Using an investment platform is more popular than ever, as it represents a major opportunity for growing your money the right way. In this article, we’re taking a look at two investment platforms on opposite ends of the spectrum – Robinhood and Wealthfront. One investment app offers active portfolio management, while the other investment platform delivers an automated experience. We’ll examine both in detail and let you know how to make the right choice.
What’s the Difference?
Robinhood is a platform for self-directed investing, and Wealthfront is a robo advisor.
For Robinhood, this means it’s built so that users can build their own investment portfolio by buying, selling, and managing their asset base. They can browse Robinhood’s selection of securities and buy and sell their assets in accordance with their own strategy.
Wealthfront is part of a popular category of apps called “robo advisers,” which use complex algorithms to manage your portfolio for you. They are able to instantaneously respond to shifts in the market and in your portfolio. All you do is let them know your investing preferences and risk tolerance, and they handle the rest.
Now that we’ve covered the basics, let’s examine each platform in more detail.
Robinhood Pros and Cons
As noted above, Robinhood is built for the investor who wants to take an active role in managing their portfolio. Robinhood users trade assets offered on the investment platform. Robinhood’s competitive advantage is that it’s a simple and intuitive platform, which makes investing approachable for beginners, while still maintaining enough functionality to appeal to the advanced investor. Let’s break this trading platform down by pros and cons:
Pros
Simple Platform – Robinhood’s basic user platform is perhaps what it owes most of its success to. Robinhood presents users with a basic user interface to monitor their portfolio, browse potential assets, and buy and sell assets. Each asset is tagged, so you can group similar assets and browse assets within certain categories, with each asset also containing a short description of the opportunity. It takes investing and boils it down so even beginners can understand, but it also offers enough functionality for advanced investors.
And make no mistake, Robinhood is very much a self-directed investing tool. It’s for those who want complete control over their investment portfolio. You won’t find the automation features that are found in Wealthfront.
Simple Fee Structure – Another major advantage of Robinhood is its simple, affordable fee structure. Robinhood is completely free to use, with no commission and no fees on all trades. In fact, the only monthly fee is $5 for “Robinhood Gold,” which is an optional membership that nets you additional benefits. There are also no fees for withdrawing or depositing money from your brokerage account. It’s truly a no-nonsense approach to investing.
Cons
Lack of Research Tools – Due to Robinhood’s laser focus on simplicity, it also lacks many of the advanced research and analytical tools found on other investment platforms. This is by design, and to keep everything as streamlined as possible, but it still may be a deal breaker for advanced investors. As an example, Robinhood lays out your portfolio performance in basic line graphs, with no option for the sophisticated “candlestick” graphs that investors may prefer.
Limited Asset Selection – The advanced investor may also be put off by the selection of assets available for purchase on Robinhood. It allows you to engage in ETF trading, stock trading,
options, crypto, and ADR. However, bond and mutual fund trading, as well as futures and currencies trading, are notably absent from this list. People looking to trade the latter assets might not be satisfied with Robin Hood’s investing platform.
Wealthfront Pros and Cons
Wealthfront, as noted above, is a robo advisor. This means that Wealthfront uses automation to create and manage your portfolio for you. But there are many robo advisors on the market, so why should you choose Wealthfront? Let’s break down the pros and cons:
Pros
Intuitive Automation – It’s easy to set up and use a Wealthfront investment account. All you do is click here, and Wealthfront will prompt you with a few questions about your investing goals. From there, this investing app will create and manage your account with diversified, low-cost index funds designed to be resilient against market conditions. Wealthfront automatically adjusts, balances, and reinvests into your account based on the parameters you have set.
Great UI – Wealthfront has an excellent UI for monitoring and adjusting your portfolio. It’s easy to see how you’re doing, and to make changes to the parameters that guide your investment choices. If you like, you can even browse Wealthfront’s selection of hundreds of funds and make the changes yourself.
Transparent Fee Structure – Robo advisors are designed as an affordable alternative to traditional financial advisors, and Wealthfront doesn’t disappoint here. Trading is free, with no fees involved. The only fee associated with your account is a 0.25% annual fee based on the value of all assets in your account. Wealthfront also advertises that 96% of clients’ annual fees are covered by the money they save in taxes, due to the algorithm’s automated tax savings.
Customization Options Available – Unlike some competing robo advisors, Wealthfront doesn’t have to be fully automatic. You can also choose to self-direct your investments to some extent, choosing from hundreds of investment funds across different categories. Popular categories include crypto, socially responsible, US stocks, bonds, and more.
Cons
Not for Traders – Perhaps the main drawback of Wealthfront, and this is true for all robo advisors, is that it is not ideal for anyone who wants to manage their investing portfolio themselves. Wealthfront is designed to be a fully hands-off option. If you want to self-direct your portfolio, you’d be much happier with Robinhood or with hiring a traditional financial advisor.
Robinhood or Wealthfront – The Bottom Line
The truth is that Robinhood and Wealthfront are two popular services that target two very different markets. Whether you’ll be happy with Robinhood or Wealthfront depends on your goals as an investor.
If you want investment that is automated and completely hands off, then you’ll definitely be happier with Wealthfront. It’s a true “set it and forget it” option that gives you the opportunity to passively invest your money and watch it grow.
Robinhood is ideal for those who want to take the reins on their portfolio. Its streamlined platform makes investing accessible for beginners and advanced investors, and its no-fee approach makes it a very attractive option.
Our best advice is to think and long and hard about what you want as an investor. Think of your investment goals and how you’d like to meet them. Consider how engaged you’d like to be in this process. A clear answer to this question will make your decision very easy!
Conclusion
Thanks for checking out our guide to two of the most popular investment platforms on the market. There’s a lot to like about either option. Use our guide to decide which is best for you! You can also check out our guides comparing other investment products, such as M1 Finance Vs Robinhood, Wisebanyan Vs Betterment, or even Wealthfront Vs Vanguard.
