There’s a bunch of hype around Robinhood these days and I’ve always been curious about their “free stock” sign-up incentive … So, this month I signed up to see what the fuss is about.
Spoiler alert: It’s a bit of a letdown. 😔 The app itself does what it’s supposed to do — trade stocks and crypto in a quick/easy/free way — but the “free stock” incentive is kind of crap, and the overall company mission confuses me.
**This is all my personal opinion, of course. I realize what might not be good for me might be great for others.**
Anyway, here’s my sign-up and “free stock” experience and some other stuff about Robinhood that I recently learned. Let’s start with the good things I really liked …
Signing Up for Robinhood Was the Good Part
First thing I loved was how easy the signup process was. Took about 8 minutes to sign up and everything can be done right through the mobile app.
Everything felt very secure with dual authentication for both email and cell number, as well as connecting to my existing bank account for money transfers. RH doesn’t offer any pre-tax or retirement accounts, so I just signed up for a regular trading account — nothing fancy.
The other thing I like about Robinhood is no account minimums, and no trading fees or commissions. I believe RH was a pioneer in this area and was the first to offer free services like this. But over the past few years many brokers have caught up and offer the same free stuff.
My Take on the “Free Stock” Sign-Up Incentive
The incentive itself is legit. Right after signing up, you follow prompts that let you randomly select 1 free share in a publicly traded company.
But, if you read the promotion fine print, you quickly realize that the odds of getting anything valuable are pretty slim. (Less than a 1% chance of receiving any stock of decent value.) Here are the actual odds:
- Shares with a value of $50 to $200 = 1% chance
- Shares in the $10 to $50 range = 1% chance
- Shares worth less than $10 = 98% chance
I guess I fell in the 98% range, because the 1 free share I received was of a company called Catalyst Pharmaceuticals, worth about $5.80. Yay. 😔
I shouldn’t complain — I’m the same idiot who celebrates after finding pennies on the ground — but I kind of feel like I just fell for one of those Las Vegas casino tricks… You know, the ones where they offer you a “free spin” of the big wheel and it’s all very exciting until you land on the $2 tile. After that disappointment, you feel the need to buy another spin to see if you can beat your last spin, then somehow you leave the casino 45 minutes later $80 poorer than when you walked in.
My Biggest Concern With Robinhood …
Again, I don’t want to say that people shouldn’t use Robinhood as a broker. In fact, we need innovative companies like RH in every large industry to shake things up and modernize processes and interfaces. They’ve done great things for the financial services industry!
However, my biggest red flag is that their platform seems to make it extremely easy for young, novice investors to create harmful money habits. Day trading individual stocks, options trading, and using leverage are notoriously risky investment practices, and are not the tried and true ways to grow wealth.
Don’t you think the average person should solidify their basic financial literacy before experimenting with advanced trading tactics? What about taking advantage of tax advantaged retirement accounts before building up traditional taxable accounts?
Hey, maybe Robinhood will address these priorities one day (better user education and offering retirement accounts) — I can hope, right?! They are still a new company and building their products. With millennials flocking to their platform, I think more responsibility might be needed on Robinhood’s part to ensure their users truly are making good financial decisions.
Who’s Using Robinhood?
- About 50% of all RH users use the app daily. (For some perspective, about 65% of Facebook users log in daily.) RH is highly addictive.
- The majority of RH’s users are millennials. Of their ~20 million customers, the average age is 31.
- Only 24% of millennials possess basic financial literacy! (says PWC).
- 43% of Robinhood’s users have credit scores lower than 650! (poor – fair). This is pretty horrible, but in all fairness TD Ameritrade has a similar stat at 41% (STILT)
- The average account balance for RH is $3,500 (compared with its closest competitor E*Trade at $100,000).
- 46% of Robinhood’s revenue comes from options transactions, which is the most speculative type of trading.
(chart via Scott Galloway, and he has an amazing posts about Robinhood if you want to read his blog further)
All in all, it’s really hard to picture how Robinhood users are building true wealth. The success of the company relies on users making constant transactions — a habit that is proven to erode wealth.
Sorry guys! I started this post intending to write about my “free stock” sign-up experience, but ended up getting into the weeds a bit.
If you’re a Robinhood user, I’d love to hear what you use the platform for and the benefits that you find over other brokers. And if any of you were lucky enough to be in the 1% that received free stock with ~$150, gloat away in the comments!
Have a good one,