Robinhood Alternatives: Better Online Brokerages (2024)

Looking for Robinhood alternatives? You've come to the right place as a DIY investor.

Robinhood is an online brokerage house that steals from the poor (retail investors) and gives to the rich (hedge funds). Robinhood doesn't charge its users a fee. But it sells its order flow to hedge funds and other institutional investors.

When Robinhood decided to arbitrarily shut down the trading of 13 names on January 28, 2021, it caused thousands of investors to lose billions of dollars. As a result, you would be nuts to continue trading on the Robinhood platform. During the next high-volume trading issue, you could get trapped again.

Now that Robinhood went public on July 29, 2021, it will be one of the greatest ironies if the Robinhood platform and other trading platforms had to suspend trading of HOOD stock. Since IPO, Robinhood's stock has performed poorly.

Features you want from an online brokerage:

• Reliability – You can log in without the website crashing. The online brokerage stays up during trading hours. There are few or no bugs.

• Fairness – You should be able to buy and sell and trade whatever securities you want without artificial interference from the brokerage. In other words, the brokerage won't randomly shut down the ability to trade certain names out of the blue or lock you out of their platform.

• Real-Time Quotes – In order to trade effectively, you need real-time quotes, not delayed quotes. Securities move too quickly for you to be waiting on a 10 or 15 minute lag.

• Robust Research – The best online brokerage houses will have robust proprietary research and data on various stocks and bonds. The research is important to get an idea of what the street is thinking and to help you make better investment decisions.

Beware Of Using Robinhood: Find Alternatives Instead

When Robinhood shut down the ability to trade in 13 names like Gamestop and AMC, it demonstrated to the entire investing community it was more concerned about protecting its own business and its investors, than doing right by its customers.

Before Robinhood significantly hurt its reputation as an online brokerage house, it was valued at more than $20 billion. Citadel, is one hedge fund that owns a big stake (~$700 million) in Robinhood. However, Citadel also owns a big stake in Melvin Capital, a hedge fund that was short Gamestop and other names, which had lost billions of dollars in the position.

Melvin Capital reportedly lost 53% in January 2021 due to Gamestop and other securities!

These cross dealings show how complicated and potentially rigged the system is. By shutting down trading in names that were causing big losses to one of its investors, Robinhood is hard to be trusted.

If I was trading on Robinhood, I would at least hedge by having capital at other online brokerage houses. This way, the next time Robinhood crashes, you can still make trades on a different platform.

Overall Recommended Robinhood Alternatives

Here are my three Robinhood alternatives ranked:

1. Fidelity
2. Charles Schwab
3. TD Ameritrade
4. Fundrise Innovation Fund
5. Honorable mention: Ally Invest

Robinhood used to have a competitive advantage before October 2019. It offered free online trading of all securities, no matter how small of a position. Thanks to competitive forces, one-by-one, competing online brokerages eliminated their trading commissions as well.

Therefore, Robinhood no longer has an advantage. Further, do you really want Robinhood selling your data and investment flow to hedge funds so they can make money off you? Of course not. This is another reason why you need to look for Robinhood alternatives.

The Best Robinhood Alternative

I've been investing online since 1997 before even working on Wall Street from 1999 – 2012. I've tested and used eight online brokerages during this time. In my opinion, the best Robinhood alternative is Fidelity Investments, aka Fidelity.

Fidelity was founded in 1946 and has the most robust online trading platform. Its user interface is great. The research is robust. And the ability to create new accounts and transfer money is easy.

All trading on Fidelity is free. Further, Fidelity has its own index and sector ETFs as well. They are free and were free before all the online brokerages eliminated their trading fees.

I use Fidelity for my two children's Roth IRAs, custodial investment accounts, 529 plans, Solo 401k, SEP-IRA, and taxable investment accounts. Reconciling my trades come tax time is also easy because Fidelity does it for you.

Ideally, you want to have one online brokerage firm handle all of your investment accounts. It makes tracking your finances much easier.

