone, no responses to emails, and a general lack of urgency to responding to important issues.
In ordinary circumstances, poor customer service might be forgivable in a free app. However, when vast sums of money are involved, clients deserve better. A recent round of funding valued Robinhood at $5.6 billion; we’re sure they could hire a few extra reps easily enough.
5. Unimpressive Watchlist Options
A watchlist is a customizable list of stocks that you want to keep an eye on. They are an essential part of planning your investments; they let you quickly see whether specific parameters have been hit, and consequently, whether it’s a good time to buy your desired asset.
Most brokerages’ watchlists are feature-rich. For example, you can create multiple lists for different stocks, opportunities, or ideas. Normally, you can also sort your watchlist in various ways such as by price, volume, bid price, and other key indicators.
Robinhood doesn’t offer any of those features. You can’t even sort your list alphabetically (though at least you can reorder your list manually). The lack of watchlist features makes the app unsuitable for serious stock research.
Instead, it’s advisable to use free watchlist tools from companies like Yahoo Finance, MarketWatch, or other financial sites.
6. Basic Charts and Reports
The Robinhood app falls flat in a few other ways when compared to other major brokers.
Until September 2018, Robinhood only offered simple line charts for each stock. For serious investors, they are inadequate; line charts only show the closing price for each set time period.
Now, you can also access candlestick charts. It’s an improvement—they show opening prices, closing prices, and session highs and lows.
But you still can’t customize the charts. Nor can you overlay key technical analysis indicators such as moving averages, Relative Strength Index (RSI), On-Balance Volume (OBV), or Bollinger Bands.
Again, in recent months, Robinhood has increased the number of reports available to users. Now you can read buy/sell/hold commentary on various stocks from Wall Street analysts, and you’ll also be able to see Morningstar’s buy and sell summaries.
However, the reports and analysis still falls far short of what you’d find on regular discount brokerages. They will typically provide access to a range of third-party content such as free subscriptions to paid newsletters, CFRA Morning Briefings, Market Edge, and more.
Note: Remember, if you don’t research stocks thoroughly before purchasing, you’re not investing. You’re gambling.
7. Lack of Account Types
Robinhood only offers standard, individual investing accounts. You cannot open a joint account, trust account, custodial account, Individual Retirement Account (IRA), or any other type of tax-efficient savings account.
Therefore, it’s not a good option if you’re investing for long-term goals, for a child, or as a couple.
Note: If you’re approaching retirement, there are many web apps you will find useful.
8. Lack of Investment Types
Robinhood only lets you invest in four types of assets: US exchange-listed stocks and ETFs, options contracts for US exchange-listed Stocks and ETFs, four cryptocurrencies (Bitcoin, Ether, Litecoin, and Bitcoin Cash), and American Depository Receipts (ADRs) for 250 global companies.
It might sound like a lot, but you’re missing out on access to many other types of investments, including: over-the-counter equities, foreign stocks, mutual funds, bonds, fixed-income assets, and foreign exchanges.
Perhaps most concerning is the lack of bonds. Spreading your investment across multiple asset categories is one of the best ways to reduce risk to your portfolio, but at the very least you should hold a mix of equities and bonds.
Should You Avoid Robinhood?
To be fair, Robinhood is definitely a great way for new investors to get their feet wet in the stock market.
However, it’s important to know that Robinhood’s free trades come at a price, and in a lot of situations Robinhood is an unsuitable investment broker. Once you’ve built up some knowledge and feel confident, it’s worth opening an account with a traditional discount brokerage elsewhere.
If you’d like to learn more about investing, check out our articles on the best investment apps for absolute beginners and virtual stock market games that will teach you the basics.