For many, investing is intimidating. The complicated Wall Street jargon, the horror stories of Depression and Recession, and a shared mentality that you have to be both wealthy and white collar to have any skin in the game have all contributed. Only 40% of Millennials are investors, and many think their salary alone disqualifies them from trying. Across all age demographics, not enough money is the number one reason cited for staying out of the stock market.
Enter the digital age and apps like Acorns, Stash, and Clink. Each has a slightly different approach, but all accomplish the same thing – investing small amounts of your money in Exchange Traded Funds, or ETFs.
How It Works
You tell the app how often you want to invest (every day, every week, etc.), and the amount you want to invest. (Acorns is a little bit different in that they round up your purchases to the next whole dollar and invest the difference.) Then you let the app do the rest for you! With most of these apps, you can learn about your portfolio, withdraw money at any time, and add larger one-time deposits to grow your earnings.
It takes all the excuses, fear, and intimidation out of investing. You don’t need to make a lot of money, know much about Wall Street, or ever have met with a broker to start. Investing suddenly becomes approachable.
So the question is, do they work? Are these apps effective, are there any “catches”, and should you use them?
One of the greatest benefits of these apps is you don’t have to make 6 figures to start investing. Most of them don’t require a minimum account balance to start, so you can skip your morning coffee and invest $5.74 instead.
They all invest in ETF’s, as mentioned above, but you can choose the level of risk you’re most comfortable with.
They’re all easy to use, it’s simple to start, and the user experience is top-notch.
So, What’s the Catch?
As with any investment, there’s no guarantee you’ll make any money. So if you’re looking for some quick cash or the next financial breakthrough, this is not the place to start.
One drawback to these apps is the fee that goes straight to the app company. The payment structure depends on which app you’re using.
All three of these apps mentioned charge you a monthly fee of $1 up until your account reaches $5,000. Then they charge an annual percentage (.25-.275%) of whatever your account total is. (If you’re a college student with a valid .edu email address, you’re exempt from any of Acorns fees.)
Often our greatest strengths are also our greatest weaknesses, and that may ring true for some users when it comes to these kinds of apps. The big appeal is that it doesn’t take much money to start investing. But in order to make any return on your investment, your investment has to be large enough to have a return.
In this example, if you invest “$0.30 of spare change for 60 transactions for the month, you’ve only invested $18 or $17 after you account for the monthly fee.” The $1 monthly fee sounds small, but can account for a large percentage of what you’re actually investing.
Investing in ETF’s is great because it helps you diversify and doesn’t tend to be too risky. But it’s the only kind of investment you can make with these apps. If you’re more interested in individual stocks, mutual funds, or accounts like Roth IRA’s, then these apps won’t meet your needs.
Should I Use Them?
These apps have both pros and cons, so do your own research before deciding what suits you best. Keep in mind that they are not designed to hold large investments (upwards of $5,000), so if you’re just looking to get your toes in the water and break down some of the fear you may have towards investing, then they’ll likely suit you well. These apps are geared towards Millennials who don’t have the time, money, or expertise to manage a portfolio on their own (or pay someone to do it for them). With that mindset, you can set reasonable expectations for what you hope to get out of the apps.
But if you have specific long-term investing goals, can afford to invest more than a few thousands dollars, and want to make larger returns on your money, skip the apps. Meet with a financial planner that you trust and who shares your financial goals and values.
As this article points out, apps like this can distract you from meeting primary financial goals first. The idea of investing seems really interesting and cool, but if you don’t have a hearty emergency savings fund, a retirement account, or are still paying off debt, wait to start investing. To be clear, this should NOT be a replacement for actual retirement accounts.
Start learning about investing, the stock market, ETF’s, and mutual funds. Learn what the Bible says about investing and start praying about ways to increase your income to increase God’s kingdom. Crown’s online MoneyLife Personal Finance study explains what the Bible says about all areas of our finances, including investing, so if you want to learn more, enroll today!
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