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!
Building Your Savings
Succeeding at personal finance is less about the physical steps to get there and more about why you’re saving. In other words, it’s a mental problem, not a physical problem.
Let me explain. Making smart choices, spending less or saving up money are pointless without a reason why. Working toward a specific goal will always be more motivating than saving up because it’s one of those things you “should" do. These days, financial independence is a common goal, with many people willing to create a big savings rate in exchange for being able to retire a couple of decades before the usual age.
Others don’t want to wait nearly that long. These folks are saving for various short- to medium-term goals. Maybe they want a new car. Perhaps they have a dream trip in mind. Or maybe they’ve always dreamed of place they can truly call their own, and are focusing on saving a down payment.
It doesn’t matter what the goal is. It can be as serious or frivolous as you’d want. All that matters is the goal is important to you. It needs to motivate you when life gets a little tough.
Most money goals aren’t easy. But the result is worth it. There’s no better feeling than knowing you’ve saved up for something and paid for it using your own money. And like with any goal, extra-difficult money ambitions feel extra good when you pull them off.
We’ve built a savings calculator that can help make all your monetary dreams come true. Let’s take a closer look at how it works.
The Inputs
This calculator will show you the wonders of consistent saving. Here are the various parts of the form you’ll have to fill out:
Initial Amount
This is the easy one. This is exactly how much money you’re starting out with. It can be as little as $1 if you haven’t started saving. Starting out with more will make the ultimate goal much easier, but don’t sweat it. What you do going forward is going to determine your savings path.
Monthly Contributions
This is how much you can expect to save each month. The more you can save, the better.
A word of caution before you fill out this amount. Many non-savers will find a calculator like this and suddenly proclaim themselves as frugal champions, able to put away $1,000 per month or even more. Don’t fall into that trap, or you’ll find yourself deprived in no time. Pick an achievable savings goal for best long-term success.
Perhaps gradually working toward your savings goal is best. A few months of feeling deprived is a formula for failure. It’s exactly why crash diets don’t work.
Interest Rate
Simply put, this is the rate of return you can expect from your investment.
Different investments will deliver vastly different rates of long-term returns. Remember, risk and potential reward are related. An investment with a great deal of risk has the potential to be more profitable than a safer one. Just remember that a risky investment could easily lose money, too.
For example, a savings account at a bank is guaranteed by the federal government, up to a maximum of $250,000 per depositor per institution. Since the principal is 100% guaranteed, these accounts don’t give much interest. Investors who put their cash in a savings account are more worried about keeping that money safe versus earning much on it.
High-yield savings accounts are offered by certain banks as an attempt to lure depositors to that particular company. These are typically offered by online banks that don’t have any physical branches, which is a big downfall for some folks. These accounts offer much better rates than regular savings accounts, usually in the 2-3% range. They also come with the same principal guarantee, meaning you’ll never need to worry about the security of your bank. The cash will be there.
Many people will keep their emergency fund in a high-yield savings account, a nice compromise that allows them to earn a little interest off their money while keeping it easily accessible.
Another relatively safe investment choice is bonds, which are instruments used by governments or companies to borrow money. These are secured either by specific assets or, more commonly, the general credit-worthiness of the issuer. The yield depends on the security of the issuer. An ultra-safe bond will pay around the same as a high-yield savings account, while riskier ones will offer 6-8% returns.
Real estate and stocks offer the best potential returns, but both come with a great deal of risk. Both of these asset classes tend to offer approximately 8-10% total returns annually over the long-term, but with individual years fluctuating wildly. For instance, in 2013, the S&P 500 delivered a 29.60% return. Yet just a few years before that, in 2008, that same index fell more than 38%.
These kinds of volatile returns are fine if you’re willing to hang on during downturns. The stock market will inevitably go up over time. Short-term concerns eventually become nothing but a distant memory. Just make sure to hang on and not sell at the bottom of a correction. If anything, that’s the time to buy.
Real estate itself tends to move a little less than stocks, but the asset class still has risks. A landlord renting out a house has many different threats that could cause the investment to temporarily perform badly. A tenant might move out and slow economic times mean there are few replacements looking for a new place. Or the property can be damaged, either by a natural disaster or a disgruntled renter. All of these things can temporarily depress returns, which is made all the more risky by borrowed money.
Number of Years
Another simple category. Just input how many years you plan to save.
I’d encourage savers to play around with this category to see the impact of compounding over time. It’s amazing how large your savings can become over a few decades, especially if you’re getting 8-10% long-term returns. Financial independence may be closer than you think.
How to Increase Your Savings
It takes a long time to save up for an expensive goal if you’re just putting $100 or $200 per month away. Here are some easy ways you can dramatically increase the amount you’re able to save.
