24/7 Wall St. Key Takeaways

•  Changing brokerages is a huge decision and not one that should be made solely on the promise of free money. 
• Robinhood has mixed reviews, especially for those with a large portfolio. 

A recent Reddit post I read made storms. It centered around an offer from Robinhood, which enticed investors to receive a 2% bonus on transferred accounts containing at least $10,000 in margin. 

By transferring to Robinhood, the Redditor estimates they could receive approximately $240,000 over two years, which translates to $120,000 after taxes. This was basically free money. 

The Redditor was wondering if this was a good call or not. Here are the pros and cons of the situation as I see them. Remember, this is just my opinion and not financial advice. 

Pros of Switching to Robinhood

Free money is free money! But Robinhood does offer several benefits beyond this, too:

• Immediate financial incentives: The potential bonus is substantial, offering a significant return in what is very minimal effort. For investors who plan to hold long-term positions and don’t trade frequently, the 2% bonus is very enticing. 
• Ease of access: Robinhood is best known for being user-friendly, with a focus on mobile trading. It appeals to younger users who prefer a simple interface. 
• Cost structure: Robinhood offers commission-free trades, which may benefit those who engage in more active trading in the future (though our Redditor doesn’t appear to be in this category).

The Cons: Risks and Other Considerations

That said, there are several risks involved when switching to a new brokerage like Robinhood:

• Trust: While Robinhood is regulated and offers SIPC insurance, the insurance is limited to $500,000. For a $12 million portfolio, this means a significant portion would not be covered in the event of a broker failure. This raises serious concerns about the security of funds in Robinhood. 
• Switching costs and hassles: Transferring accounts isn’t always so straightforward, either. There are often logistical challenges, fees, and time delays. 
• Additional risks from margin: Adding $10,000 in margin to the account has its own risks, too. There is the potential for margin calls, and the Redditor would need to navigate the complexities that come from using leverage. This is particularly concerning for a long-term buy-and-hold investor, which our Redditor appears to be. 
• Potential for future changes: While the poster had the intention of holding for a long period, that doesn’t mean that Robinhood would continue the deal forever. There is a chance that it could end soon. 

What Should He Do?

In the end, trying to decide whether or not to transfer a $12 million portfolio to Robinhood for a 2% bonus depends largely on risk tolerance and financial goals. 

Many commentators on Reddit complained about the risk of transferring that large of a portfolio to Robinhood, which has come under some scrutiny in the past. There is a potentially high risk involved, and the bonus isn’t incredibly substantial. We’ve reviewed Robinhood Gold if you want to learn more about this platform. 

While the allure of a 2% bonus on a $12 million portfolio is undeniably tempting, it shouldn’t completely reframe someone’s investment strategy. 

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