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In choosing a name like Robinhood, there was no attempt to hide the company’s goal: to make the stock market accessible to everybody, not just to the wealthy.
Robinhood made good on its name by offering commission-free stock and ETF trades, and in late 2019, some of the largest brokerages in the country began doing the same. Robinhood was credited for sending online brokerages on a race to the bottom in terms of price, while forcing them to maintain — and even improve — the services and experience they provided.
Even with that increased competition, Robinhood had 12.5 million active users near the end of 2022. And in December of 2022, the broker announced IRAs with a 1% match, an offer that's unusual for non-employer sponsored retirement accounts.
The app is popular among many investors. But does Robinhood stock deserve a place in your portfolio? That depends on you and your investment goals. Here's how to buy Robinhood stock, and what to think about when you do.
1. Analyze Robinhood’s potential
Robinhood has endured public outrage and class-action lawsuits, settled a charge from the SEC for tens of millions of dollars, paid millions in fines and restitution and addressed a complaint from the Commonwealth of Massachusetts.
Some of that controversy brings up the question of whether stock market accessibility — alongside gamification, misleading marketing and poor customer support — is actually a good thing. Some financial advisors suggest that any increase in accessibility to the stock market is a good thing; others see unintended consequences.
But if you believe in the company's mission and want to buy Robinhood stock, there are a few things to consider. Look at Robinhood's financial statements, earnings and revenue reports, projected performance and other data to decide whether it's the right investment for you. If you have a brokerage account, you should be able to find this info through your broker's research tools, or through an independent research site such as Morningstar.
Ultimately a rising stock price will come down to the company’s ability to keep making money over time. Robinhood has a few ways of doing this, including collecting interest on uninvested cash held in users’ accounts and charging for its Robinhood Gold subscription, which provides access to margin trading and additional stock analysis.
But its largest source of revenue comes from payment for order flow, through which large financial institutions (who actually match buyers and sellers to conduct a trade) pay Robinhood to send trades their way. This means Robinhood’s revenue is tied to volume: The more people are buying and selling stocks on the platform, the more Robinhood benefits financially.
» Learn more: How to evaluate individual stocks
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2. Consider how Robinhood fits into your portfolio
Before buying Robinhood, or any other stock, think about how it fits in with your existing portfolio. Does the potential investment:
These questions can help you decide if Robinhood is the right choice for you.
For example, Robinhood's share price at IPO on July 29, 2021, was $38. It has since fallen sharply. Past performance doesn't guarantee future results, but consider whether you're prepared to weather those kinds of highs and lows if you already have some volatile assets in your portfolio.
Investing generally comes with inherent risk, but investing in individual stocks can add even more risk to the equation. If you're interested in Robinhood, but want to mitigate your risk, you could invest in the trading app through index funds, mutual funds or ETFs. These funds hold a basket of stocks from several companies, so you could potentially own Robinhood, along with other companies from different sectors.
» Dive deeper: How to build a good investment portfolio
3. Decide how much to invest in Robinhood stock
If you’re interested in investing in Robinhood, or in any other individual stock, consider keeping the amount to a small portion of your overall portfolio, financial advisors suggest 5% to 10%. It’s also a good rule of thumb to invest only an amount you won’t need for the foreseeable future, say five years.
Be sure to look at your own financial situation to determine what amount is right for you.
4. Open a brokerage account and place your stock order
You’ll need a brokerage account to buy your Robinhood stock, and you can set one up fairly quickly. Yes, you could use Robinhood as your broker to buy Robinhood stock, or you can go with one of its competitors. Look for online brokers with good customer service, wide investment selections, low or no fees, and no commissions on stock trades.
Open your account, fund it and place your order online. Once you’ve considered whether Robinhood has the fundamentals in place to generate revenue, grow its business and stay ahead of the competition — and you’ve decided you want to invest — buying its stock will be pretty straightforward. Read our primer on how to buy stock to get started.