Robinhood's Credit Card Just Got Even Better (Somehow) –
Brendan Evan
In someways, I hate to say it, but this is the best credit card I've ever used and it just got better. The only problem is the card is hard to get because you have to be on the waitlist for so long.
Info on the card here: https://robinhood.com/creditcard/
Sign up for Robinhood with my link and we'll both pick our own gift stock 🎁 https://join.robinhood.com/brendab533
Here it is! The long awaited, much anticipated debut of my podcast!! Woo hooo! Ok, no one was waiting or anticipating anything. Ha! Podcasting is such a handy way to ingest information that I felt like it was worth making some content here as well. Listening while driving, running, doing housework, showering, etc… is such an easy way to hack everyday life and increase your productivity. It seems simple to make a podcast, but to do it well takes real effort and craft skills. I don’t have those yet! But I will continue to practice and get better over time!
Topics: This podcast will be about the same general topics that I write about here on this blog and talk about on my Youtube channel: sustainable and healthy ways to improve your fitness and personal finances. These areas of life both require slow, disciplined, sustained action over the course of years to really be successful. I think the nature of that progress being so slow and taking so long is what makes it so difficult. Plus, these are both relatively personal endeavors. We can easily feel ashamed at our lack of progress, extra love handles, or personal loan debt. Instead of stopping there I want us all to be able to learn ways to turn that habit train around and start moving in the right direction. My biggest hope is to help you along that journey!
But does that make it a better investing app? I say no.
Robinhood has a reported 10 million users. That is a lot of people, many of whom likely would not have started investing were it not for the unique approach taken by Robinhood. But the same features that make it seem attractive initially serve to stunt the financial growth of it’s users. In this post I will lay out why I feel this way.
Ease of use
Limitations inherent in this “beauty over substance” approach actually weaken it’s ability to be a useful tool. Lately I’ve been checking the app a lot. This is one problem: ease of checking your daily progress. Or lack thereof these days! It stimulates day trading, i.e. bad decisions for you. The fact that my work-sponsored 401k is a massive pain to login to, check, make any changes, etc… decreases the likelihood that I jump in and make rash (i.e. stupid) decisions in the heat of the moment.
2. Clean design
The clean design looks really nice, but it lacks some of the detail you likely want. I want to know the expense ratio of the funds that may be worth considering. If one is 0.04 and another is 0.3 and they accomplish similar objectives, why would I choose to pay 7.5 times as much! We need to know this! Make this clear app dev people!
3. Daily updates
Daily updates on how your stock is doing via notifications. + Live graphs for the day + Instant deposits + ease of trades + second-by-second updates on your account balance as the market moves + the generally cartoonish nature of the app all push you toward short term thinking. What emphasis is there on buying and holding for the long term as experts recommend? (Not sales people, experts. Your broker may not have your absolute best interests at heart either consciously or unknowingly.)
4. Emphasis on individual stocks
Perhaps most significantly, the emphasis by default design is destined to direct users toward individual stocks! This means that the vast majority of users will have very poorly diversified portfolios. Remember, for now the option of fractional share investing is not available to anyone but the select few people who have been given early access. So I am stuck with a few of this stock and a handful of the other. Perhaps we can force ourselves to wisely branch out and buy a multitude of companies in a sector, but I am partial to believe that most of us probably chose to stick with simply buying more shares in the few companies we started with. This mean we pigeon-hole ourselves into extremely limited diversity and high risk. This design actually ensures that the vast majority of Robinhood investors get WORSE returns than if the emphasis was on low cost index funds. Remember, index funds are available on Robinhood, you just have to search them out.
5. Gamify the process
Also, the game-ifying of the app make it feel less significant. It feels a little more like a cheap app store game about investing than actually risking your literal hard earned dollars. If you’re like me and are a sucker for games, especially pseudo games that involve numbers, something like Cash Management waiting process is a little too intoxicating. For the unfamiliar, Robinhood is starting to dole out a debit card to a limited number of it’s users. When I first started using the service, I was number 1.2MM in line. Every day you’re allow to tap the screen up to 1000 times, which moves you “up in line”. Also, at somewhat random times you may take a massive leap in line, 10,000-40,000 positions in a day. Obviously another incentive they have for this is to allow any new signups that came from your referral link to move you up in line. I’ve not gotten any referrals so the impact of this on your place is unknown to me. This of course entices you to login daily, invite friends, and generally form a habit of visiting that peaceful minty-green app icon every day.
