Robinhood’s “Free Stock” Offer Isn’t Really That Great

Mornin’, mornin’!

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,

Joel

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16 Comments

  1. Jackie August 30, 2021 at 8:50 AM

    Hi Joel, I signed up with RH a few years ago (2017) as a place to keep “play money”. If I made an extra $20 selling something online then I parked the money in RH and bought a random stock. Over the years I don’t use it much – but every now and then when I want to “dabble”. I received the typical ~$5.50 stock (Siri) when I opened the account – and it’s worth about the same today. My friend used my link to open an account awhile back and got a share of FACEBOOK that was worth over $300!!! So she was pretty excited – and I was happy for her. Because she opened an account – I received another random free share – and it was SWN – which was, and still is, worth about $4. Overall I’m up ~94% – but I have only put in ~$950 – so I’m certainly not retiring from this account – LOL.

    Reply
    1. Joel August 30, 2021 at 1:26 PM

      Hey Jackie! That’s awesome about your friend’s FB stock for free! I think it’s cool to have a small amount of play money. Helps get your curiosity out and have some fun without risking large amounts. :)

      Reply
  2. Dayglo August 30, 2021 at 11:50 AM

    I don’t use RH, but I am currently using Stash. They have “parties” at least once a week where you get a small share of something – usually worth about $0.20 and usually it goes down and stays down immediately afterwards. I put in the tiny bit of effort to get it because for a couple of seconds, I can earn a dime in the end. Maybe it will go up?

    I am thinking seriously of moving my account to RH or Fidelity, though, since both offer something similar. Stash wants to promote long-term growth, which I think it is great, but to promote it they only have four trading windows – so when my stock in AMC soared (why did I invest in it? I guess because I assumed after the pandemic it would go up. Completely coincidental) So when it soared, I tried to sell at $15. The window didn’t open until it had gone down to $11. So they cost me $4 a share. I wouldn’t have sold at that price. Granted, I still made a lot of money, but they cost me a lot. Same thing happened when I tried to buy another stock when it was low – it ended up going up by the time the window opened.

    I’ve “day traded” twice in my life and both times Stash screwed me. Otherwise, I’d recommend them, too.

    Reply
    1. Joel August 30, 2021 at 1:22 PM

      I think if you’re trying to build wealth over the long term, it’s best to let money sit untouched and not do any trading at all. These free little bits of stock are kind of fun, but the best brokers (IMO!) are the ones that actually encourage you to “Index & Chill”!

      Reply
    1. Joel August 30, 2021 at 1:19 PM

      Yeah, I remember that one. So sad.

      **PLEASE anyone out there who thinks they are in life threatening money troubles, or has a trading addiction, PLEASE reach out and talk to someone. Feel free to email me directly anytime. I read and respond to every single email.**

      Reply
  3. Ugo Chiulli August 30, 2021 at 8:30 PM

    Joel,

    I am, unashamedly, one of those more “advanced” investors. I have a firm financial grasp of finances. My main “cash” trading account (outside of my IRA) is thru my bank and affiliated broker… and pay NO trading fees there. I have an emergency fund, a healthy IRA, as well as own my home an invest in real estate. I am also nowhere near millenial age … I’m 52. That’s my background.

    Why I use RH?
    – I wanted to see what all the hype was about… and so deposited a few bucks.
    – I give a lot of financial (which includes stock) advice to family, friends, co-workers (only to those that ask)… I am not a financial adviros… but have good financial and business experience. In being able to give them advice, I thought it good to have a simple platform to recommend (RH checks that requirement) and thought it good to also have the same platform so I can speak intelligently about what they may experience.
    – I dabble in crypto currency, and RH makes it ULTRA easy to hold crypto. In fact, since my banking affiliated broker offers FREE trades as well as better financial research, I have relegated my RH account to mainly being my Crypto currency holder.

    Beyond these reasons, I couldn’t justify further use for RH.

    So perhaps your assessment as to HOW RH is being used may be correct in general. But as with any tool, it is HOW you use it. There is nothing stopping a knucklehead from swinging an axe incorrectly and causing damage to either life or property. I do have use cases where some close friends use RH wisely. They invest weekly a set amount of money, they don’t touch those investments, they have built a decent portfolio. They likely would NOT have done so if it weren’t so easy to open their investment accounts (at RH). So the key here is in EDUCATED use of the tool. Of course I also have a group of less close friends that trade daily and will sell stocks after making $1 and quickly at any sign of loss. Most of them I believe are on the losing side of transactions.

    Take from this what you deem worthy.

    My

    Reply
    1. Joel August 31, 2021 at 3:38 AM

      Hey Ugo! Thanks for sharing. I was hoping to hear from an experienced user, so I really appreciate your feedback! I agree that people getting into trouble with investing is not 100% the brokers fault. Beginners/gamblers can mess around on any platform.

      Also great to hear that some people out there are using RH wisely and are following good principles.

      Reply
  4. JoeHx August 30, 2021 at 9:20 PM

    The real money – like anything else, I guess – is with the referral bonuses. Although you’re just as likely to get the five dollar stock, you get more chances.

    Reply
    1. Joel August 31, 2021 at 3:29 AM

      I guess I could have stuffed a referral link into this post and tried to get people to sign up. But I’m not a huge fan of referrals that aren’t big win/wins for everyone. Smart tactic by RobinHood though — I’m sure it’s part of their booming growth.

      Reply
  5. Impersonal Finances August 31, 2021 at 2:07 AM

    I know GME was a popular cheap stock for a lot of people a few years ago… nice surprise for the people who held on to that one! But yeah mine was and is still worth $5 haha.

    Reply
    1. Joel August 31, 2021 at 3:25 AM

      Knowing my luck, the stock they gave me (I just sold it) will skyrocket in a few years and I’ll be kicking myself.

      Reply
  6. Donna September 6, 2021 at 1:04 AM

    I have other accounts that hold my retirement and investment accounts. But I have Robinhood too. It’s my fun money, my gambling money. I use it for crypto and I love that I can buy fractional shares. I can have a very diversified portfolio of fractional shares. I like to look at the percentage increase. It all feels exciting even though it’s a tiny amount of money.

    Reply
    1. Joel September 7, 2021 at 12:51 PM

      That’s cool! Fractional shares are really interesting :)

      Reply
  7. Amanda Rufener September 8, 2021 at 1:44 AM

    The stats on who is using RH are startling! 50% of users use the app everyday?! That’s a recipe for extra stress and anxiety!

    I feel like you have to do a quarterly update on your single Catalyst Pharmaceuticals stock…

    Reply
    1. Joel September 8, 2021 at 9:51 AM

      haha. I actually already sold it and requested the close of my RH account. Oops!

      Reply

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