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Looking Under the Hood at Robinhood

Morningstar’s Global Risk Model reveals how some of the app’s most popular stocks stack up on 11 different measures of equity-related risk.

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Robinhood, the brokerage app geared toward smaller individual investors, has surged in popularity thanks to its free trades, zero account minimums, and streamlined user-friendly interface. According to a Robinhood spokesperson, the app currently has more than 13 million users with a median age of 31. Thanks in part to Robinhood’s growth, millions of smaller investors are now actively engaged in buying stocks for their own portfolios.

Robinhood’s mission is to democratize investing and make access to the financial markets “friendly, approachable, and understandable,” a laudable goal. But buying individual stocks is obviously more risky than investing through a broadly diversified mutual fund. More than four in 10 U.S.-based stocks have suffered drops of 50% or more over a three-month period, compared with just 2% of all U.S.-based equity mutual funds. It’s also crucial to get a handle on the overall characteristics of all of the stocks (and other investments) you own. Understanding their individual traits can help shed light on how they’re likely to perform in different market environments.

Amy C. Arnott has a position in the following securities mentioned above: BRK.B, SBUX, JNJ, XOM. Find out about Morningstar’s editorial policies.

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