Robinhood has become a favored trading platform for young investors, and often for inexperienced ones. Investors who use Robinhood tend to trade more often than those who use more established brokerage firms, and many engage in speculative trading that carries high risk. In fact, if you look at Robinhood's list of 100 most popular stocks, you'll find that more than 10% of them trade for under $5 a share and are officially classified as "penny stocks."
But not every common Robinhood investment is a high-risk one. In fact, there are three on the list of the 100 most popular that are almost guaranteed to be winners over time. Here's what they are.
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These are the three safest investments on Robinhood's leaderboard
Of all 100 investments on Robinhood's list of most popular trades, here are the three safest:
- SPDR S&P 500 ETF (SPY 1.24%)
- Vanguard S&P 500 ETF (VOO 1.24%)
- Vanguard Total Stock Market ETF (VTI 1.19%)
The first two on this list are exchange-traded funds designed to track the performance of the S&P 500, while the third is an ETF that aims to mirror the performance of the broader stock market, rather than just the 500 large U.S. companies included in the S&P 500.
Because each of these three investments are exchange-traded funds, they trade just like stocks of individual companies: You can buy fractional shares of them if you can't afford full shares and you can buy and sell them throughout the trading day. But unlike shares of individual stocks, you aren't just buying into one company and banking on it performing well. If you buy any one of these three, you'll get exposure to hundreds of different companies traded on the U.S. stock market.
Buying an ETF that tracks the S&P or the performance of the market as a whole minimizes your risk because both the S&P 500 and the U.S. stock market as a whole have a very long track record of solid gains. While the performance of each of these ETFs can be affected by market fluctuations in the short term, because your investment dollars are spread around to so many well-established companies, you're virtually guaranteed to see a positive return on investment given a long enough time horizon. The instant diversification these ETFs presents makes the risk of investing minimal and the low fees that each fund charges means investing costs won't eat away at your returns.
Of course, since these ETFs largely track the performance of the U.S. stock market, you aren't going to beat the market by investing in them. And you probably won't earn eye-popping gains over time, as you might by buying shares of individual companies that perform exceptionally. But while smart investors who put in the time can sometimes do better than buying an ETF that mimics the market performance, it's hard to consistently pick winning stocks over time.
The ease of investing and limited risk these three ETFs present have ensured they've earned their place on Robinhood's leaderboard and deserve to be among the most popular investments. And, they're likely some of the smartest choices many of the platform's users are making. In fact, unless you're excited about researching individual companies and are committed to doing the work necessary to invest wisely, you may be better off jumping on the bandwagon and picking one of these ETFs to put a good portion of your investment dollars into.
