The smartphone has revolutionized the way we manage our finances — from paying bills to tracking our credit scores. Thanks to a wave of new investing apps, it’s never been easier for novice investors to get their start in the market. Services like Acorns, Betterment, Robinhood and Stash let users invest small amounts of money to begin to grow wealth.
But how good are these apps at growing your money, and what are the pros and cons?
Read on to find out all you need to know about investment apps. We’ll periodically update this post with new apps and reviews.
How it works: Acorns is an app that is designed to help users invest their spare change by rounding up purchases to the dollar. By linking your checking account and credit cards to the app, it can take everyday purchases like a $4.22 latte and round it up to the nearest dollar, which in this case would be $5. Once you’ve accumulated $5 in round-up savings, the app invests the money for you in a portfolio of your choosing.
Acorns’ main selling point is how simple it is to choose your investments. To get started, Acorns asks for your age, how long you’re looking to invest, your income, your financial goals, and your risk tolerance. From there, the app recommends one of five portfolio blends. Each portfolio comprises six low-cost exchange traded funds (ETFs). Portfolios range from conservative (with a larger allocation of bonds) to aggressive (with a larger allocation of stocks).
Fees: Like any product aimed at convenience, Acorns’ investing platform comes at a price: $1 per month for accounts with $5,000 or less, and an annual fee of 0.25% of the account value for balances over $5,000.
Making withdrawals: Acorns does not charge a fee for withdrawing money, but it will take some time to hit your bank account. Withdrawals take five to seven business days, the company says. That’s because Acorns has to sell the stocks and bonds from your account to cover the withdrawal, which could take up to three business days alone. Then, the company transfers the funds into your account, a transfer that could take one to three days.
Best suited for: Individuals who struggle to set aside savings each month and want to invest for short-term goals.
- No minimum balance is required.
- No monthly deposit requirement.
- You can deposit extra funds to your account at any time or set up a recurring deposit.
- Withdrawals are free and can be made at any time.
- The app is totally free for students.
- Users are free to accept or decline portfolio recommendations and can change portfolios at any time.
- Easy to withdraw funds without any penalty or fees.
- Acorns’ $1 or 0.25% fee may sound nominal. But for an app aimed at investors who are saving only small amounts of cash on the side, those fees can quickly eat into your long-term investment gains. “If you only have $100 and you’re charged $1 a month, you’re paying $12 a year,” says Robert Farrington, founder of TheCollegeInvestor.com, an investing and personal finance site aimed at millennials. “A 12 percent fee is criminal … and once that money is gone, it is not going to compound.”
There are plenty of ETFs and mutual funds out there that charge far lower fees. But Acorns’ main selling point is the ease of selecting a portfolio, which takes away the headache of comparing dozens of different funds on your own.
How it works: Betterment is a service that pretty much takes all the guesswork out of investing. Users input their investment goals, and the app suggests individual portfolios based on an investor’s risk tolerance and goals. Betterment uses software and algorithms to manage money by investing it into a blend of Vanguard exchange traded funds (ETFs), including U.S. and international stocks, short-term Treasuries, inflation-protected Treasury securities, and emerging market stocks and bonds. Betterment’s algorithm manages your investments for you and rebalances them over time, making sure you’re properly invested in the right mix of funds.
Fees: Betterment currently offers a promotion of up to six months for free. After that, fees are relatively low — 0.35% per year on accounts with a minimum monthly auto deposit of $100 and 0.15% for accounts that hold at least $100,000. But beware: If you do not contribute at least $100 to your Betterment account each month, they’ll hit you with a hefty $3 fee.
Making withdrawals: Betterment does not charge any fees or a penalty for making withdrawals, which usually take four to five business days to process. The website notes that a withdrawal might be delayed if a user recently made a deposit, because the deposit needs to fully settle first before another action.
Best suited for: Novice investors who are investing for long-term goals like retirement.
- Betterment currently offers a promotion of up to six months managed for free. After that, fees are relatively low (0.35% a year on accounts with a minimum monthly auto deposit of $100 and 0.15% with a minimum of $100K).
- The website also offers personalized retirement advice to help educate first-time investors.
- It is easy to withdraw funds with no penalty or fee.
- Betterment recently launched RetireGuide, which offers personal retirement savings advice to users.
