8 Reasons Why You Shouldn’t Invest With the Robinhood App
Whatsapp Pinterest
Advertisement

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 6 Easy Tools for People Who Hate Managing Finances 6 Easy Tools for People Who Hate Managing Finances Do you hate managing your finances? Does writing out a budget fill you with dread? Check out these easy tools that make the process much easier and more enjoyable. Read More 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 The 10 Best Finance Sites to Help You Stay on Top of the Market The 10 Best Finance Sites to Help You Stay on Top of the Market Looking for the best finance websites to keep you on top of the market? Here are the best sites for news, investing, and more. Read More .

6. Basic Charts and Reports

The Robinhood app falls flat in a few other ways when compared to other major brokers.

Charts

bollinger bands example chart

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.

Reports

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 The 7 Best Web Apps For People Approaching Retirement The 7 Best Web Apps For People Approaching Retirement There's more to retirement planning than just a financial savings plan. Yes, money is important, but don't forget that there are other important things too. Here are seven apps to help you plan. Read More 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 The 5 Best Investment Apps for Absolute Beginners The 5 Best Investment Apps for Absolute Beginners Want to start investing but have no idea where to begin? Check out these investment apps perfect for beginners. Read More and virtual stock market games that will teach you the basics 5 Virtual Stock Market Games That Help You Learn How to Invest 5 Virtual Stock Market Games That Help You Learn How to Invest Looking to practice and learn about investing? From simulators that feel incredibly realistic to user-friendly games, here are five stock market games that will prepare you for the real thing. Read More .

Explore more about: Investments, Personal Finance.

Enjoyed this article? Stay informed by joining our newsletter!

Enter your Email

Leave a Reply

Your email address will not be published. Required fields are marked *

  1. Ronnie Spadola
    October 23, 2019 at 8:44 pm

    Sounds like the person who wrote this is the competition. So at the end they say if you like to learn more check out OUR articles. The comments are all ads for others. Like wtf is going on? No one has any integrity anymore. Its so funny. Same people going around lecturing the rest of us on how great they are.

  2. Margaret
    September 24, 2019 at 6:32 pm

    I use Robinhood for speculative trades where I am not investing much money. I can buy $10 worth of a little company's stock without the brokerage fee. If I had to pay, say, $3 to buy $10 worth of stock, I would lose too much to the brokerage. Otherwise, I am not very happy with Robinhood. I find that on the desktop/browser-based version, my stock transaction history does not show ALL of my transactions, only most of them. Since I must balance my own records at least daily, this has undoubtedly cost me sometimes when I did not realize a particular trade has executed. To be fair, I do get emails every time a trade executes, but it is more convenient to look in the history online. Besides, the emails often do not contain enough details about the trade. The phone app is more reliable about showing the history, but the phone app crashes frequently when I try to look at stock options, especially if the options have high trading volume. From a software design perspective, they did some user interface stuff really well, but when you get to the options screen, there is a fatal design flaw (which I suspect has something to do with the app crashing so much there): I get to wait while the screen scrolls up and down, up and down all by itself until the program figures out how to display the options closest to the current stock price. Besides the fact that it is very slow to settle around the current price, why whould I, as the user, be watching all this? It should figure out the current price and list of options for that expiration date BEFORE it shows me the screen, and they really need to optimize performance here.

  3. Rob
    September 8, 2019 at 6:07 am

    Robinhood gives you lower dividends on the same shares than if you'd bought the shares through a normal share trading platform that chargers you for making a trade. So if you were investing for the long term then you are better off going elsewhere.

  4. CC
    May 28, 2019 at 10:29 pm

    You can hold invest in a mix of bonds and stocks... just invest in bond ETFs. Bond portfolios on other brokerages are serious investments of often tens of thousands + dollars each? Clearly not Robinhood's target

  5. Poor service
    March 21, 2019 at 9:05 pm

    There is another reason: Their platform is not reliable. They close people's account all of a sudden and people can't access their funds and their support is not helpful. What kind of business are they running?

