Last week I was talking with Tomas, and he was telling me all about the stocks he’d bought. I did a bit of a mental double take, because I hadn’t realized he’d been buying stocks. I asked him how he was doing it, and he told me all about Robinhood, the stock buying app that’s all the rage with the younger crowd. I had some downtime, and they offered $5 of free stock if I signed up with them, so I decided to give it a whirl.
My initial impressions were very favorable. It was super easy to open the account and connect it to my bank. Then I got to pick which free stock to get, and just like that, I’d gone from $0 to $5 of value. Can’t beat it! I added about $20 of other stocks, which shows that when I have too much time on my hands, I’m up for doing just about anything.
Over the next few days, I enjoyed opening the app and checking to see how my investments were doing. To make things interesting, I’d bought about 10 shares of a penny stock worth 40 cents or so. A few days later, it shot up to 60 cents. I happily cashed out, having increased my investments by 50% in a matter of days. Score.
Robinhood kept encouraging me to diversify my investments, so I put down another $40 into an ETF, because that seemed like the thing to do.
And then I stopped.
I realized I had done almost no research into the app as a platform. Sure, it was easy to use, but I have an honest to goodness account with Schwab. If I’m going to be dumping money somewhere, wouldn’t it make sense to use the real deal? Did it make a difference?
After nosing around some, I discovered that yes, it did. Schwab has an app that’s much more robust than Robinhood. You can buy more things, and there’s a ton of research in there to tell you all about the things you’re buying. Yes, it means you have to read more stuff, which I suppose might seem difficult to some, but “read more stuff” was never something to cause me to turn away. Plus, the overall fees for Schwab are lower.
Naturally, I didn’t stop there. I called up my brother, who’s a financial planner, to ask him about everything. And as usual when I talk to an actual expert in something, I discovered he knew way more about this than my half hour of research had taught me. Some things I learned:
- Yes, Robinhood is nice because it’s simple to use. But also yes, Schwab is a better platform.
- Buying stocks and watching them day by day can be entertaining, but it’s also very high risk, comparatively. You’re taking your money and essentially betting that a certain company will do well. If it does, huzzah! You feel like a pro. If it doesn’t? You’re kind of hosed, stuck into a pattern where you feel like you need to wait around to see if you can get your money back.
- Related to that, buying stocks involves keeping track of stocks. It’s One More Thing to Worry About. If it’s entertaining to you, great. Just don’t get carried away. Personally, I make more money being a librarian than I’m likely to as a Full Time Stock Checker. And I’m busy enough that adding Full Time Stock Checker to my responsibilities probably isn’t something I want to be doing.
- When you’re dealing with investing, the best thing to do is to think longterm. That means not randomly dumping money into a penny stock you read about ten minutes ago. There are several avenues to put money in first to make sure you’re getting the most bang for your buck.
- Roth IRAs are the bee’s knees. You can put up to $6,000 into one each year, and the money you take out when you retire is tax free. Compare that to the money you make selling stocks normally, where you have to pay capital gains taxes. If it’s stock you’ve held less than a year, it’s taxed just like any other earning. For me, that means I’d have to pay around 25% of whatever I earned. If I invested $100 and sold it for $140, it looks like I made $40. But then I have to pay 25% of that $50, so I really just made $30. If I’d put the money in a Roth IRA instead, I wouldn’t have to pay any taxes on it. (Though I’d have to wait to use it until I retire. No biggie. That’s the goal, anyway.)
- If you’ve already maxed out your Roth IRA, then you should look into putting as much money into your work’s retirement fund that you can (if they have one). Why? Because that money comes out before you get your paycheck, which means that the government pretends you never actually made it. (I’m oversimplifying here.) In other words, when it’s take to pay your taxes for the year, if your salary was $100,000, but you had $25,000 put into your retirement fund directly on your paycheck, then the government only sees you having made $75,000. The downside is you’ll have to pay taxes on that money when you take it out eventually (unlike a Roth IRA), but by then, you’re also probably making less money, because you’re retired. This means you’ll pay less taxes on it.
- In either of these accounts, you get to decide where your money goes. You can put it into stocks, if you like to live dangerously, I suppose, but you can also put it into ETFs, which are professional run accounts that invest in a wide range of stocks, making them more resistant to high fluctuations. You aren’t likely to double your money in a year or anything, but you’re not likely to lose it all, either. And there are different flavors of ETFs, each with their own speciality.
The net result was that I decided to stop worrying about Robinhood so much, and to pay more attention to the retirement accounts I’ve already got going for me. I’ve done some more research into ETFs today, and there’s plenty there to keep me busy.
True, this is all something you could have just googled on your own, but it’s something I hadn’t looked into, and with as much buzz as Robinhood had been getting, I thought perhaps some of you would be interested in hearing what I’d found out. I’d say I’d be happy to answer any questions if you have them, but I’m clearly not qualified to. I’d send you to my brother, but I think he’s full up on clients right now, and he’s a fancy pants, so his clients all have to have like a zillion dollars (or rather, way more money than I have), so I just fly under the radar with occasional naive questions like, “Is Robinhood a good thing to use for investing?” (Though they do keep a blog that writes on interesting topics.) So if you do have questions, I definitely recommend either getting a financial planner, or convincing one of your friends or family members to become one. They could also marry one. That could work too . . .
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