On Tuesday's article about how to invest, Beth wrote with an awesome question about getting started if you don't have much money. If you don't have a lot, traditional advisors aren't interested in you. I sent her an email to get more info.
Basically, Beth wants to know: Which investing app is best?
This year, I'm getting things together financially. I'm paying off my consumer debt, contributing to my 401(k), and controlling spending. I thought I might hold off on investing until next year, but your article about how to invest made me realize that investing $50 per paycheck should be easy to do.
What do you think of investment apps like Stash, Acorns, etc? Past experience with bigger firms like Merrill has been they don’t respect the beginner with smaller amounts.
Beth's dilemma is a common one. Traditional brokerages and investing firms really don't care about beginning investors with small amounts to sock away. They want whales — the big fish with million-dollar net worths and lots of money in the market. (And if those whales like to buy and sell all of the time, so much the better!)
Nobody is interested in a recent college graduate with a net worth of $10,000 who just put her first thousand bucks in a Roth IRA.
Current Investing Apps
You might think that as a money writer, I'd be up-to-date on modern investing apps. You'd be wrong. Remember, I was “retired” for several years. I haven't followed developments in the world of fintech. It's time to change that.
As a first step, I spent several hours looking at a variety of investing apps. Here are seven of the best. (If I'm missing any that you like, please let me know.)
- Acorns is a “micro investing” app. You connect the accounts and cards you use to make everyday purchases, then go about your daily life. When you make a payment, Acorn rounds the amount to the nearest dollar, investing the spare change into low-cost mutual funds based on parameters you set. Acorns charges 0.25% per year (or a minimum of $1 per month). This isn't a lot, but it is an added cost. [Users give the Acorns app 4.7 stars in the iTunes store.]
- Betterment is what's called a robo-adviser. It's like a traditional financial adviser, but automated and online. This means Betterment does more than just help you invest; Betterment also gives you recommendations for how to achieve your financial goals. Relatively speaking, the company has been around a long time and is well-respected in the financial blogging community. Like Acorns, Betterment's annual fee is 0.25% of your balance. (Disclosure: I've visited the Betterment offices in NYC, where a friend of mine works. The CEO gave me some free t-shirts.) [Users give the Betterment app 3.8 stars in the iTunes store.]
- Blooom — yes, there are three O's — is a niche robo-adviser. Their single goal is to help users with 401(k)s make better decisions. Blooom will analyze your 401(k) plan, prioritize your investment choices, and help you crunch the numbers to help you decide how to pursue your financial goals. For basic services, Blooom costs nothing. For advanced services, it costs $10 per month. [It doesn't appear that Blooom has an app in the iTunes store.]
- Robinhood is a smartphone app that does only one thing: allow users to buy and sell stocks. You can't do anything fancy — not even trade mutual funds. (Well, you have access to exchange-traded funds, which are mutual funds that can be bought and sold like stocks.) The upside? For most people, stock trades are free. If you want complex services, you pay. But if all you want to do is buy and sell stocks, you don't pay a commission. That's amazing! (My pal Jim from Wallet Hacks has an in-depth Robinhood review, if you want more info.) [Users give the Robinhood app 4.8 stars in the iTunes store.]
- Stash is another smartphone app that helps people get started with investing. You can make purchases as small as $5 at a time. Plus, you can set up automated investments. The downside seems to be that you're limited to a universe of 40 exchange-traded funds. (Honestly, this isn't much of a downside. In fact, this is a perfect approach for novice investors.) [Users give the Stash app 4.7 stars in the iTunes store.]
- Wealthfront wants to be a full-service financial adviser, providing clients with advice for all sorts of investment, saving, and borrowing decisions. Like most of these tools, their advice is based around investing with index funds (which is a good thing) and their fees are 0.25% of your portfolio balance (also a good thing). I can't be certain — because their website is too wordy and doesn't get to the point — but it seems as if this would be a great tool for many GRS readers. [Users give the Wealthfront app 4.9 stars in the iTunes store.]
- Wealthsimple, like Betterment and Wealthfront, is a robo-adviser that helps clients invest in index funds. The downside is that Wealthsimple costs twice as much: 0.5% of assets. (Wealthsimple is free until you have more than $5000 invested.) Some GRS readers may like that Wealthsimple offers options for socially-responsible investing. Finally, I should note that Wealthsimple has a terrific online magazine (which regular people might call a blog), which features solid money advice and interviews with celebrities about their financial backgrounds. [Users give the Wealthsimple app 4.6 stars in the iTunes store.]
Mini-rant: All of the websites for these apps — except Acorns and Wealthsimple — are deeply flawed in a fundamental way. It's not obvious to a new user what the apps actually do. Acorns does a stellar job. In big, bold letters on the front page it says: “Invest your spare change.” That's exactly what the app does. Wealthsimple says: “Investing on autopilot”. Also clear and to the point.
I think any of these would be a great place for Beth to get started with investing. Based on our short email conversation, I'd probably suggest that she try Acorns and/or Betterment.
Having said that, I want to point out to Beth (and other readers in her shoes) that you don't actually need an investing app or a broker or an investment advisor. You can do this all yourself. Yes, it involves a couple of hours to get started, but it's totally non-difficult to set up accounts with companies like Vanguard or Fidelity so that you can invest without a third party in the middle.
My girlfriend is not a money nerd like I am. Kim has always used companies like Charles Schwab to manage her money. But during our RV trip around the U.S., she finally decided she wanted to manage her money herself. At a campground near Shipshewana, Indiana, she filled out the paperwork to open a Vanguard account, then transferred all of her money to Vanguard index funds. If she can do it while on the road, I'm certain that Beth can do it at home.
There's another option that finds a middle ground between using an app and paying a traditional adviser. My friend Shannon owns The Financial Gym in New York City. She works with all sorts of clients to help them meet their financial goals. I think it's an awesome service, which is why I'm part owner of the business. (And by “part owner”, I mean that I own 0.86% of The Financial Gym.)
Now it's your turn. What do you think? Do you use a smartphone app to sock away money? Have you tried one or more of these apps? What did you think? What would you recommend for somebody like Beth, who is just getting started? What about for somebody like me, who has more experience? Which investing app is best?
Author: J.D. Roth
In 2006, J.D. founded Get Rich Slowly to document his quest to get out of debt. Over time, he learned how to save and how to invest. Today, he's managed to reach early retirement! He wants to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you reach your goals.