  6. Low quality website
    March 20, 2019 at 7:50 am

    Lack of integration with other apps, how is that a major negative and that's your first argument?

  7. Anne Marie
    February 19, 2019 at 6:06 pm

    I was happy with RH until there were 2 unauthorized transactions on my account, one to sell a performing stock (sold and gone) and the other a $4000 transfer from my savings account (I was able to cancel the transfer and am keeping a watchful eye on my account). 6 days later I am still dealing with emails from anonymous RH "customer service" reps asking me to provide duplicate information, my account number and other personal information via email. I have asked for someone to call me each time I email them, only to be ignored and it has resulted in RH deactivating my account?? I don't claim to an investing expert by far and I get that this is low-budget/no frills trading, but come on, extenuating circumstances require a bit more hands on to resolve these serious issues.

  8. BRENDA Strickland
    December 26, 2018 at 5:15 pm

    Robinhood will not release my late husband funds!! Even though my attorney has contacted them. They closed his acct yet continue to charge a monthly fee for the gold level he chose. Ridiculous

  9. Michael
    November 26, 2018 at 9:48 pm

    Just wanted to chime in and say I'm very happy with Robinhood, and, like others have noted, Personal Capital and Robinhood work seamlessly together. Based on this article, MUO could benefit from stricter editorial standards.

  10. dragonmouth
    October 23, 2018 at 2:16 pm

    An uninformed article.

    Robinhood is designed for those that dabble in the market, not for serious traders/investors. The latter use sophisticated software which often costs hundreds of dollars. For what and who it is designed, Robinhood does a good job.

    • PMR
      March 13, 2019 at 3:42 pm

      I'll expand on this comment...

      Robinhood is designed for the MAJORITY of investors - those of use who drop $$ in to an account on a regular basis, want the ability to invest small amounts of savings in a variety of stocks, but not pay the fees that make this impossible at other brokerages. I make about 4x the average US income. I max out my retirement account and I put some $$ in to a savings account for short-term stuff. The $1500 a month I have left to invest in the market would be largely gobbled up by fees if I wanted to invest in a few securities each month. Assuming a $8 transaction fee - I'd be paying 2% of my 1500 if I wanted to buy 4 stocks. Who would do that to themselves? If I loose money then I take an even bigger hit when I sell. That'd be 4% or more total!!! Hell, I'm only hoping to make a decent 8% return, why start out in the hole?

      **Naturally, this doesn't apply if your NOT the typical investor - but most of us are just trying to find a better alternative to the savings account of the past. Robinhood is great for that.

  11. James
    October 21, 2018 at 5:17 am

    Did someone from eTrade write this article? Half of it is completely false. Robinhood does actually give you interest. Do your research next time before you spew nonsense and slander.

  12. Joe
    October 20, 2018 at 4:33 pm

    Robinhood is much worse. They say they are fee free but they charge a mysterious extra on each quote. I inquired about it twice, said they would get back to me but never did.

  13. Sw
    October 19, 2018 at 3:39 pm

    Wow this article is horrible! Tsssk tsssk for posting such a poorly educated review! BTW do your homework before u provide such advice. Personal Capital works just fine and there are tons of tools available if someone really needs advanced charting ect... You really missed the boat on how to properly review this app and company. After reading this I really hope u don't provide trading advice!

  14. JP
    October 19, 2018 at 11:16 am

    How recently have you done any research for this article? Robinhood has been linked to my Personal Capitol account and automatically updates itself for the past several months with no issues. Maybe you should investigate things a bit further and ensure you are not providing false information?

    • Jason
      October 19, 2018 at 2:24 pm

      Also, it isn't Robinhood job to integrate with mint, etc. They provide a very easy to integrate set of API's, if financial trackers don't support it then it is because the financial trackers doesn't have good developers. ?