You don’t need $1,000. Just $5 will do. The growing trend in financial services is the use of investment apps – mobile investing applications that let users enter the market with what amounts to spare cash.
No need to meet with a financial adviser face to face. No need to be embarrassed about your salary or your savings account.
“A lot of these apps are democratizing,” said Robert Barba, senior banking and fintech writer and analyst for Bankrate. “They’re meant for people who wouldn’t otherwise get advisory services.”
The new platforms, dubbed robo-advising, use algorithms and technology to provide investment advising usually reserved for people with large pocketbooks. Those that don’t advise still let users pick their own stocks. Many boast low or no fees, ease of use and few requirements.
Betterment, the granddaddy of robo-advising, has more than 250,000 clients and $10 billion in assets under management. One option for picking your own stocks, Robinhood, has more than 2 million users. And the choices keep increasing: Fidelity, Vanguard, Acorns, Stash, Clink, Stockpile – and that’s just the start.
Barba said the best place to start is to see what your own bank offers. Then there are a lot of options beyond that.
Barba advises reading the reviews in the app store to see what other people say. Check into the ownership of the company and its backers.
“If you’re cautious, start small,” he said.
Many of the platforms, aware of their audience, offer basic information – what is the stock market, how does money grow? Some even ask basic questions, such as whether a user has high-interest debt.
Rubicoin has two apps. The first – learn – teaches about the world of investing with jargon-free lessons. The second app – invest – is where money actually goes to work.
“Take your time in picking one,” Barba said. “Make sure you understand what the shares are and the stock market. You should have a good grasp of investing before going into it.”
Barba also noted that one thing hasn’t changed: “You can lose your money.”
NerdWallet’s Investing and Retirement Specialist Andrea Coombes said the type of investment you make should depend on what type of investor you are.
If you’re looking for something that offers a simplified investment portfolio, like a basket of stocks, Acorns and Stash are two options. Both try to ease overwhelmed investors, Coombes said.
For example, users can link their Acorns account to a debit or credit card. Then, it rounds up users day-to-day purchases and deposits the spare change into investment funds. For example, if you spend $3.50 on a cup of coffee, it will charge your account $4 and put 50 cents toward your investment.
Be aware: The app has a $1-a-month charge. Depending on your level of contributions, the payout may not exceed the fee. But it’s a start.
For Stash, you can start an account with just $5.
Another option, Robinhood, offers free trades, but you’ll have to make picks yourself.
For do-it-yourselfers who will spend time analyzing charts and reading analyst reports, downloading an app from a big-name online broker like E-Trade or TD Ameritrade might make the most sense, Coombes said.
“Some apps offer the first month for free or offer other promotions, so look around for deals,” she said.
But, don’t let the lure of an investment app distract you from real financial planning, said Coombes.
“If you haven’t paid down debt or if you don’t have an emergency fund, then you might want to hold off investing until you achieve those goals,” Coombes said. “But it can make sense to get your retirement savings going at the same time that you work towards those other goals.”
Joe Fazio, CEO of Commerce State Bank and author of “This might be a dumb question but … How does money work?” said the most important saving and investing tip is to start.
But before dumping money into the stock market, examine the state of your finances. It makes sense to have a cushion of income in a dedicated savings account. People debate how much you should put away but, Fazio said, “certainly six months of income is a good start.”
This fund is there for when unexpected expenses arise – the water heater breaks, your car needs repairs, you lose your job.
“That money is going to be there when you need it,” Fazio said.
The first investment to make is paying into an employer-sponsored 401(k) plan, Fazio said. That money will be automatically deducted from your paycheck and stowed away for retirement.
“The best way to save is to not have money come through your hands,” Fazio said. “Money usually stops and looks around for something to spend itself on.” Most employers also match contributions. When there’s some extra money in your savings account, that’s the time to invest it, Fazio said.
Published in Daily Times, December 4th 2017.
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