Looking to get involved in the financial markets? Right now is a great time to take the first step!
Step one is to get up to speed on what brokerage platforms are out there for you when you're ready to dip your toes into the water and start investing.
There are tons of options available, each with its own strengths and a few weaknesses. In this article, I will review two of the most popular options; Robinhood and Vanguard.
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.
| Product | Features | Overall | Price | Buy Now |
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Robinhood Review 2021: Best Investing App? |
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Download Robinhood | |
Vanguard Brokerage Review 2021: 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 for you to jump into the market.
Robinhood’s main goal is to open up the financial markets whether you're wealthy (lucky you!) or just have a small amount to invest. They achieve this by keeping costs low, which is a great deal for investors both big and small.
Robinhood's forward-thinking feature set is what sets this investment app apart from many of the other slower-moving brokerages of the past.
Believe it or not, it doesn't cost a penny to open a brokerage account with Robinhood!
This $0 account minimum policy is a key factor why the platform is among the top apps and appeals to so many people. It goes along with the company’s mission of opening the door for everyone that wants to get into the financial markets.
But wait, there's more good news! Along with the zero account minimum, Robinhood takes zero commissions!
While this feature seems like the default now, it's important to remember that Robinhood pioneered the commission-free investing movement and their success forced virtually all other brokers to remove their commissions.
This applies not only to stocks, but also ETFs, crypto, and options on the mobile application. Speaking of apps, the company offers a fantastic mobile application.
Here's more proof of Robinhood's strengths: the app recently won the Google Play Award.
What's more, I can speak from personal experience. Robinhood’s mobile app is easy to figure out for even the most novice investors. I found it to be quite user-friendly and easy to learn. It was my first experience with an investing app, and as a newbie, Robinhood worked very well for me!
For investors that are just getting started, the high share price of companies like Amazon might make investing in them feel out of reach. With the ability to buy fractional shares, Robinhood allows investors to invest in stocks on their 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 pony up enough 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 what to do with their dividends. They can either choose to receive them as cash added to 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!
Within the Robinhood platform, you have access to various asset classes that you can take advantage of in order to create an investment portfolio that matches your needs and philosophies.
Robinhood offers over 5,000 different 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 demographics of companies you may be looking for.
They also offer numerous penny stocks.
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.
There are ETFs for the main sectors in the market such as healthcare, technology, industrials, and Robinhood offer options for all of these. And again, let’s not forget the zero commissions!
Robinhood offers options trading on its platform. What is an option you may ask? Options give you (the trader) the right but not the obligation to buy or sell a security at a certain price. They are important investment tools to hedge your risk in the market but are complex.
Options bring increased upside risk as well as increased downside risk so they should only be used after use possess a solid understanding of the risks you are taking on.
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 must remain on Robinhood and can not be transferred to any other accounts or wallets. 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 still working for you while you wait for the next investment opportunity to roll around.
Robinhood’s versatility and affordability seems 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 anywhere between $2.50 and $200. 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!
If there was one specific area that Robinhood lacks in comparison to competitors, it would be in its customer support category. Due to the massive influx into retail trading platforms, Robinhood has a lot of customers to deal with every single day.
Navigating to the FAQ page may be the best bet compared to the “submit a question” feature on its website, which may take longer than expected to hear back from.
One main way that Robinhood makes money is through its fees that are offered through the Robinhood Gold account. This account, which allows increased access to market after-hours trading and research, charges members a $5 per month fee.
Fees can also be associated with Robinhood’s marginal interest charged on 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 $6.2 trillion in assets under management. The company specializes mainly in mutual funds and ETFs that are key to its popularity.
Similar to Robinhood, Vanguard is working hard to level the playing field for all investors. Their goal is to treat every client fairly to set them up for future investment success.
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 types of securities. They offer several types of accounts on its platform as well.
The features offered by Vanguard are pretty standard when it comes to larger well-established online brokerages.
You will pay zero commissions when you make trades online through Vanguard's brokerage account. This feature only holds true for online trade execution, as there is a $20 commission expense for over the phone execution.
Unlike Robinhood, Vanguard offers fixed income (bond) options through its brokerage account. You can choose from US treasuries (10-year/2-year), corporate bonds, municipal bonds, and others.
Adding bonds and other fixed-income investments to a portfolio is a key aspect of diversification and preventing against the downside risk of a correction in the stock market.
Mutual Funds are a strong suit of Vanguard as it offers 1000’s of funds for you to choose from. They let you invest in hundreds, and sometimes thousands, of individual stocks and bonds at the same time. This diversification is very important for your investment portfolio and can be achieved through mutual funds.
Vanguard’s free educational page on its website is a great spot for new investors. There, you can learn about many key topics such as investment planning, asset allocation, diversification, and the importance of cost when investing. All of these free tools are essential to making you a better investor and provide a stable foundation to build on.
Vanguard Digital Advisor is a robo-advising account type that automatically invests 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 like 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.
Vanguard Client Services can be reached from 8 am to 10 pm EST on business days. The number to reach client services is: 800-662-2739. Talking to a live representative and having a personal experience is a key factor in Vanguard's popularity!
All trades made over the phone will cost you $20 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!
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.
There is a $25 charge for each specific mutual fund that you own in an IRA account. In terms of 403 (b) plans, Vanguard charges $5 per month per participant. The total annual fee adds up to $60 for this feature. These fees add up!
To recap, both Robinhood and Vanguard offer top-notch services for all your investment goals. Robinhood specializes mainly in trading, as it offers zero commissions on all of the securities it offers. Vanguard has more of a focus on mutual funds and ETFs, which are both vital to most investment portfolios.
In the end, it all comes down to your personal needs. While these online brokers are different and are unique from one in another in their fees, features, pros, and cons, they each have a very similar mission: to 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 pretty much have the most beginner-friendly platform out there. Additionally, they have a feature set tailored towards 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 my 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!
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