The most important thing to remember is that there are three main expenses, costs that will usually eat up at least half of your budget. If you can get your housing, transportation and food expenditures down, that’ll immediately help increase your savings rate in a big way.
Housing
Let’s start with housing. If you’re comfortably saving money each month, then it’s okay to spend a little extra on a nice place or one with extra room. If you’re struggling to get ahead, it’s time to slash this expense. You’ll either want to move to a cheaper part of town — closer to work, ideally — or get a roommate to help offset some costs. Yes, this is a sacrifice, but you’ll free up hundreds of dollars each month.
Transportation
Transportation is another big one. Moving closer to work is a great option, since that’ll cut down on transport costs and free up time. You’ll also want to explore public transport. If your city doesn’t offer acceptable bus or train schedules, look at splitting commuting costs with a coworker. You’ll both save money and have company for the long ride to work.
Food
Food is usually an easy category to slash. The solution is simply cutting back on restaurant meals and eating more at home. Drinks are also a budget killer; it’s easy to spend $100 on a nice meal out with a few drinks. You can cut that by 80-90% by making your own meals and enjoying drinks at home. If drinking alone doesn’t appeal to you, feel free to invite your friends over.
Cutting back on groceries isn’t hard, either. The key is to plan your meals around sales — especially those on the front of the flyer — rather than planning your meals and then buying whatever you feel like.
Buy Less Stuff
Aside from these three categories, another simple way to cut back on expenses is to buy less stuff. Before putting new clothes or some upgraded electronic device in your cart, ask yourself if you really need it. If the answer is no, delay the purchase for a while.
Experts agree that a 10% savings rate is the minimum you should strive for.
Taxable versus Non-Taxable Accounts
Where you save your money matters. Some accounts offer the ability to shield taxes, while others will force you to report any profits to the IRS.
A taxable account is one without any special tax privileges. You’ll be forced to pay the tax man his share on any of your gains each year. Note that you’ll have to pay taxes on both earned income from the investment (like interest or dividends) as well as on any capital gains when a profitable investment is sold. The good news is that capital gains are taxed at a favorable rate, something the feds put in to encourage investment in the stock market.
As a general rule, any long-term saving — like for retirement — should be done in tax-sheltered accounts. You’d use a taxable account for any short-term goals, remembering that you don’t want to take major risks with money you’ll need right away. This cash is usually kept in savings accounts.
There are two main retirement accounts you’ll use for long-term saving: Roth IRAs and 401Ks.
Roth IRA
Let’s start with a Roth IRA, which is a retirement account that is funded using after-tax dollars. Any amount put into a Roth can be withdrawn without a tax penalty, but the earnings on those contributions do carry a withdrawal penalty if you’re under the age of 59.5. You’ll also have to wait until your Roth account is at least five years old before you can withdraw any earnings without penalty.
A Roth IRA offers nice flexibility. You’ll just have to be a little bit careful making sure you follow the rules.
Roth IRAs are limited to a $6,000 annual contribution, and some high-income earners make too much to be eligible for the savings account. The limit for single folks is just over $120,000 per year, with the maximum for couples at just under $200,000 per year. These folks can still contribute to different kinds of IRAs, but they’re shut out of Roth IRAs.
401K
The other main tax-deferred savings account Americans will use is their 401K, an account that is funded by pre-tax dollars. Employer-sponsored 401Ks are common, with some employers contributing 5% (or more) of their worker’s salary as a 401K match.
Savers also get an immediate tax break when they contribute to their 401K account. Here’s how it works. If you make $70,000 and contribute $5,000 to your 401K, the government will tax you like you made $65,000. This usually translates into a tax refund, which is always a nice bonus. This tax refund can then be immediately reinvested — like into a Roth IRA — to really help give your savings a boost.
There’s just one catch. You’ll have to pay taxes on 401Ks when you withdraw the cash. The strategy works best when you contribute during high tax years and take cash out slowly during low tax years. A little planning during your golden years can really help bring the overall tax bill down.
The Bottom Line
Having the desire to save up for a big purchase is great. Most people wouldn’t save without this motivation. It doesn’t matter what you’re saving up for, as long as it’s important to you. It can be as frivolous as you desire.
But dreaming can only get you so far. At some point you’ll have to execute your vision. That’s where this calculator really shines. It shows you just how much you’ll need to put away every month to follow your dreams. Some of you might use the calculator and realize you’re right on track to accomplish your goals. Others might need it to provide a much needed kick in the pants.
Go ahead and live your life. Just pay for it first. A life wallowing in debt isn’t a lot of fun.