All of this is fine if you’re a bastion of self discipline. Perhaps you’re not like me and you’ve got ice water flowing through your veins. Perhaps you never cheat on a diet or miss a workout. Perhaps you always keep the promises you make to yourself. This whole post could be a list of complaints about an app that is perfectly neutral and I could be completely wrong. BUT. My guess is that you aren’t a Navy Seal with laser focus on whatever you set your mind to and you are subject to the temptations baked into this kind of design. Watching the market sway it’s hips back and forth like the motion of an expert salsa dancer may just hypnotize you into joining in this dangerous dance of daily trading.
Please don’t misinterpret this post as a binary bashing of a beautiful and generally beneficial app and service. These kinds of things aren’t able to be boiled down to “good” and “bad”….most of the time. (There may be some genuinely scammy or otherwise unethical investing apps and services out there that we legitimately need to avoid like the plague….err virus) I still think Robinhood is the path of least resistance to those that are new to investing. HOWEVER, the easiest path is rarely the best when it comes to adult life. It still overlooks many of the fundamental features I have come to believe are foundational for any financial friends to be able to finesse. Again, fractional shares. Yes, yes, they have the feature and are slowly rolling it out to a select number of users. But again, it’s not available to the public so you are more mentally tied to a stock price than an amount of money you’ve committed to investing and its growth or shrinkage based on percentages.
Also, the lack of IRA options is a bit staggering to me. The fact that we are forced to only operate within taxable accounts and are not able to access tax-advantaged accounts is a massive oversight. The average Robinhood user is younger than most of the investing populous as a whole. Likewise, we are prone to be earning less than the average investor and to have a longer time horizon for our investments to grow. Compound interest has been touted as a wonder of the world, and yet here we are being funneled into a short-term, poorly diversified corral of investing.
These reasons are why my favorite investing app is M1 Finance. It corrects all of these wrongs without creating obvious gaps that I miss. Even so, I find myself spending more time on Robinhood because of its ease of use and design features. However, if I had to delete an investing app TODAY and never use it again, sending all of the funds to another service…it would be Tastyworks. But right after that it would be Robinhood!
SO many little quips revolve around saving money. I feel like the implication is that they somehow summarize everything you need to know to handle your money well.
But that’s bogus! Money is complicated. Or at least our lives are complicated so the way we choose to deploy our money is also complicated. That’s why I think we need to think with a little more nuance about what saving our money is for and what it can never accomplish.
FIRST: Why saving money is great essential! And a little childish…
Spending everything we make (or more) is a losing proposition. We can never catch up, pay off debt, create a secure financial footing, build wealth, or hope to have the option of retiring from full time work. If that’s the place you’re currently in: no shame and no blame. Not from me, not from yourself, not from anyone else on the internet. Yes it’s an objectively bad habit to be in but shame/blame/built aren’t going to help change things.
So we are left with the next logical step which is to save some portion of our income. I.E. intentionally spending less than we make so we can set it aside. Wisdom. Delayed gratification. All that jazz. But hearing things like “pay yourself first” honestly has only served to cloud my mind in years past. What the heck is that supposed to mean!? (I finally learned that it is just a cryptic way of saying you should save some money before you start spending it on non-essential items)
I used to save money in a wooden and plexiglass kids bank shaped like a dog. His belly was see-through since it was made of plexiglass and you could see the little coins and bills piling up over time. To access them you had to literally disassemble the thing with 9 tiny screws. But that’s what I did countless times! I couldn’t wait to let the money pile up. Having to count it over and over I’d grab a tiny screwdriver and take it apart to get my new total. Then it would get carefully reassembled and put back on the shelf.
Stashing some money in cash or even in a savings account is really not much different than my childish activities 25+ years ago. We know it’s the right thing to do and put some money off to the side. It has no real intent or purpose, but its there and we are doing what we’ve been told is the “right thing”. The problem is that we don’t have much of a grasp on what’s happening overall, which doesn’t allow for intention to be baked into that savings, which limits its power to help us.
We need a general game plan. I’d summarize that as: have an accurate budget, have a plan for debt repayment, and have a plan to grow your wealth. Saving money needs to have a direction into 1 of these 3 buckets or it will be stuck in that aimless, child-like state like my doggy-bank dollars.
SECOND: Saving is a foundation. But only a foundation
Assuming we have a budget, a plan for debt, and a solid vision for a wealth-building future do we just save as hard as possible? Yes and No.
