Investment apps make it easy, fun to save
Low management fees are just one benefit
A host of new micro-investing apps including Robinhood, Acorns and Stash make it easier than ever to invest on the go, with zero experience and little more than pocket change to pony up.
Is that a good thing in a fluctuating market? It depends on who you ask, what you’re after — and whether you want one more way to get addicted to your smartphone.
These kinds of apps are exploding right now, appealing mainly to Millennials looking for convenient ways to start saving and increasing their money. The apps’ low barriers to entry, easy automation and familiar tap-swipebuy, Tinder-style interface have led to a gold rush of sorts.
Stash lets you pick more than 40 different flavors of exchange-traded funds (ETFs) and stocks for a minimum deposit of $5. According to Stash, since it launched in late 2015, it’s amassed nearly 2 million customers and 5 million educational subscribers, with approximately 40,000 new clients joining weekly.
Acorns lets you round up credit and debit card purchases to the nearest dollar and then invests your digital change. It says it’s now up to 3 million users.
Robinhood, a stock brokerage app that lets you buy and sell individual stocks for $0 a trade, has about 3 million accounts, and more than 1 million people signed up for early access to Robinhood’s new crypto trading service.
The Robinhood app is free, while Acorns and Stash charge a low management fee.
One of the biggest advantages to micro-investing apps is that they let you bypass brokerage account minimums — which sometimes require thousands to start — and skip the struggle of saving up enough to invest in a mutual fund.
Download the app, set up a profile that lets the company know the best kinds of things to invest your money in, connect a bank account — and you’re
off.
They’ve attracted young investors as the bull market sprints toward its 9th birthday. But do they work well when the market is diving?
The answer to that question depends on who you ask. Several 20-something investors I spoke with say they’ve been great. What once was prohibitively expensive and especially daunting for this demographic is now literally in the palm of their hands.
“Most of the apps that are coming out are essentially piggy banks,” explains Chris Michaels, a Raleigh/DurhamN.C., investment enthusiast who uses a handful of similar apps on his phone. “You put a little in week after week, and before you know it, hopefully you’ve grown your bank account to something substantial.”
Many app users I spoke with say they’re adding about $25 a week into their micro-investing accounts. Not enough to really “make or break” them financially should the markets take a massive downturn. The apps give them a cheap, convenient and familiar modern way to dabble in investing by making small, automated transfers into passive, individual non-retirement accounts.
“I use them to learn about the stock market and gain perspective in general,” my stepson, Guy Blelloch, tells me over the phone.
His Robinhood account grew by about $500 in the first year — or about 15% — on his initial investment. That’s about 14.99 percentage points more than it would have earned sitting in a traditional saving account during the same time period, he points out.
Of course, he could have just as easily lost it all, too. When the markets took a nosedive in early February, many novice investors said they were worried. On Facebook group pages, micro-investing app users encouraged each other to “ride the wave” and invest for the long term. Acorns and Stash also sent in-app messages reiterating the importance of riding out the rough patches.
“Consider market fluctuations as opportunities to continue adding to your portfolio at lower prices,” says Stash CEO and co-founder Brandon Krieg.
A standard refrain from experienced financial advisors: Don’t put anything on the table you’re not willing to lose.
“These companies have an opportunity and an obligation to really educate users,” says Robert Barba, senior banking and fin-tech analyst at personal-finance website Bankrate. “You’re investing in the market, and the market swings. These are not usually sophisticated investors. Plunges can lead to panic, overreaction and risky behavior that you don’t usually see with more (seasoned investors).”
Do-it-yourself investors need to do their homework, making sure they take advantage of an employermatched 401(k), figuring out how seemingly small fees cut into returns and seeing if they have access to taxfavored investment accounts like an IRA.
“If you’re in a financial position to use these apps, that is, if you’re already saving 15% or so of your income for retirement, you’ve already built up an emergency fund, and you’ve paid down high-interest debt, then they can be a great way to learn about the markets,” Andrea Coombes, NerdWallet’s Investing and Retirement Specialist says.
Jennifer Jolly is an Emmy Awardwinning consumer tech contributor.