Make Investing Simple Whether you’re putting away your first $1,000 or have been saving for the future for years, you’re going to want to consider investing your funds at some point. Doing so will allow you to maximize returns and exponentially grow your savings. Unfortunately, the investment process can be pretty intimidating, especially if you are starting out on your own. It’s hard to know how to begin, where to invest, how to balance your portfolio and even what sort of fees you should expect to pay along the way. That’s where the convenience and ease of today’s best investment apps can come into play. [youmaylike] What are Investment Apps? Once upon a time, your only choice for investing was to pick up the phone and call your stock broker to initiate a trade. You were charged for the service, either based on commission or as a flat fee per transaction. While stock brokers are still an option, you can take investing into your own hands these days, without ever needing to talk to another human. And it’s all thanks to investment apps and platforms. Today’s apps offer a range of services and features. With them, users can: Research funds and individual stocks. View fees and expenses related to investment choices. Invest funds on the go, and even automate regular contributions. Automatically reinvest earnings on current investments. Adjust portfolio for personal risk tolerance. View performance projections. Choose funds or individual stocks that align with personal beliefs, through portfolios based on socially-responsible missions. The best part? Investing through trusted apps is usually cheaper and faster and you’ll have instant access to your portfolio/reports at any time of day. Not only that, but you’ll also be able to set your investment risk tolerance, rebalance your portfolio and even reinvest earnings automatically. Who are Investment Apps Designed For? Whether you’ve been playing the market for ages or are ready to invest your first $100, the right investment app is worth considering. For those new to the stock market, apps will simplify the process and put the power of investing at your fingertips… literally. From your phone or computer, you can easily see portfolio recommendations based on your own goals, savings plans and even risk tolerances. The right app will tell you upfront how much you can expect to spend in fees throughout the year, and can even allow you to automate many of the more confusing aspects, such as picking well-performing stocks or even rebalancing. While investment apps are ideal for beginners, newbies aren’t the only ones who will see the benefits. Even seasoned investors will find the process easy to use, and may even learn that these platforms can maximize returns (and save them money in fees) along the way. Not to mention, many investment apps offer additional insight into specific funds, so you can choose to invest in companies that align with your own passions and beliefs. Now that you know why you should consider using an investment app for your own savings, let’s take a look at some of the best ones available today. Best Investment Apps Great for Beginners: Acorns Fees and expenses: For investors with less than $1 million invested, fees are between $1-3 per month depending on the account option you choose. Acorns is also free for college students. Beginning investment requirement: At least $5 to start Types of investments available: ETFs (exchange-traded funds) Portfolio options: Conservative, Moderately Conservative, Moderate, Moderately Aggressive, Aggressive Automatic investing?: Yes Automatic reinvesting?: Yes Automatic rebalancing?: Yes If you want an easy, hands-off approach to investing that won’t leave your head spinning, Acorns is a great first choice. This app not only simplifies investing for beginners but allows investors to completely automate the process from start to finish. After connecting the app to your debit card, the app will “round up” each of your daily purchases, putting the savings into an investment holding account. Once you reach the minimum required, Acorns will invest this money on your behalf, based on your account preferences. The app will also reinvest your earnings, as well as rebalance your portfolio when necessary. Great for Truly Free Investing: Robinhood Fees and expenses: Robinhood is a free investment platform in every sense of the word, pledging to never charge company fees or commissions to customers. Beginning investment requirement: You’ll need $2,000 to get started. Types of investments available: ETFs, stocks, cryptocurrency and options. Portfolio options: Interest-based options such as Fashion ETF, Tech ETF and Energy ETF, as well as a standard S&P 500 ETF, all with personal risk tolerance settings. You’ll also find “collections,” which are individual stocks grouped according to specific interests — such as companies with female CEOs or that are in the social media sector. Automatic investing: No. Automatic reinvesting: No. Automatic rebalancing: Yes. A great option for beginners and experienced investors alike, Robinhood makes the process both easy and affordable. How affordable? Well, it’s entirely free. By offering a truly free experience, Robinhood saves investors some serious cash over time. Additionally, the platform makes it easy to choose individual stocks or ETFs based on personal interests. If you want to invest in cryptocurrency or options, you can also do so