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Robinhood vs. Acorns
The ideal platform depends on whether you’re a passive or active investor.
Both platforms are practical choices for first-time investors, but their individual offerings are markedly different.
Which one is better?
- Choose Robinhood if you’re seeking a self-directed brokerage account or want early access to IPOs.
- Choose Acorns if you’d like to invest through a robo-advisor.
Robinhood and Acorns offer drastically different investment services. Robinhood is an online trading platform that offers self-directed brokerage accounts. And Acorns is a robo-advisor for hands-off investors seeking automated portfolio management.
Active investors ready to buy and sell their own securities will want to explore Robinhood. The commission-free trading that made Robinhood so popular has been emulated by many of its competitors — but there’s more to the Robinhood name than low-cost trading. The platform has one of the most intuitive trading interfaces in the industry, positioning itself as one of the most popular beginner-friendly platforms. Plus, it offers pre-IPO investing, which lets Robinhood traders buy IPO shares at their pre-market price.
That said, Robinhood has experienced multiple service outages and some traders report feeling frustrated with its lack of advanced research tools.
Passive investors looking to have their money managed for them will want to explore Acorns. Investors select from one of five portfolio options, fund their account and Acorns’ robo-advisor takes care of the rest. While ideal for a passive set-it-and-forget-it investor, the platform’s fee structure favor’s investors with high account balances and the available asset classes are limited.
How do Robinhood and Acorns compare?
|Overview||Robinhood is an online trading platform that offers self-directed brokerage services. Investors can trade commission-free stocks, ETFs and options with 24-hour access to 17 different cryptocurrencies. It’s well-suited to new investors looking to start buying and selling their own stocks.||Acorns is a robo-advisor that offers individual investment accounts, retirement accounts, custodial accounts — even a checking account that comes with a free Visa debit card. When investors sign up, they select one of Acorns’ five investment portfolios crafted by industry experts under the guidance of Nobel Prize-winning economist Dr. Harry Markowitz. Platform services are available through three distinct service tiers with accompanying monthly fees. It’s best suited to buy-and-hold investors who want their money managed for them.|
|Stock trade fee||$0||N/A|
|Option trade fee||$0||N/A|
|Minimum deposit to open||$0||$0|
|Tools and research|
|Reputation and customer reviews|
|Apple App Store reviews|
|Google Play Store reviews|
Robinhood vs. Acorns on fees and transparency
Both Robinhood and Acorns make money in different ways. Acorns profits from membership fees displayed on its website. Robinhood profits from payment for order flow — and isn’t forthcoming about it.
Robinhood profits from payment for order flow
How does a broker with a commission-free pricing model stay in business? Payment for order flow (PFOF):
- Brokers route investor orders to middlemen called market makers.
- Market makers fill the order at a slightly better price and pocket the difference.
- In return for investor orders, market makers pay brokerages a fee.
Payment for order flow has been criticized for failing to serve the best interests of the investor. Combine that with Robinhood’s failure to openly communicate how it profits from PFOF to its traders and you’ve got a questionable business practice on your hands.
Now, full disclosure: Robinhood published an article on PFOF that said it earned an average of $0.0023 per equity share traded in the fourth quarter of 2020. It doesn’t sound like much, but it’s clearly enough to keep Robinhood in business.
Acorns profits from membership fees
It’s easier to see where Acorns turns a profit because it’s upfront about its fees. It has a dedicated pricing page on its website where investors can see that they’ll pay $1 to $5 for the service, depending on their membership tier.
To be fair, Acorns isn’t under the same pressure as Robinhood to offer a fee-free platform. Many robo-advisors have ongoing fees, so it’s not unusual for Acorns to charge them — or to have a dedicated pricing page.
Robinhood and Acorns tailor their investment offerings to new investors with educational materials and easy-to-use platforms. Robinhood’s commission-free trading and instant deposits feature is ideal for investors who want to actively trade, while Acorns’ robo-advisor is designed to help passive investors manage their portfolio.
Before you sign up, explore your account options with multiple providers for the broker best suited to your investment needs.
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