- Betterment’s SmartDeposit feature lets users choose a certain amount the app is able to transfer from their bank account into their Betterment account. It’s a savings feature aimed to help people who struggle to set aside extra funds.
How it works: Robinhood is a brokerage service that offers zero-commission stock and exchange traded fund (ETF) trading. Once you sign up for the service and link it to a bank account from which to pull funds, you are ready to trade stocks. Just type in the name of a particular stock and either put it on your “watch list” or buy shares. On the company’s homepage you can find out how much each share of stock is selling for and read current news about the stock. Once the trade has been placed, you can either buy more shares or sell what you have.
Fees: There is no minimum investment to get started, and Robinhood charges no trading fees.
Making withdrawals: Uninvested funds must remain in your Robinhood account for five trading days before they can be withdrawn. The company states that the holding period is established for “anti-money laundering and risk management purposes.” You must also wait for your funds to settle after a sale before withdrawing. From the date the trade is made, it will take another three days.
Best suited for: Individuals who know a bit about stock trading and want a commission-free way to try their hand in the market.
- There is no minimum investment to get started and no fees.
- Users can set up automatic transfers.
- Proceeds when you sell stocks and ETFs are available immediately to reinvest.
- This app is not for suited for novice investors. Unlike Acorns or Betterment, there is no ready-made portfolio designed for your needs. Robinhood is a hands-on service, aimed at people who have a grasp on buying and selling stocks. Robinhood also provides minimal information to investors to reassure them during times of market volatility. “It’s self-directed and you need to know what you’re doing,” Farrington said.
- Robinhood currently only allows users to trade stocks and ETFs. You’d have to look elsewhere if you want to trade options, OTC securities, warrants, or mutual funds.
- The service does not allow users to transfer existing brokerage assets into the app. However, the company says this will be changing soon.
How it works: Stash lets you pick from 30 different flavors of exchange traded funds (ETFs). To make the app more approachable, the ETFs come with friendly names like “Clean & Green” and “American Innovators.” Clean & Green, for example, is the iShares Global Clean Energy ETF, a fund broadly invested in renewable energy companies. The American Innovators fund is the Vanguard Information Technology ETF, which has holdings in over 300 tech companies like Apple, Microsoft, and Facebook. The Slow & Steady portfolio is the PowerShares S&P 500 Low Volatility ETF, a fund invested in low-volatility stocks. Depending on your risk tolerance and investing goals, Stash suggests which funds best fit your needs.
Fees: Stash is similar to Acorns in terms of fees. It charges $1 per month for balances under $5,000 and 0.25% annually for balances of $5,000 or more. (Stash offers a promotion of the first three months for free.) Fees are taken from your bank account, however, and do not come out of your investment portfolio. You only need $5 to get started.
Making withdrawals: Withdrawing funds is fee- and penalty-free, but they are capped at $10,000 per day. Withdrawals take one to three business days to process before funds become available in your bank account. The company notes that the process might take a few more days if you need to sell investments first.
Best suited for: Novice investors who want to get into the market but are intimidated by all the jargon and don’t have much money to play with. It also works for investors who don’t want to pick stocks piecemeal and like the flexibility of investing in fractional shares.
- Fees are relatively low assuming you put enough money in the account each month to offset a high percentage fee.
- Along with ETFs, users can invest in some individual stocks, but only if they are listed as investment options.
- You only need $5 to get started, and Stash offers a promotion of the first three months for free.
- Stash allows you to invest in fractional (or partial) shares in companies.
- Its “Auto Stash” feature allows you to schedule automatic deposits into your account.
- The $1 monthly fee can bite into investment gains. And once your account hits $5,000, Stash begins charging 0.25% annually.
- You can only view your account on a smartphone, as there is no desktop platform.
- Stash is effectively letting investors choose funds that are widely available for anyone to invest in outside of the app — without the additional 0.25% fee.
Farrington noted that it is important to review your investment portfolio on an annual basis to ensure that fees aren’t too high and that it has the investment choices you want. “These apps are designed to be a kickstarter to help you get started, but they might not be able to get you to the next level,” he said.
Regardless, Farrington believes that investing apps are an overall positive. “In general, the easier companies make it for people to invest, the better it is as a whole,” he said.
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