Yes it’s easy.
Yes it’s intuitive.
Yes it’s designed to be visually beautiful.
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!
Abacus Fitness and Money 