Saving is the first step in the process of wealth building. We have to hang onto money and not let it fly out the door to subscriptions and restaurants and nasty bills. It is the only way we can stop the cycle of living paycheck to paycheck.
We all need a small chunk of money that is a basic buffer while money flows in and out of our accounts so as to avoid bouncing a payment. This can be as little as a few hundred dollars or as much as a few thousand depending on your comfort level, when bills are paid, and how big those bills are. If you want a good buffer, have everything set on autopsy for the 1st of the month and spend a lot on recurring bills you may need $3000-$6000 as a buffer. But if you’re ok with a tighter budget, have bills spread out across the month, and don’t have many large expenses you could probably get away with $500-1000 quite comfortably.
After a buffer, everyone needs an emergency fund. Actually your buffer is the start of your emergency fund because it’s the bare minimum in whatever account(s) you use. In a real emergency it’s likely the money that gets spent first. But over and above this an emergency fund should be set aside in it’s own account, distinctly earmarked for emergencies only. “Emergency” means unpredictable, accidental, or otherwise out of your control. If it IS in your control or can be foreseen that falls into the next category of “sinking funds” but more on that in a minute.
An emergency fund is directly proportional to 2 elements. 1: What comfort level are we after? 2: What are our average monthly expenses? For number 1, this is literally a matter of preference. Part of that preference has to do with how regular income is for the household. The more variable the income, the larger the emergency fund should be. However, most people outside of commision-only jobs are paid fairly regularly. Number 2 is important because the amount of emergency funds we need to set aside depends on how fast it will be used. If you’re a high income/high spending household that’s much different than a single student living at home.
Rules of thumb for emergency funds: Always have at least 1 month of living expenses. Set a baseline goal after that of 3 months worth of living expenses. If your income is wildly variable, bump that baseline goal to 6 months or equal to the average span of your sales/paychecks. Any more than these amounts and you’re probably giving up a lot of wealth-producing potential! Unless you’re saving for a specific upcoming need: a sinking fund.
Third: Saving for a “sinking fund” (aka rainy day)
This area of saving stands to lift the most people out of the evil clutches of consumer debt and I to the glorious paradise of freedom: saving for big purchases. Wait! Stay with me! Don’t turn away because you just threw up in your mouth a little bit like I did thinking about this particular topic! I know it’s repulsive or at least horrifically boring to slowly and methodically save for a premeditated purchase months or years in advance. I get it. But we have to do something new to get a new result.
We have to do something new to get a new result.
-Me…again
If you bought a house and expect the air conditioner to kick the bucket in the near-ish future but don’t save for it, that’s just silly. (This is what my wife and I did by the way, we bought that house. 3 years in and the old thing is still somehow functioning!) Or if the current vehicle is steadily creating more and more bills from the mechanic shop we have to acknowledge that reality with a plan. And plans often take time to come to fruition.
We are responsible for our financial futures so it’s our responsibility to forecast the big expenditures. Making a quick list in a phone app or notepad with the impending biggies for the next 1-3 years can add huge amounts of perspective. With it, we are better able to act in the present. “Can we afford to go on that 2 week cruise” becomes easier to answer if Christmas is around the corner along with a new washing machine.
Keep your list handy and update it often. It’s easy math to figure out how long it will take to save for an upcoming purchase. (The math is easy. The saving is harder!) Let’s say an expense is coming up in about 5 months. It is going to cost around $900. $900/5= $180, so every month from now until the big purchase we need to set aside $180 and not touch it! That can be the hardest part, seeing the funds accumulate and leaving them alone, destined to fulfill their true purpose.
Saving for these bigger expenses can take a lot of the sting out of them plus it saves huge amounts of interest in the long run. If you charged that same $900 on a credit card with a 19% interest rate and only paid $50/month, it would take you almost 2 years to pay it off! (22 months of torture, knowing that giant company is taking your hard earned money just because you didn’t save for it in advance). Worse than that, instead of it costing you exactly $900, it costs over $1067!
So far we’ve established significant security by way of cash savings. (By cash that of course includes and presupposes using a bank and a high interest savings account…not literal paper currency.) But stopping here is why “saving” can be terrible. Stopping at saving and choosing not to invest our money grossly limits our wealth building potential.
CALLING ALL MILLENNIALS: Do not stop here!
Lets review a few stats:
Yes, 58% of millennials have less than $5,000 in savings. That’s not an insignificant sum. But its not massive either. The problem is that saving money is where many of us stop. We think that is the proverbial finish line. To have a lot of cash piled up like Scrooge McDuck means we are secure.
