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Is Robin Hood Right for You?

A popular approach to investing is offered through the Robin Hood app. This service allows an investor to participate in the market without requiring any minimum investment and without charging any commission on the trades by an investor. Available investment choices include stock, ETFs, options, a number of ADRs, and even cryptocurrency. A margin account is also available, subject to meeting the regulatory requirement of a $2,000 minimum. The Robin Hood service is offered as a web platform or as a mobile app trading platform. This approach may satisfy the needs of many investors but it is important to understand its limitations.

At present, investing with Robin Hood is limited to taxable accounts and it cannot be used with one’s retirement accounts such as a 401(k) or IRA. Investment in mutual funds is not supported and some ETFs may not be available. Research and data on investment choices is very limited, though there is an option to purchase an upgrade to Robin Hood Gold, which does offer independent (Morningstar) research. Customer support is somewhat limited as well, relying on e-mail and social media to address investor issues.

Robin Hood (and its competitors such as SoFi and Interactive Brokers) provides an easy, inexpensive and useful way to handle investing within the limits described. These limitations should not be a bar to many investors, depending on their needs. Since accounts are taxable, an investor will benefit from remembering that short term gains for positions held for less than one year are taxed as ordinary income. Also be aware that wash sale rules require a waiting period prior to or after a sale before repurchasing the same or substantially identical security. With that knowledge in hand, happy investing!


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