If you're looking to get involved in the financial markets, there is no time like the present.
Step one is to get up to speed on what brokerage platforms are out there when you're ready to dip your toes into the water and start investing.
There are several options available, each with its own strengths and weaknesses. In this article, I will review two of the most popular options, Robinhood and Vanguard.
Robinhood is the original commission-free stock trading app. Users can buy and sell stocks, ETFs, options, and crypto through a simple beginner-friendly interface. Newer investors will likely find it very easy to get up to speed on Robinhood.
Vanguard is a brokerage with decades of experience serving clients. They go above and beyond what Robinhood offers when it comes to account types and educational resources. However, their interface is not nearly as user friendly.
Both online brokers are leading competitors in the field. Let's take a close look at the pros, cons, fees, and important features of both platforms.
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Robinhood Review 2022: Best Investing App? |
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Download Robinhood | |
Vanguard Brokerage Review 2022: Best Investing Platform? |
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Invest With Vanguard |
Robinhood is a very popular online brokerage service that is headquartered in Menlo Park, California. The company is highly regarded for its easy-to-use mobile application. The app offers commission-free trading so you won't have to worry about paying anything at all for your trades.
Robinhood's forward-thinking feature set is what sets this investment app apart from many of the slow-moving brokerages of the past.
For investors that are just getting started, the high share price of companies like Amazon might make investing feel out of reach. With the ability to buy fractional shares, Robinhood allows investors to invest in stocks on its platform with as little as $1.
For example, if you wanted to invest in Amazon stock, which is currently trading over $3,000, you can do so on Robinhood in $1 increments instead of needing to round up enough cash to buy a full share.
Long-term investors know the power of compound interest and are always eager to take advantage of the exponential growth that it has to offer. One great way to leverage compound interest in your portfolio is by reinvesting your dividends.
Robinhood investors will have two choices when it comes to dividend distribution. They can either receive them as additional cash in their Robinhood account balance or automatically reinvest the dividends into fractional shares of the company.
When you chose to take advantage of the DRIP or "dividend reinvestment program" you are essentially increasing the growth rate of your portfolio while decreasing the cash drag. Win-win!
On the Robinhood platform, you'll have access to various asset classes that you can take advantage of in order to create an investment portfolio that matches your needs and investment strategy.
Robinhood offers over 5,000 stocks for you to choose from. From large-cap names such as Amazon, Google, and Apple, to the smallest biotech names, Robinhood can cover all types of companies you may be looking for.
The company also offers numerous penny stocks for those with higher risk tolerance. Keep in mind these penny stocks do not trade via over-the-counter transactions. All stocks traded on Robinhood are available via U.S. exchanges.
Robinhood offers ETFs as well. An ETF is a pooled investment, bundling multiple securities together to align with a certain index, sector, or specific field of interest.
Robinhood offers options trading on its platform. Options give investors the right but not the obligation to buy or sell a security at a certain price. They are important investment tools to hedge risk in the market. These are valuable but complex investment instruments.
Options amplify gains as well as losses. They should only be used after an investor possesses a solid understanding of the risks involved.
For those looking to get into the world of cryptocurrencies, you can trade a limited number of digital currencies on the app.
It's important to note that any crypto bought on Robinhood and held within Robinhood must remain on Robinhood and cannot be transferred to any other accounts or wallets. However, if you use Robinhood's new crypto wallets, then transferring coins in and out of the platform is as simple as typing in the address. These investments are also not covered by the FDIC or SIPC.
Robinhood Cash Management is a program that automatically lets you earn competitive interest rates on uninvested money in your account.
This option ensures that your uninvested cash is working for you while you wait for your next investment opportunity.
Robinhood’s versatility and affordability seem almost too good to be true, but its stock referral program only makes it better.
First of all, when you sign up, you will get a completely free stock.
Then, invite friends to earn more free stocks!
The free stock is valued at anywhere from $3 to $225. There's a 98% chance of the stock will be valued between $2.50 and $10.00. And you can hold onto the free stocks for the long run, or turn around and instantly sell. It is all your choice!
Keep in mind that you are able to earn up to $500 in free stocks during a calendar year, so invite everyone you know!