through Robinhood. One of the biggest limitations of the platform, though, is its automation. While you can set up automatic deposits into your account, you will need to manually invest those funds and then reinvest (or withdraw) your dividends. Stash Fees and expenses: $1 per month fee for those with less than $5,000 invested, or $2 per month for retirement accounts with less than $5,000. For users under 25, fees on retirement accounts are waived. If you have more than $5,000 invested, your fee will be 0.25% annually. Beginning investment requirement: You’ll need at least $5 to begin investing (fractional shares are available) Types of investments available: ETFs (exchange-traded funds) and fractional stock shares Portfolio options: Too many to name, ranging from things you Want (portfolios that are conservative to aggressive mixes), things you Believe (such as groups of companies that believe in clean energy, LGBT rights, etc.), and things you Like (tech, retail and social media companies). Automatic investing: Yes. Automatic reinvesting: No. Automatic rebalancing: No. The closest competitor to Acorns, Stash seeks to make investing easy for everyone, regardless of your goals and passions. They have three account options to choose from, allowing you to manage your investment and retirement accounts, or even a child’s education savings through custodial accounts. With Auto-Stash, you can set any number of automatic investment options and transfers. However, Stash will not rebalance your portfolio for you, nor will they reinvest dividends on your behalf. Wealthfront Fees and expenses: 0.25% annually. Beginning investment requirement: $500 minimum initial investment. Types of investments available: ETFs (exchange-traded funds), individual stocks, retirement accounts (401k, IRA), 529 savings plans and trusts. Portfolio options: 11 asset classes to choose from, including natural resources and real estate. Automatic investing: Yes. Automatic reinvesting: Yes. Automatic rebalancing: Yes. Wealthfront’s investment platform is designed to be friendly for users of all experience levels. If you’re a seasoned investor, you’ll enjoy all of the options available to you, including the ability to manage your retirement accounts, education savings and even non-profits or trusts. If you’re a newbie, their free financial expertise center is the perfect place to learn all about investing and your future. TD Ameritrade Fees and expenses: The managed, automatic portfolio investment option (called Essential Portfolios) is available with a 0.30% advisory fee. Beginning investment requirement: $5,000 minimum for managed portfolios (no minimum requirement for traditional trading). Types of investments available: Stocks, ETFs, options, mutual funds, futures, bonds/CDs, Forex and cryptocurrency. Portfolio options: Essential Portfolios (EP) offer investors a range of options from Conservative to Aggressive, based on your passions, preferences and tolerances. Automatic investing: Yes, with EP. Automatic reinvesting: Yes. Automatic rebalancing: Yes. A more traditional brokerage app, TD Ameritrade is one of the most recognizable names in the industry. You can easily educate yourself on all things financial, thanks to their free videos and posts. If you want a traditional experience, you can choose your trades and pay per transaction. Prefer a more streamlined, automated approach? Opt for their Essential Portfolios, a hands-off investment option (robo-advisor) that charges a flat monthly fee and requires little-to-no oversight from you. Plus, their app makes the investing process easier than ever with a user-friendly interface, price alerts and no minimum to get started. If you prefer a desktop experience, this is also available to you through TD Ameritrade. Bottom Line Getting started with investing can be intimidating. With all of the terminology and account options out there, it’s easy to want to run and hide. Thanks to some of today’s best investment apps, though, you can not only get started with your first portfolio but also watch your money quickly grow… no matter how much of a beginner you may be! It’s important to choose an app that offers you the portfolio options and features you want most, with fees and deposit minimums that match your financial needs. The five apps above are our favorites for beginners, making that first foray into investing easier than ever before. The hardest part will be choosing the one you love most!
Debt vs Equity Financing
An entrepreneur has a million things to worry about. Between pleasing customers, keeping staff happy, maintaining the books and being a public face for the company, an owner’s stress never ends; it just dissipates for a while as you solve problems.
One of the biggest things a business owner must worry about is growth. As the old expression goes, “if you’re not growing, you’re dying.” Expansion is no small feat either, since it usually comes with its own assortment of challenges. Production must be increased, new staff need to be hired, and any marketing spend must be done wisely.
And then there’s financing that growth. There are two main methods for financing growth, and these are debt and equity. Which one is right for your business? It’s a complicated question without a simple answer. Let’s take a closer look.
The Pros and Cons of Debt Financing
Let’s start with debt, which is usually an entrepreneur’s default financing method.
