Should you have a Robinhood account?
Maybe you want to get better at doing the money thing. Maybe you’re new to investing and want to understand how to buy stock. Maybe you’re reading about all these nerds on Reddit getting rich and you’re like, hey wait a minute… 🤔
Investing: It’s complicated
Being responsible with money is not really about using the stock market as your ATM. There’s a reason most people earn a living in other ways and then invest those earnings for the long haul—it’s predictable! That’s a huge benefit when you’re planning for a future that is years and even decades away.
Here’s the thing. Investing small amounts in stocks, funds, and options is a great way to learn about the financial markets. Doing it in a fun app with low or no fees is even better. But you’re unlikely to beat Wall Street or earn any kind of significant income this way. That’s why it’s such a big deal when it happens once or twice. Because it usually doesn’t!
In some ways, picking stocks is more like gambling than financial planning. Can you afford to buy a lottery ticket every once in a while, just for kicks? Sure. But do you take all your paychecks straight to Vegas? Probably not, because that would be dumb.
Taxes: These are important
Robinhood doesn’t offer retirement accounts like 401(k)s, IRAs, and Roth IRAs. When you have money saved and ready to invest, these are generally the types of accounts you want to prioritize. That’s because they’re tax advantaged—meaning that you pay less in taxes when your money is in these accounts.
401(k) and IRA accounts save you money on taxes now. Roth IRAs save you money on taxes later. The federal government has created tax laws around these accounts to help people save. Over time, these benefits are huge, which is why good financial planners advise saving in these accounts. You can invest that in a diversified portfolio (a mix of lots of different stocks and some government bonds).
Brokerage accounts like Robinhood don’t allow you to save money on taxes. You already paid taxes on the money in that account, and you will pay taxes on the money you earn from investing it too. Over the long term, that means you pay a lot more than you would with a tax-advantaged retirement account.
The bottom line: Easy does it
So if you want to learn about investing, go for it! But keep your Robinhood account balance small, and remember what comes first when you’re deciding what to do with your extra money. Good financial planning is about playing the long game.
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When I was first learning about stocks, I picked a few to watch. One of them was Netflix. Daaaang that would have made me a ton of money! But all the rest (every single one) were such duds that I don’t even remember what they were anymore. So it’s probably a good thing that I didn’t have any real money to invest after all. #luckyme