60% of millennials and Gen-Zer’s define financial success as being debt free. Again, in concert with a pile of cash this “feels” like an indicator of success or completion. We want to have zero debt and the foundation of cash at our fingertips. This is not a big enough or accurate enough goal. We need to think bigger!
Millennials have an average net worth of $8000. Here, we start to see a little more into the depths of the problem. Having that cash-heavy plan that is focused on accumulating more in the savings account and paying off all those debts leaves our growth at a snails pace. A net worth of $8000 means we are barely above ZERO. And without investing we are doomed to stay near there. Your wealth accumulation is limited to your earning power if you refuse to invest. (Sources: https://www.businessinsider.com/average-millennial-net-worth-compared-to-other-generations-2019-5)
21% of all millennials on average have invested less than $500. Ever.
Overall, 54% of millennials have invested less than $5,000.
So that’s a total of 75% of “us” that have only parted with between $0-$5000. We are not setting ourselves up for the kind of future we want. (This isn’t the time to discuss income inequality for younger generations as compared to previous generations, but of course that plays a large role. Regardless, the stats show that most younger people are very conservative with their financial planning, detrimentally so). (Source: https://finance.yahoo.com/news/43-millennials-aren-t-investing-090000387.html)
Your wealth accumulation is limited to your earning power if you refuse to invest.
-I’ve got to find someone else to quote. Me again.
Instead, if you take a tiny step into the world of responsible investing through an employer sponsored 401k, a personal Roth IRA, or similar tax advantaged account, your wealth accumulation powers are compounded and multiplied far beyond the amounts you are paid every month. Many of us are too conservative in the wake of 2008-2011. We saw people who were “investors” lose a lot of money and feel determined to be wiser than they were. But think about how vague that is: who are these investors? What were they invested in? How diversified were their investments? How much is a “lot of money”? Did they make that money back over the last decade?
It’s like your first breakup. It hurts, its terrible, its debilitating…for a time. But if we resolve never to be hurt again and thus rule out all relationships with human beings then we also miss out on the beautiful intimacy, joy, growth, and love they very often bring.
Our investments will hurt us a little from time to time but over the long haul they will do so much more good than harm. We need to do a little research, approach things carefully, then break up with “Savings” and marry our newfound love “Investment”, never looking back. Yes this analogy got weird fast, especially because we need to continue to save along the way but you get the point.
One more quick example:
Jill and Betsy are twins. They mirrored each-other’s educational and career paths. Both were hired for identical jobs, have the same costs of living, and the same income. Jill is a traditional millennial and saves $500/month after paying bills, making debt payments and saving for some larger purchases. The money goes directly into her savings account at the bank where she’s had an account for most of her life. “Investing is risky” she tells herself. She can’t afford to risk the hard earned money she makes so she keeps it “safe” in cash. After 30 years, Jill has contributed $180,000 to her savings! Nice work! However, the bank has not appreciated her diligence and the trivial interest rate of 0.1% they offer has only gained her an additional $2,718.
In contrast, Betsy is a non-traditional millennial and reads a few books, listens to some investing podcasts and checks out an interesting new blog called “Abacus Personal Finance”, all finally convincing her that investing is the way to go. She opens a Roth IRA at a brokerage with zero fees and shovels the same $500/mo into an index fund tracking the whole stock market. After 30 years, Betsy has contributed the same $180,000 her sister Jill did. But the results of her investing are astonishing. She has a balance of $1.09 MILLION! What a massive difference! The companies she invested in through her index fund have rewarded her with a cumulative $910,000 in interest!
We cannot afford to stay stuck in our “savings-only” mentality. If we do it will be the worst limiting factor for our financial futures despite an otherwise solid game-plan.
Stick around for more posts in the future on investing and just how easy it can be to get started!
If you want a 1-stop app/website to track all of your accounts including banks, debt, mortgage, investments, and anything else in your financial life, I recommend Personal Capital. It’s 100% free and I’ve been using it since September 2017 and love it. By far the easiest way to track your net worth and all accounts in 1 place. Full transparency: if you start using it with my link below we both get $20. If you don’t use my link neither of us gets $20. Also, it really is free but they will “offer” you their own services or investment recommendations every now and then. They probably have good things to say and overall trustworthy recommendations, but I want to keep it free so I’ve not used any paid services or investments they advertise. Link: https://share.personalcapital.com/x/sLcqkA
Abacus Fitness and Money 