First, the advantages of using debt. The main one is as simple as it is powerful — you’re not giving up any equity if you manage to use debt to finance your business. The owner keeps all the upside while lenders get nothing more than the principal and interest owed to them.
Another advantage is any interest paid on debt is tax deductible. That’ll undoubtedly reduce your entire tax bill, especially if your company doesn’t make much profit anyway (like most start-ups).
Getting debt financing also means the lender doesn’t have much say in how you run your business. Compare that to equity financing, where a new partial owner will likely give you a lot of input. Many entrepreneurs don’t do well in such an environment.
Let’s pivot over to some of the disadvantages to using debt to grow your venture.
Debt is often very expensive, especially if your business isn’t very mature. Lenders are conservative in nature and will want to be compensated for the risks of lending to a risky operator. Expect to pay 10-20% annually in interest.
No, that’s not a typo. Business debt is expensive; especially for small companies.
One way to get the interest rate down is to borrow the money yourself, using something like your house as collateral. This adds risk to any entrepreneurial venture, but it also makes the reward that much sweeter. You’ll want to run that one by your spouse first.
You might not even be able to qualify for debt, depending on the nature of your business. Some of the best businesses are ones without many fixed assets. However, lenders hate them because they have nothing physical that can be seized if the loan isn’t paid. You could potentially get around this by personally guaranteeing a loan, but you’ll need good credit to do that.
Another disadvantage to using debt is it must be repaid, something that can really impact your cash flow. Many businesses have used debt to expand and then found themselves paralyzed by the repayment terms; any momentum is stopped dead in its tracks right when you’re getting started.
Essentially, debt financing comes down to this: it allows owners to keep all the equity in the business, which is massive. But to gain that advantage, an entrepreneur has to endure a lot of disadvantages, too.
The Pros and Cons of Equity Financing
Let’s start with the big knock against equity financing: you’ll lose part of your ownership stake if you agree to it. For many entrepreneurs — especially those who insist on going at it alone — this makes equity financing a non-starter.
But I’d encourage every business owner to at least consider it. Everyone has weaknesses, and a good partner can contribute more than just cash. A venture capital firm can even open possibilities by having mentors that can work with a business owner or create opportunities to work with other companies that are in the portfolio.
However, that doesn’t mean equity financing will be painless. Your new partner will expect to have a significant say in the business, something that could go quite well or very poorly, depending on the skill set they bring to the table. There’s no guarantee someone with cash will end up being a good operator.
Depending on the success of your business, equity could end up costing you a bundle. A 10% stake might not seem like much today, but it’ll really hurt giving up a chunk of the upside if you eventually sell for millions. It has the potential to be much more expensive than debt.
Equity financing also comes with tons of flexibility. You don’t have to worry about making interest payments, putting up collateral or making a lender happy. You just take your equity investment, put it to work, and then worry about execution.
Investors have a much better outlook than lenders as well. These folks know it often takes years for an equity investment to work out, so they’ll be much more patient. On the other hand, a lender wants their interest the minute it’s due.
Finally, equity financing can never offer one of the biggest advantages that debt financing offers; you can’t deduct any interest from your taxes.
Debt vs Equity Financing? Which Should You Choose?
There are several factors that influence your debt vs equity financing choices. Certain businesses will be more apt to choose one over the other.
Say your business is in something with a lot of fixed assets, like flipping real estate. Lenders will be more attracted to this business, which will make getting a loan much easier. Compare that to running a website or a software company, something that owns virtually zero fixed assets. In that situation, equity financing would be your best bet.
Also, keep in mind that equity financing is a little different than what you see on Shark Tank. You’ll be forced to pitch your company to numerous investors, and you’ll spend hours each time in meetings talking about mundane details. It’s also very possible that these investors will expose numerous flaws in a company’s business model, something no entrepreneur wants to hear.
Equity financing might be the right choice if you’re convinced your business doesn’t have as much potential. Giving away a percentage of something small doesn’t hurt as much as giving away a percentage of something much larger. Keep in mind, however, that many equity investors aren’t interested in a business without great potential.
Ultimately, there are pros and cons to each form of financing. In most situations, debt is ideal. It allows growth without giving up ownership. But it’s often not possible, which forces owners to pivot to equity financing. It might hurt to give up a chunk of something you think could be massive one day, but it’s still better to own part of something big rather than all of something much smaller.