I've been using Fidelity for over 20 years. Given Fidelity’s size, it has a better chance of withstanding massive trading floor when settling positions. Therefore, it should be able to stay up longer than the rest.

Other Robinhood Alternatives To Consider

If you don't want to go with Fidelity Investments, then here's a summary of the other Robinhood alternatives.

Charles Schwab

Charles Schwab was founded in 1971 and is publicly traded on the NYSE under the ticker SCHW. With a market capitalization of roughly $100 billion, Charles Schwab is a giant with low counterparty risk.

Schwab is the original disruptor in the discount brokerage space. It pioneered lower costs for investment funds and commissions. While it entered the no-commission-trade space after Robinhood, it was the first of the major brokerage firms to do so.

One interesting thing about Charles Schwab is that it acquired Motif Investing in May 2020. I used to consult for Motif down in San Mateo several years ago. By acquiring Motif Investing, Charles Schwab now successfully offers up fractional shares to its customers.

For example, let's say you only have a $5,000 portfolio. But you really want to buy Amazon stock that is trading above $3,000 a share. Buying one share of Amazon would mean your portfolio was 60% in Amazon stock. Instead, you can now buy a fractional share of Amazon for a more balanced allocation.

Schwab did put some restrictions on GameStop. It didn’t allow clients to sell naked call options “in order to mitigate an unlimited risk situation.” (Naked call options are sold uncovered, meaning without any offsetting positions.) But there was no outright ban on buying or selling.

TD Ameritrade

TD Ameritrade is one of the original online brokerage accounts. Ameritrade was the first online brokerage account I used to start trading back in 1997.

The company was founded asAmeritradein 1971 before the company acquired competitorTD Waterhousefrom theToronto-Dominion Bankin 2006. The newly combined company was then renamed TD Ameritrade, with Toronto-Dominion Bank keeping about 40 percent minority ownership.

In October 2020,Charles Schwab Corporationacquired TD Ameritrade in a $22-billion stock deal that gave Toronto-Dominion Bank 13 percent minority ownership in Charles Schwab. Therefore, TD Ameritrade and Charles Schwab are under the same umbrella.

Honorable Mention: Ally Invest

Ally Investis the online brokerage arm of Ally Bank, the popular online bank. With the same login, you can manage your banking and investments under one virtual roof.

Ally Invest is a relative newcomer to the market. Its parent company, Ally Financial, created the platform from its purchase of TradeKing in 2016. If you open an account with Ally Invest, you may be able to get a cash bonus up to $3,500. The bonus depends on how much you deposit.

Historical Problems With Robinhood

Robinhood was only founded on April 18, 2013. Therefore, it has had a lot of startup growing pains. If you are investing a significant amount of money, the last thing you want are glitches.

For example, at the beginning of March 2020, when all stock markets were tanking due to the global pandemic, Robinhood crashed three times in one week!

Given the crashes, investors couldn't sell or buy stock during the quickest stock market correction in history. If an investor had a position on margin, he or she could have gotten completely wiped out. Not being able to access your online brokerage account during times of extreme volatility is the worst.

If an investor on Robinhood read, How To Predict A Stock Market Bottom Like Nostradamus, and wanted to buy during the crash, he may not have been able to either.

Robinhood blamed the crashes were due to a mix of higher order volume and high account signups. Not being able to log onto your online brokerage account and make trades is a maddening feeling.

Too Many Recurring Debacles

The latest Robinhood debacle of shutting down the ability to buy 13 stocks on January 28, 2021 should make investors very wary. There are already so many investment variables to be aware of. To now have to always look behind your back, wondering whether Robinhood will bodyslam you is disconcerting.

I personally got entangled in Robinhood's nefarious ways after holding a remaining 50-share position in BBBY on January 28, 2021. I was day trading the day before to see if I could benefit from the Gamestop mania. When Robinhood decided to arbitrarily prohibit the buying of BBBY, the stock crashed by 40%!

