Welcome: Investing 101

The goal of investing is to grow your money for the future. Whatever you dream of—buying a home, going on vacation, or retiring—investing is likely to play an important part in your journey.

On Robinhood, you may invest in stocks, exchange-traded funds (ETFs) and more, all commission-free.

A stock is a unit of ownership in a company. If you own a stock, that makes you a shareholder. As a shareholder, you may receive dividends, or periodic distributions of profit, if the company succeeds. You might also have a vote in some company decisions. Depending on the company’s performance and other factors, the value of your investment may change.

An exchange-traded fund is like an investment smoothie. Rather than picking individual ingredients, an investor might opt for one of these ready-made mixtures. There are many flavors of ETFs, spanning different types of companies and sectors. These investment products are typically packaged and managed by financial professionals, so there’s usually a fee associated with investing in an ETF.

The US stock market has been resilient and grown in value over the last 100 years. This is demonstrated by the S&P 500, which is kind of like a scoreboard that tracks 500 of the largest, publicly-traded US companies.

Over the last 30 years, the S&P 500 index saw an annualized return on investment of about 7.5%. In other words, between Jan. 1990 and Aug. 2020, a $1,000 investment tracking the S&P 500 index would have grown to about $9,300, before subtracting expenses and taxes. (Remember, past performance is no guarantee of future results, and all investing involves risk.) The S&P 500 index has risen over the last 30 years, but its year-to-year performance has varied dramatically — For instance, the index rose 37.5% over 1995 and fell 37% over 2008.

While the S&P 500 has grown over time, it hasn’t been a smooth or straight line – During some stretches, the index declined by 30% or more. This context can help you prepare for when markets get bumpy.

Figuring out how much and where to invest is a personal decision. For many, it depends on their income, expenses, timeline, and risk tolerance.

You might ask yourself a few questions to start: Are you investing for the short or long-term? Do you have savings or an emergency fund?

At Robinhood, you can start investing for as little as $1—with fractional shares, you have the flexibility to invest as much as you want in eligible stocks and ETFs.

People choose to invest (or not invest) in companies for different reasons. Even looking at the same company and data, two people might have different perspectives.

Some investors believe in “investing in what you know”—that means investing in companies whose products you use, or in industries where you have specialized knowledge. Others might prefer investing in the stock market as a whole (for example, buying shares of an ETF or diversifying their investments across many companies).

You can develop a perspective on investing by following the news, doing some research, and learning about the different ways people manage their finances. When examining a stock or fund, it can be helpful to look at past performance, the management team, prospectus, and financial reports.

Ultimately, there are small steps you can take today to begin your investing journey. Starting small and starting early is often more powerful than waiting.

Citation

S&P Dow Jones Indices LLC, S&P 500, retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/SP500, September 1, 2020.

Disclosures

Fractional shares are not transferable to other brokerage accounts. Not all investments available through Robinhood are eligible for fractional share orders. All investments involve risks.

Commission-free trading of stocks, ETFs and options refers to $0 trading commissions at Robinhood. Other fees may apply. View our fee schedule at rbnhd.co/fees to learn more.

Indexes are not available for direct investment and returns are not reduced for expenses or taxes.