At first glance, Robinhood Market's (HOOD 2.18%) commission-free stock trading platform may seem like would only appeal to investors focused on making short-term speculations on volatile stocks. But look a little deeper and you'll come to see that the platform's users also show a real penchant for investing in large-cap names that make for great long-term holdings.
Let's take a closer look at three stock picks from Robinhood's list of 100 most popular holdings among users that would qualify as great options to buy and hold forever.
1. Bank of America
It's old, stodgy, and even a little bit boring. Robinhood's clients don't care, though. A bunch of them are sitting on stock from Bank of America (BAC 0.98%), which is the nation's second-biggest bank (as measured by assets under management).
These investors arguably aren't looking for a great deal of growth from Bank of America. The banking business is highly saturated, and there's just not a lot of yearly growth to be achieved. Indeed, shareholders are apt to be particularly frustrated with the company's near-term performance. This year's investment banking market is only about half of what it was at this time last year, and the Mortgage Bankers Association reports mortgage loan applications are about one-fourth lower than they were at this point in 2021. Rising rates are the key culprit, and the odds are good the Federal Reserve is about to ratchet them even higher. Of course, a weakening economy could crimp every other facet of the banking business as well.
To true long-term ("forever") investors, though, this cyclical ebb and flow is to be expected. Bank of America is no exception. Robinhood's clients are collectively holding a sizable stake in the bank anyway, knowing that when the economy eventually starts humming again, banking stocks like Bank of America hum too.
In this vein, this bank's stock soared on the order of 700% on the heels of the economic boom between 2011 and early this year. Something similar could certainly happen again.
In the meantime, shareholders are enjoying reliable dividend payments, which currently translate into a yield of 2.6%. Cyclical headwinds or not, Bank of America is at least doing well enough to continue funding its healthy dividend through an economic lull.
Coca-Cola (KO -0.22%) is another solid -- but modest -- growth name Robinhood's users love.
Yes, you could find a more potent pick. If you're truly committed to a holding period of "forever," though, this is one of the few companies with a business model and product base that's simple enough to readily adapt to a changing marketplace.
And Coca-Cola has certainly done plenty of adapting in just the past few years.
Although you can't see it from a consumer's standpoint, the company has largely gotten out of the bottling business, so it could focus more on licensing its powerful brand name. This refranchising of bottlers means they simply pay Coca-Cola regular royalties on sales of Coke-branded goods, taking the onus (and expense) of cost control and operational management off of the company itself. The end result is less revenue but ultimately more profits. Royalty and licensing revenue is very high-margin revenue, whereas profit margins on bottling are pretty thin.
To this end, Coke's dividend is very well supported. It's so well supported, in fact, that the company's not only been able to make a quarterly payment every year for the past 60 years, but it's been able to raise its annual dividend payment for 60 straight years as well. The current yield stands at 2.9%.
Still, aren't consumers rethinking their dietary habits and opting for healthier beverages while increasingly steering clear of sugary sodas? They are, but that's OK. Coca-Cola is also the parent of Dasani water, Powerade sports drink, Minute Maid juice, and Gold Peak tea, just to name a few. It's got plenty of different levers to pull in response to whatever beverage type consumers might clamor for in the future.
3. SPDR S&P 500 ETF Trust
Finally, while some might consider it a convenient way of avoiding picking actual stocks, Robinhood users' decision to pile in the SPDR S&P 500 ETF Trust (SPY 0.43%) is a brilliant idea you may want to borrow for yourself.
It's a bit ironic, really. Although Robinhood's no-commission trading app launched nearly a decade ago, it didn't become wildly popular until 2020, when millions of people shut in by COVID-19-prompted shutdowns (and bored out of their minds) turned to stock trading for entertainment. Being mostly new and relatively small investors, though, too many of them fell into the trap of trading the wrong stocks far too often in hopes of striking it rich in a hurry.
Of course, the horror stories of steep losses -- complete wipeouts -- came as no surprise to more seasoned, veteran investors. What did they know that the newbies didn't? That in many cases, the effort to beat the market often leads you to underperform broad-based indexes like the S&P 500 (^GSPC 0.41%). An exchange-traded fund like the SPDR S&P 500 ETF Trust is a simple way to ensure that, at the very least, you match the market's long-term performance. It's impressive and encouraging that so many Robinhood users that could be doing lots of frequent, no-cost trading are still choosing to plug into long-term instruments like index funds all the same.
There's just one catch, although it's not a problem for investors with a true "forever" mindset. While long-term owners of the SPDR S&P 500 ETF Trust can reasonably expect to recreate the index's average annual gain of around 10%, it won't log that much of a gain every year. Some years it will do better, and other years it will do worse, perhaps even ending it in the red. You'll need to hold onto the fund for several years to get the best possible results.