If I had held onto my original 1,313 position in BBBY on January 28, I would have lost about $26,000! Instead, I “only” lost $500 after being up $500, for a $1,000 swing. Will Robinhood reimburse me and thousands of others for our losses? Doubtful.

Investors have filed a class action lawsuit against Robinhood for their decision to halt buying of 13 securities that literally wiped out billions of dollars of wealth.

Unfortunately, nothing will probably come of the class action lawsuit. Instead, Robinhood will probably grow even bigger as more FOMO-induced people on the sidelines sign up.

So don't worry Robinhood employees, founders, and institutional investors. You will most certainly get much richer after this latest debacle. Money over honor! Congratulations for raising another $3.2 billion from investors in a snap.

Find A Better Online Brokerage Than Robinhood

Robinhood had a strong value proposition when it offered free trades before the competition followed suit. Now, Robinhood has no competitive advantage. Instead, Robinhood offers a worse value proposition for traders and investors.

Do you really want to trade on a platform that steals from the poor and gives to the rich? Institutional investors like hedge funds will get rich off of Robinhood's IPO.

Hedge fund managers often charge a 2% fee on assets under management and 20% of profits. Therefore, many of these hedge fund managers are making huge money. We're talking $100+ million or $1+ billion paydays for some of the largest hedge funds. This includes the owner of Citadel, which owns a large portion of Robinhood.

Look into investing with the Robinhood alternatives I mentioned in this post instead. If you ever get caught up in a Robinhood outage or halt-trading debacle like I did, you will be livid.

Diversify Your Investments Into Real Estate

Stocks are very volatile compared to real estate. Therefore, if you want to dampen volatility and build wealth at the same time, invest in real estate. Real estate is my favorite asset class to build wealth.

The combination of rising rents and rising capital values is a very powerful wealth-builder. By the time I was 30, I had bought two properties in San Francisco and one property in Lake Tahoe. These properties now generate a significant amount of mostly passive income.

In 2016, I starteddiversifying into heartland real estateto take advantage of lower valuations and higher cap rates. I did so by investing $810,000 with real estate crowdfunding platforms. With interest rates down, the value of cash flow is up. Further, the pandemic has made working from home more common.

Best Private Real Estate Investing Platforms

Fundrise: A way for all investors to diversify into real estate through private funds with just $10. Fundrise has been around since 2012 and manages over $3.3 billion for 400,000+ investors.

The real estate platform invests primarily in residential and industrial properties in the Sunbelt, where valuations are cheaper and yields are higher. The spreading out of America is a long-term demographic trend. For most people, investing in a diversified fund is the way to go.

CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations and higher rental yields. These cities also have higher growth potential due to job growth and demographic trends.

If you are a real estate enthusiast with more time, you can build your own diversified real estate portfolio with CrowdStreet.However, before investing in each deal, make sure to do extensive due diligence on each sponsor. Understanding each sponsor's track record and experience is vital.

I've invested$954,000in real estate crowdfunding so far. My goal is to diversify my expensive SF real estate holdings and earn more 100% passive income. I plan to continue dollar-cost investing into private real estate for the next decade.

Invest In Private Growth Companies

In addition to investing in public equites through Robinhood and Robinhood alternatives, consider investing in private growth companies through a venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment.

One of the most interesting funds I'm allocating new capital toward is theInnovation Fund. The Innovation fund invests in:

• Artificial Intelligence & MachineLearning
• Modern DataInfrastructure
• Development Operations(DevOps)
• Financial Technology(FinTech)
• Real Estate & Property Technology(PropTech)

Roughly 35% of the Innovation Fund is invested inartificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!

The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. In addition, you can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.

Related posts:

The Proper Asset Allocation Of Stocks And Bonds By Age

The Recommended Split Between Active Investing And Passive Investing

Robinhood Alternatives is a Financial Samurai original post. For more nuanced personal finance content, join 65,000+ others and sign up for thefree Financial Samurai newsletter. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009. I help people get rich and live the lifestyles they want.