7 Strategies to Allocate $1,000 on Robinhood Stocks

Robinhood stocks - 7 Strategies to Allocate $1,000 on Robinhood Stocks

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Due to a profound generational shift — along with the advent of digitalization — millennials are arguably more distinct than any other preceding demographic comparison. But one negative of this distinction has been that they haven’t invested with the same vigor as older age brackets. However, this attitude reversed almost overnight with the pandemic, ushering in the era of Robinhood stocks.

For many analysts who’ve hoped for better financial planning among younger Americans, this is finally a step in the right direction. Thanks to Robinhood’s intuitive interface, it’s never been easier for people to channel their inner Gordon Gekko. As the Wall Street Journal reported, that’s exactly what millions did. And honestly, who could blame them? With lockdowns and layoffs, there wasn’t much to do earlier in this crisis.

But now — at almost a year into this pandemic — some valid criticisms have come to light about Robinhood investing. For one, the platform’s interface is attractive, but maybe too much so. Recently, the trading app’s developers have been accused of making their system addictive. Combined with the app’s youth-centric user base, that may cause some problems down the line.

Additionally, popular Robinhood stocks indirectly feature an element of peer pressure. When impressionable youth see their friends racking up profits, they want in on the fun, irrespective of whether they’re educated on investing basics. While a bull market can make anyone look like a genius, it’s how people adjust in bearish times that is a better measure of investing skill.

Therefore, I would recommend anybody new to Robinhood to turn off social media and other distractions. Really, you’ll want to put your money down because it was your decision after doing some research– not because friends convinced you to buy.

And above all else, you should keep your emotions in check. This trading platform feeds off other people’s energy. That alone can be addicting. At the same time, you don’t want to be sucked into an investing strategy based only on sentiment. Remember, Robinhood stocks have gone up but they can just as easily come crashing down.

So, here are seven other strategies to make the best use of your trading dollars on Robinhood.

Robinhood Stocks to Buy: Invest in What You Know

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Suppose you have $1,000 to work with. What’s the best way to make use of those funds? In my opinion, you should start your journey with Robinhood stocks by investing the sectors that you know best.

Chances are, your interests will be similar to other millennials. Fortunately, Robinhood makes it easy for you by listing the most popular stocks to buy on its website. Going through the list, it’s really a who’s who of youth-centric Robinhood investing.

Better yet, picking out companies with which you’re familiar gives you an advantage — maybe even a sizable one — over some traders of the old guard. How?

Most people will analyze a company like Microsoft (NASDAQ:MSFT) based on its earnings trajectory, cash flow, or dividend yield. In contrast, though, you might be a hardcore gamer and recognize a key attribute in the company’s upcoming Xbox Series X console that mainstream analysts are ignoring. That may just put you in a better position to see the potential advantage — all because you eat, drink and sleep video games.

Therefore, if you’re going to plunk down a grand on some Robinhood stocks, stack the odds in your favor by playing with a home-field advantage.

Play the New Normal Carefully, If at All

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If you’re brand new to Robinhood investing, please be aware that some of the wild events you’ve seen in the markets recently are unlikely to repeat. Because of that, I wouldn’t get too caught up trying to play off herd mentality. But if you do, make sure you do so cautiously.

One great, foreboding example of this is Zoom Technologies (OCTMKTS:ZNTO). Currently, the company is a penny stock, with its shares trading at 16 cents at the time of this writing. But for a brief moment in late March, Zoom closed up at nearly $21. Why? Because many rookie traders mistook that Zoom for Zoom Video (NASDAQ:ZM). Needless to say, the carnage wasn’t pretty.

Likewise, another recent, risky scenario has been the speculators gambling on Hertz (NYSE:HTZ). Following its bankruptcy, Hertz fell into penny stock territory. Then, traders decided it was the bargain of the century. Shares jumped back above a buck, with HTZ stock closing at $5.53 at the peak of the enthusiasm.

But like the wrong Zoom, the bullishness in Hertz has been short-lived. So — if you’re going to play this new normal game — be sure that you’re quick on the trigger.

The Fundamentals Eventually Matter

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Although I don’t want to beat up on Hertz too much, I mention it because it’s emblematic of lot of Robinhood stocks. Despite disappointing bag-holders who got in at the $5 level, many investors were still eyeballing the stock in anticipation of another big pop. Well, they got what they were looking for.

No, the most recent spike wasn’t as big as the one in early June. But between Oct. 15 and Oct. 16, Hertz jumped from $1.03 to $2.50. Currently, the stock has settled down at around $1.80. That’s a substantial leap from where it was just weeks ago.

