Two major players in the mobile stock trading world, Wealthfront and Robinhood, are very different apps offering varying ways for investors to grow their wealth. Wealthfront is a robo-advisor that allows users to invest smartly without having to spend a lot of time studying the markets. Robinhood is a pioneer of free-trade, mobile-first apps that allows users to invest in slices of stocks, so anyone can start investing with just one dollar.
Which do we recommend for investors of all skill levels?
The Facts:
Wealthfront:
- Founded in California in 2008
- Founders: Andy Rachleff and Dan Carroll
- Tradable assets: U.S. stocks, foreign stocks, emerging markets, dividend stocks, municipal bonds, real estate, natural resources, treasury inflation protected securities (TIPS), government bonds, emerging market bonds, and corporate bonds
- Available in the U.S. only
- Fees: 0.25%, minimum of $500 in the Investment account
- Mobile and desktop availability
Robinhood:
- Founded in 2013
- Founders: Vladimir Tenev and Baiju Bhatt
- Tradable assets: stocks, options, ETFs, and positions of cryptocurrency
- Available in the U.S. and Great Britain
- Fees: no trading fees, $75 account withdrawal fee, no account minimum, $5 per month for Robinhood Gold
- Mobile and desktop availability
The Basics: Wealthfront
Wealthfront is a robo-advisor that makes investing easy for everyone, no matter the skill level. Investors take a risk-level assessment and the algorithm determines how to invest for you. With a huge selection of assets, investors can be certain they have a fully diversified portfolio that uses AI to tailor exactly to their risk tolerance.
Wealthfront is ideal for long-term investing. Rather than investing in specific stocks and making quick moves when the market is right, Wealthfront is for investors playing the long game. Investors can customize their own investment portfolio or use the one created for them.
Users reap the benefits of tax-loss harvesting, low fees, customized goal setting, and portfolio line of credit for quick and easy borrowing. They can also set specific goals, such as saving for a house in their neighborhood or sending their kid to college. Wealthfront calculates this through their advanced algorithms, taking third-party data into account to create the most accurate picture of what an individual can do with their money. This planning feature is super helpful for investors saving for any goal.
The Basics: Robinhood
Robinhood is for investors looking to trade individual stocks, options, ETFs, and positions of cryptocurrency. Designed for investors seeking a low-cost option that allows them to purchase slices of stocks, Robinhood is a versatile, simple app perfect for many investors of a variety of skill levels.
Robinhood was one of the first apps to offer zero-fee stock trading, but many other big players have caught up to them in the industry. However, Robinhood has been continually offering new features, such as early IPO access, a suite of learning tools, and a high-yield cash management account. They’ve also joined the crypto craze, offering positions of cryptocurrency rather than the coins themselves.
The app is sleek and easy to use. It’s perfect for investors looking for a low-cost and easy solution on mobile.
Image: One of the advantages of Wealthfront is that you can use a fully-managed, personalized portfolio tailored to your risk tolerance, or you can build your own from scratch. Wealthfront doesn’t place pesky restrictions on what you can do with your money. This is especially apparent in their massive selection of assets. Image from wealthfront.com.
Harnessing the Power of Robo-Advisors
Wealthfront seeks to help individuals grow their wealth without having to think about it. Instead of constantly studying the markets or paying a hefty fee for a human financial advisor to manage your money, Wealthfront offers a comprehensive suite of financial tools at a management fee of 0.25%. And Wealthfront automatically rebalances your portfolios and reinvests your dividends, so you don’t have to make adjustments when the market changes.
Algorithms consistently outperform humans when it comes to investment strategies. An emotionless investor is actually much better than one that can be swayed. While users won’t be getting the personal connection or empathy that human advisors can offer, they will see their wealth grow more with a robo-advisor.
Buy a Slice
Robinhood made slices of stocks commonplace in the financial world. Instead of buying whole shares of stocks, Robinhood allows users to purchase fractions of stocks at any size. This opens up investing for all and allows individuals to invest with whatever extra cash they have on hand.
Fractional shares also make it easier to diversify your portfolio if you’re working with smaller amounts of money. This tool was one of the features that paved the way for more young people entering the world of investing, but can now be found on nearly every low-cost stock trading app. This doesn’t make it a big distinguishing feature from other low-cost apps, but it does distinguish it from Wealthfront, which doesn’t offer fractional shares.
Image: Robinhood aims to provide a sleek, easy-to-use service that caters to young investors. Their simple interface is easy to learn and visually appealing. Trade stocks from anywhere, and don’t worry about fees. Image from robinhood.com.
Save More with Tax-Loss Harvesting
One of the huge advantages of Wealthfront is the tax-loss harvesting feature. Instead of users losing a large sum of money to capital gains tax, Wealthfront sells some securities at a loss. According to their website, 96% of clients’ management fees have been covered by tax-loss harvesting.
