As I look out at the firms in the market I see new names emerging. Each day as I scroll down my Twitter timeline I notice a new company promoting its trading app or brokerage services. So I decided to check some of these firms out. Today I will discuss two companies’I recently came across: Robinhood and Betterment. Below is also a commission comparison chart for stock purchases at various brokers.
The concept behind Robinhood is to increase access to investing by taking advantage of technology and lower overhead costs. Part of what the company stated allows them to do so is cutting out storefront locations and manual account management. The app, investment products, and related services are intended to be used by self-directed U.S. investors. The stated mission of Robinhood is to empower this new generation to take greater ownership in their financial future, which we believe can help shrink the gap between the "haves" and the "have nots" and lead to a healthier, more robust global economy.
With no minimum balance to open a cash account, investors can take advantage of zero-dollar commissions for self directed individual cash or margin brokerage accounts that trade U.S. listed securities through a mobile device. As of now investors get access to over 5,000 securities which are both publicly-traded companies and exchange-traded funds listed on U.S. exchanges, with future plans to offer additional financial products. Because the service is intended to be used by self-directed investors, Robinhood does not make recommendations or offer investment advice.
With Betterment there is no minimum investment or balance. The company charges based on a tier for investment amount; under $10,000 is 0.35%, $10,000+ is 0.25%, and $100,000+ is 0.15. Money that is invested through
Betterment is placed into an Exchange Traded Fund or ETF, which covers one of 12 different asset classes, based on a selected asset allocation.
The company stated criteria for selecting each ETF is to consider the following: expense ratio, bid-ask spread, assets under management, number of holdings, exchange rate hedging, and capital gains implications. Per company website, “The Betterment portfolio is designed to achieve optimal returns at every level of risk. Through diversification, automated rebalancing, better behavior, and lower fees, Betterment customers can expect 4.30% higher returns than a typical DIY investor.”
Considering Where to Invest
The reason that Robinhood and Betterment were selected is because they represent options for different investors, one self-directed, and one needing more assistance. When selecting a place to invest you must consider what type of investor you are. Every company may not have the kind of account you require or offer the kind of investments you prefer. It is great that costs for investing have gone down, thereby increasing the likelihood that more can afford to invest. The commissions that investors pay can eat away at the overall return that an investment achieves. The risk of lower commissions is that it becomes easier for inexperienced individuals to trade more. With continued advances in technology, and lowered costs more options will continue to become available to help individuals get invested.
Never take for granted doing your own research or understanding the important risks that investing offers.
*Prices for competitors were checked on January 6, 2015 and are believed to be accurate, but not guaranteed. Some of the firms listed above may reduce or waive commissions or fees, depending on account activity or total account value. Although prices were checked, the image is an older version so service rankings may differ.
*Writing about Robinhood and Betterment is not an endorsement of either service.