So what should we make of this rise? According to InvestorPlace analyst Matt McCall, you should ignore the hype. He states that people are just buying in hopes of a better price tomorrow. While that tactic may work sometimes, it won’t last indefinitely.

Instead, you should consider the fundamentals. They always matter eventually. And that goes for Robinhood stocks, too.

Of course, sometimes enthusiasm can get the better of us. But unless there’s a viable business outside of this crazy period, you’re better off saving your money for fundamentally better investments.

Go with a 70/30 Setup

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Before you get involved with Robinhood investing, you must remember the finality of zero. That is, you can have the greatest idea in the world, but if you don’t have the funds to put it to work, it won’t matter. When it comes to investing, you’ll regret squandering your funds earlier on dud plays.

So — if you only have $1,000 in your trading account — know that it can vanish very quickly. To avoid that, I recommend a 70/30 setup. This means that 70% of your portfolio is allocated toward stable, reliable names while the other 30% can feature speculative ideas. Further, within that 30%, you can have 10% allocated toward lower, medium, and highest risk categories each.

Now, this isn’t a hard and fast rule. If you’re more on the conservative side, you may want to have an 80/20 setup. Or, if you enjoy the gamble, a 60/40 split might work best for you.

The point is, when you have limited funds, you want to make sure that you have something to work with. If you put everything in speculative stocks, you can be left with very little. And you can’t play Robinhood stocks for the long haul if you have a zero balance.

Look Beyond the Pandemic

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As you know, Robinhood investing feeds off of social media. That’s especially true for novel coronavirus-specific stocks like Sorrento Therapeutics (NASDAQ:SRNE).

Going through the random posts regarding SRNE stock, I came across one that I’ll never forget. One individual apparently bought shares of the oncology specialist because they liked the name Sorrento.

To be completely fair, that may not have been the only reason why they bought the stock. Frankly, though, that shouldn’t even come into the picture when discussing the bull-bear case of a biotech firm. It’s the science that people should focus on.

Back on Oct. 7, I warned readers that there may not be enough advantages for Sorrento’s vaccine candidate, even if it does reach advanced clinical tests. At the time, the stock closed at $11.58. Exactly three weeks later, shares closed down at $7.09.

Am I patting myself on the back for my accuracy? Absolutely not. Sometimes biotechs have their own rhyme and reason. But I’m not surprised at the company’s volatility. Sorrento made a sharp, comprehensive pivot to Covid-19, yet it didn’t distinguish itself enough from the competition.

My advice here? Like my first tip, don’t spend too much money on the Robinhood stocks you know little-to-nothing about.

Don’t Ignore the Safe (or Safe-ish) Ones

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Robinhood stocks often generate headlines because they’re frequently speculative. However, I’ve also been surprised at how reasonable some of the popular names are. Of course, you’re going to see plenty of video game companies and consumer tech firms on the app — I would expect nothing less. But iconic beverage maker Coca-Cola (NYSE:KO) is actually one of the popular listings on Robinhood, too.

This suggests that not everybody interested in Robinhood investing is doing so because they want an alternative to scratch-offs. It’s these folks that you should take some pointers from.

With KO, for instance, you have a pretty recession-resistant investment. Should the economy falter over the coming months — and that is a real possibility given accelerating job losses — you’ll want a “safe” and “boring” organization that pays dividends. Coca-Cola fits that bill.

Additionally, you should take advantage of the exchange-traded funds (ETFs) that are available on the trading app. Admittedly, ETFs are nowhere near as sexy as buying specific names. But when the markets turn volatile — like they’re doing right now — you’ll want the protection of a diversified portfolio.

Further, if you’re tight on funds, ETFs may be a more efficient use of your money. This is another way to enjoy exposure to multiple Robinhood stocks in viable sectors.

If You Feel Uncomfortable, Stop!

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Of course, something that makes us human is that the sting of losing can feel much stronger than the joys of winning. As investors, when we suffer losses in our portfolio, that’s often what we focus on over the winners. And this emotional rollercoaster can be even more devastating when you’re young, less experienced, and tight on funds.

Therefore, if you feel uncomfortable about any of the Robinhood stocks, it’s okay to step away from the kitchen. After all — while Robinhood has led to some incredible gains earlier this year — there’s no guarantee that the lightning will strike twice.

What’s more, with novel coronavirus cases sharply rising in recent days, an economic recovery could be slower than expected. And it’s not just the United States at risk — Europe is also suffering from a second wave. That could have a negative impact in multiple sectors of our markets, too.

So, if you feel the jitters, listen to your intuition. Who knows — we could be seeing some big discounts later.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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