Wealthfront is the only robo-advisor with such an advanced tax-loss harvesting tool. For us, this tool really sets the app apart from others and makes it one of the best robo-advisors out there.
Buy Crypto and IPO-Priced Stocks
Robinhood had to find a way to compete with all the other major players who started introducing fractional shares, so they added other features to get ahead.
Crypto: Users can buy positions of cryptocurrency on Robinhood, but not the actual coins themselves. These positions track the prices of the coins, rather than representing the coins themselves. Robinhood isn’t very clear about this on their site, however, and we believe this can be very misleading for users.
IPOs: With this new feature, users can request to buy shares from companies even before they’re publicly traded. It is unclear how many pre-IPO companies are available on the app, but the feature is still new and developing.
Image: Wealthfront operates more like a bank than a typical investing app. Their cash management tool offers many features that banks can’t, such as higher APYs and automatic paycheck splitting, so your funds can go directly where you want them to without having to worry about it. Image from wealthfront.com.
Borrow Money
Wealthfront operates more like a bank than a simple investment app. Users can borrow money against their portfolio, so they don’t have to sell their investments if they need quick cash. There’s no application process and no credit check—truly anyone can get the loan they need. Users can borrow up to 30% of their portfolio and pay interest rates anywhere between 2.45% and 3.70% depending on account size.
According to Wealthfront, borrowers can pay back the money on their own schedule. We’re not sure what exactly they mean by this, but if users really can set their own investment schedule, that’s a huge advantage for borrowing.
Learn to Invest
Robinhood markets itself for young investors who don’t have lots of cash on hand. They offer lots of educational tools for new users to get started. Everything from investing basics to the ins and outs of options trading to retirement planning is written about on the site. The format is easily scrollable and searchable, so users can find the answers they need.
They also have Robinhood Snacks, which are short email newsletters updating individuals on market changes or diving into current events. This newsletter claims to provide concise, three-minute-or-less written updates.
Image: Robinhood is a pioneer in the realm of fractional-share-investing. This feature allows users to invest in any stock, no matter how much cash they have on hand, and have a well-diversified portfolio with smaller amounts of money. Image from robinhood.com.
Who It’s For: Wealthfront
Wealthfront is for investors who want to save toward a big goal. It’s also for investors who have a larger sum of money that they want to be managed without having to worry about it. It’s not for investors working with smaller sums of money, since you need at least $500 in the investment account.
Who It’s For: Robinhood
Robinhood is for investors who want to take an active approach to their portfolios and invest in stocks or slices of stocks with whatever funds they have on hand. It is not for investors who want a hands-off approach or a one-size-fits-all long term investment strategy.
Image: One of the hallmark features of Wealthfront is the planning section. Users can put in the goal they’re trying to reach and the year they’d like to do so. Then Wealthfront calculates what you need to save and how you can adjust your financial plans to reach that goal. Image from wealthfront.com.
Our View
We recommend Wealthfront over Robinhood, primarily because Wealthfront has so many advanced tools that low cost stock-trading apps like Robinhood simply cannot offer. Wealthfront is best for long term holdings, but users can set short term goals as well.
The good thing about these two apps is that you can use them in conjunction. They’re both very different, so it’s a good idea to try them and see which investment strategy works for you. However, algorithms perform better than humans when it comes to investment strategies, so we recommend taking that into consideration when choosing your broker.
For a more detailed review of Wealthfront, read this article.
Q&A
Is Wealthfront in the U.S.?
Yes, Wealthfront is available in the U.S.
Is Robinhood in the U.S.?
Yes, Robinhood is available in the U.S.
Is Wealthfront legit?
Yes, you can be sure your money is safe on Wealthfront. They are members of the SIPC, with accounts insured up to $500,000. Cash accounts are covered by the FDIC.
Is Robinhood legit?
Yes, you can be sure your money is safe on Robinhood. They are SIPC-insured for up to $500,000 in investments and $250,000 in cash. Crypto investments are not protected, however.
Does Wealthfront have crypto?
No, Wealthfront does not offer cryptocurrency.
Does Robinhood have crypto?
Yes, Robinhood offers cryptocurrency trading, but only in positions of crypto. They are not an exchange for the actual coins.
Is Wealthfront a robo-advisor?
Yes, Wealthfront is a robo-advisor.
Is Robinhood good for beginners?
Yes, we believe Robinhood is a great choice for beginners. Their Learn section is extensive, with articles ranging from basic to complex. The app is simple and sleek—easily navigable for individuals new to the financial world.
Is Wealthfront good for beginners?
Yes, Wealthfront is a great choice for beginners, primarily because once you set up your account, you barely have to do anything! The algorithm handles all your investments for you.
Does Robinhood have fractional shares?
Yes, Robinhood has fractional shares!
Does Wealthfront have fractional shares?
No, Wealthfront does not offer fractional shares.
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