What is investing?
Investing is the act of committing money to an endeavor with the expectation of earning additional income or profit. You can invest in stocks, bonds, index funds, mutual funds, real estate, or your own business.
Investing has many pros and cons, but depending on your risk tolerance, one may be a better fit for you.
Investment Account Types
Probably the two most common types of investment accounts are retirement accounts in the form of either IRAs or variations of the 401k and traditional brokerage accounts. But there are a few others that can be used for specified purposes.
How to Find the Best Investing Apps
Your portfolio is the total amount of investments in one or more investment accounts. To get started with a portfolio, answer the following three questions:
- What kind of investment account do you want to open?
- Where do you plan to open that account?
- How much risk can you handle?
Each type of investment account has advantages and disadvantages, whether a 401k plan, IRA, standard brokerage account, college savings 529 plan, or health savings account (HSA).
Where you open your investment account matters because different brokerages will require different investment minimums, charge different fees, and allow different investments.
You also need to know how much risk you can handle because stocks, bonds, mutual funds, ETFs, and other securities have different risks associated with market movements.
What are Discount Online Brokerages?
A discount online brokerage is often associated with companies like Charles Schwab and Ally Invest. A discount broker is a stockbroker who performs buy and sell orders at a reduced commission rate. Most discount brokers operate using online platforms without the need to engage directly with a stockbroker.
Trades are completed using the online platform, reducing the cost and thus discounting the commission you’d pay. However, since upstart investing apps like Robinhood began offering free stock trades, many online brokerages are now offering free stock trading or zero-commission fees.
You pay less using an online brokerage. However, you’re in charge of managing your trades. If you need the help of a broker, it may be available with the same platform but can also include additional fees.
What can you do with an online brokerage account?
You can buy and sell stocks and index funds. Many platforms offer research tools and a knowledge base to help you make better-informed trades.
Who is it for?
This is forinvestors who want more trading capabilities and the lowest commissions and fees for trading stocks, mutual funds, and exchange-traded funds.
What are Stock Trading Apps?
Stock trading apps are mobile-first online brokerages that allow you to buy and sell securities through your smartphone. The Robinhood app was the first to enter the market, offering investors an opportunity to buy and sell stocks without paying commissions to the brokerage firm. Now, you have more options to choose from.
What can you do with stock trading apps?
With stock trading apps, you can buy and sell stocks as you would with online brokerages. However, there are some tradeoffs. Some free stock trading apps may not offer desktop access or have limited research tools and delayed execution of trades.
Who is it for?
These apps are great for just about anyone interested in buying and selling stocks. Again, some apps offer much more robust tools. Depending on your needs, there are plenty of free stock trading apps to choose from.
What are Micro-investing Apps?
Micro-investing apps help people accumulate investments incrementally. They are often associated with fractional shares. Some apps allow investors to start with as little as $1 to buy a fraction of shares or ETFs (exchange-traded funds). Micro-investing aims to open the stock market to people who may not have hundreds or thousands of dollars to get started.
What can you do with a micro-investing app?
A key benefit of micro-investing apps is the ability to purchase a piece of your favorite company whose full stock price may be out of your price range.
For example, Amazon’s $3,000 per share may be too hefty for most people, but with micro-investing, you can buy just $1, a fraction of the share. You can automate the investments to purchase more “pieces” of Amazon until you own one full share one day.
Acorns was the early pioneer of micro-investing. For example, Acorns’ feature would round up your purchases to the nearest dollar and automatically invest in select ETFs once you’ve reached $5. Today, you have more options to choose from.
Who is it for?
Micro-investing apps are great for people new to investing who want to start small and with little effort. With small incremental withdrawals from your checking account into a micro-investing account, you won’t often notice allowing you to continue spending while investing.
What are Robo Advisors?
A robo-advisor is distinct from other platforms because it offers guided advice through an investment philosophy and proprietary algorithms.
A robo-advisor app gives smaller investors access to advisory services typically only offered to high-net-worth individuals. If you’ve heard of wealth management, think of robo-advisors as online wealth management platforms. They offer algorithmic and automated portfolio management.
What can you do with Robo-advisors?
Robo-advisors can assist you with targeted retirement goals, college savings plans, tax-loss harvesting, portfolio rebalancing, 401-k investment reviews, other retirement accounts, and more.
When you open an account with a robo-advisor, expect to answer questions about your goals, risk tolerance, age, and desired retirement. Based on your answers, their algorithms recommend a portfolio of stocks, bonds, and other investments. Expect that most recommendations will be low-cost indexed funds or ETFs.
Robo advisors often require zero or low initial deposits, and fees are assessed per year based on account balances. These fees are lower than those you’d expect from traditional investment advisory services.
Examples of well-known robo-advisors include Betterment.
Who is it for?
Investors who want online financial advice or investment management support with minimal human intervention.
Which platform should you use?
It all depends on your goals and the help you need to reach them.