Robinhood provides members with a highly detailed customer service help center with hundreds and hundreds of questions and answers. If members are unable to find the answer they are looking for, they can also email or request a phone call.
Both emailing and requesting a phone call are managed within the app under "Help" inside of settings. Members can expect an answer to their email within 1 business day or a phone call within 30 minutes.
While this may not be as convenient as a simple phone number that you can call, it is more efficient for Robinhood as many questions can be answered in the help center.
One main way that Robinhood makes money is through the fees that are collected through the Robinhood Gold account. This account, which allows increased access to after-hours trading and research, charges members a fee of $5 per month.
Fees can also be associated with Robinhood’s marginal interest charged to gold members who want to access lines of credit from the online broker. These fees are billed at the end of every month and deducted directly from the account's cash balance.
Vanguard is another investment advisor with exceptional online brokerage services. The advisor is based out of Malvern, Pennsylvania, and currently has $7.1 trillion in assets under management. The company specializes in mutual funds and ETFs that are key to its popularity.
As the largest provider of mutual funds and the second-largest provider of ETFs in the world, Vanguard is a great option for people who want to get involved in these securities. Vanguard offers several types of accounts on its platform as well.
The features and asset classes offered by Vanguard are fairly standard for large, well-established online. However, when compared to new and digitally native brands like Robinhood, Vanguard's offerings are much more robust.
Unlike Robinhood, Vanguard offers fixed income options through its brokerage account. You can choose from US treasuries, corporate bonds, municipal bonds, and others.
Purchasing bonds direct from the Vanguard brokerage comes with no commissions or fees. However, if you'd like to purchase a bond on the secondary market, a charge of $1 per $1,000 face amount ($250 maximum) will be applied.
Mutual Funds are a strong suit of Vanguard as it offers thousands of funds for you to choose from. Through a mutual fund, you can invest in hundreds and sometimes thousands of individual stocks and bonds at the same time.
Diversification is key to any successful investment portfolio and can often be achieved through mutual funds.
Vanguard Digital Advisor is a robo-advising account that automatically allocates your funds based on your money goals and aspirations. This advisor helps you reinvest dividends, reallocate investments, and make choices in line with your goals.
Planning for retirement can seem far in the future for many of us, but it is essential to plan for your later years early in life. That is why Vanguard feels so strongly about its diverse account types to help you better understand what you will need for a financially sound retirement.
Vanguard offers both traditional and Roth IRA accounts, 529 college saving plans, Vanguard 403(b) services, and annuity capabilities. These investments are focused on the long term but can offer significant benefits now for the investor such as tax savings and peace of mind.
Vanguard Client Services can be reached from 8 am to 8 pm EST on Monday - Friday. The number to reach client services is 800-662-2739. The ability to speak with a live representative and have a personal experience is a key factor to Vanguard's popularity!
Trades made over the phone will often cost you $25 to execute. If you are someone who has a smaller account and is making smaller trades, I would advise the online option. If you are more intrigued by an actual representative executing your trades, over-the-phone trading may be a great option for you!
Follow this link to see the full schedule for Vanguard fees.
Vanguard will apply a $20 annual fixed fee to all accounts below $10,000. If you are above the $10,000 threshold, this fee will not apply to you. You can also eliminate this fee by enrolling in electronic statement delivery.
To recap, both Robinhood and Vanguard offer top-notch services for all your investment goals. Robinhood specializes in stock trading and charges no commissions on any of the securities it offers. Vanguard has a focus on mutual funds and ETFs, which are vital to most investment portfolios.
In the end, it all comes down to your personal needs. While these online brokers are different and unique from one another in their fees, features, pros, and cons, they each have a very similar mission: lower the bar for entry to all investors and to level the playing field.
If you are looking for a sleek and easy-to-use mobile app, Robinhood is probably your best bet. They have the most beginner-friendly platform in the market. Additionally, they have a feature set tailored to beginners including fractional shares and dividend reinvestment.
If you are looking to invest passively, especially long term for retirement, that is exactly what Vanguard is designed for.
In our opinion, both of these services are accomplishing just what they set out to do. It is now up to you to evaluate which one fits your goals best and then take your pick. Happy investing!
