When the stock market crashes, so does Robinhood. In the past two weeks, the little trading platform Robinhood, reportedly crashed three separate times on three separate days.
In the midst of all this, I’d like to present what happened and make a case accounting for all of these factors and if you’re getting started investing, help you decide whether you should choose Robinhood or switch to another brokerage entirely.
Crash 1 - March 2nd, 2020
Our system is experiencing downtime issues that are affecting all functionalities on our platform. We are aware of the issue and are working to have all systems up and running as soon as we can. We’re so sorry this is happening!— Robinhood Help (@AskRobinhood) March 2, 2020
This is very unfortunate for people wanting to trade, but it’s not a killer problem. I’ve seen other trading platforms, although infrequently, experience brief moments of downtime as well. What makes this an issue is that Robinhood went down for an entire day.
Crash 2 - March 3rd, 2020
Our systems are currently experiencing downtime. We’re determined to restore full functionality as soon as possible. We’ll be sharing updates here and on https://t.co/ZS733Gooqj.— Robinhood Help (@AskRobinhood) March 3, 2020
The founders then set out to explain the crash and claimed it was stress on the infrastructure.
Crash 3 - March 9th, 2020
Trading is currently down on Robinhood and we’re investigating the issue. We’re focused on getting back up and running as soon as possible and we’ll update the status page with the latest https://t.co/mON07oWvHy.— Robinhood Help (@AskRobinhood) March 9, 2020
Okay, in times of great volatility, Robinhood really does seem to be having some technical load issues. This is the same day that the S&P 500 dropped 7.6%, the largest single day drop since the 2008 financial crisis!
Here are the reasons you might still want to choose Robinhood:
- 👍 It is still the easiest brokerage account to set up and you can buy stocks immediately after signup with instant deposits (up to $1,000). Most other brokerages take a little longer to open 0-3 business days and require additional days to transfer funds over.
- 👍 You are not a day trader and don’t (or shouldn’t) care about the minutia of day to day changes in your portfolio. I assume this is true for the vast majority of people who invest in stocks.
- 👍 It’s very easy and intuitive to use. There’s no secret menus, or a specific location you need to go to trade stocks or access your account statements or information. I’ve found that other brokerages often have more layers of confusing menus.
- 👌 Robinhood offers 100% free trades! Although almost all the other big players have followed suit (including Charles Schwab, Fidelity, E-Trade, etc.), it’s good to know this is still true for Robinhood, and that they were the ones who pioneered this revolutionary concept.
Here are the reasons you might still want to choose a different brokerage:
- 👎 It seems to go down more often than other reputable brokerages.
- 👎 Customer service isn’t great, especially compared to other options. It often takes days for Robinhood to respond to my messages, but at other bigger brokerages, I’ve simply hopped on the instant chat and got connected immediately to live agent!
- 👎 It is still a startup. As a software engineer that has worked at startups in the past, I can tell you that there are always more kinks, short cuts, and short term solutions implemented than I would like. Although it’s absolutely possible that Robinhood has a super well run, kick-ass engineering team, I would still advise caution simply on their size, experience and total time in existence.
So should you get started with Robinhood? Well, that’s still up to you to decide, but considering that Robinhood has had these issues and is still a company that didn’t exist before 2013, I would advise for a little bit of caution. Here’s what I would do:
- Do use Robinhood for a small percentage of your portfolio (ex. 5%-20%) where you can immediately and rapidly buy and stocks, and here is where you can do the majority of your active investing. I think it is absolutely still worth it for its ease of use, intuitive UI and instant deposits.
- Keep the majority of your portfolio (ex. 80%-95%) in a large brokerage like Charles Schwab or Fidelity and use those brokerages to hold passive stocks and efts. The brokerage itself doesn’t matter that much, but make sure it’s been around for a while, and ideally has physical locations. What you can expect here is that the majority of your investments are with the more reputable brokerages and you should be able to get customer service on the line almost immediately if you have any questions or if anything goes wrong.
What does my brokerage allocation look like? For the same reasons and recommendations above, I keep about 10% of my portfolio in Robinhood to buy individual (generally higher risk, higher reward) stocks as an active investor, and the remaining 90% in Charles Schwab which are invested in safe, passive ETFs using the three-fund portfolio method.
Note: Attempting to be objective, I am not being paid to talk about any of the brokerages mentioned here (and I’ve kept my referral links out), but I do use some of these brokerages personally. If you find this information useful, here’s a plug to share it with a friend! 😉