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!
What Is a Good Debt to Income Ratio?
Unfortunately for many, debt is simply a part of their life.
As you likely already know by now, there are good forms of debt and not so good forms. Some, like student loans, a car loan, or a mortgage, can help lead to bigger and better things. After all, real estate tends to go up, most need a car to get to work, and university grads do tend to make more than their lesser educated peers.
But that doesn’t mean people should strive for a limitless amount of good debt. The last thing you need is all your cash heading out the door in the form of various payments. That leaves nothing left for necessities like food, clothing or utilities.
Life is a delicate balance. Most of us can’t afford to buy everything we want. But some go in the exact opposite direction and live a simple life free of all forms of debt because they’re petrified of getting in over their head. The ideal solution is somewhere in the middle. Having some debt is just fine. You just have to figure out how much is best.
Let’s take a closer look at what is a good debt-to-income ratio. Just how much can you afford to borrow, anyway?
The Basics
Let’s start with a closer look at what exactly a debt-to-income ratio is.
Simply put, it’s the percentage of your income that gets spend on debt each month. For instance, if you make $5,000 per month and spend $1,000 per month on debt payments, you have a 20% debt-to-income ratio.
On the surface, it’s a simple concept. It gets a little more challenging once we delve a little deeper into the topic.
For instance, should we use gross income – income before deductions like taxes and Social Security – or should we use net income when figuring out a debt-to-income ratio? Most argue we should use net income, since it’s not like taxes and other deductions are optional. But others say we should just create a reasonable debt-to-income ratio based on gross income that factors in these issues.
Another wrinkle in debt-to-income ratios might be how aggressively you tackle your debt. Take mortgages as an example. Some folks choose to take a 15-year mortgage to tackle that debt quickly. Naturally, that increases their payment. So, they might have a big debt-to-income ratio, but it’s self-inflicted.
We can continue to add variables all day, but the point is clear. A debt-to-income ratio is a concept that becomes more complex as we add variables to it. Most folks stick with a simple version when they look at their own personal finances, which is a smart solution.
What’s the Ideal Debt-to-Income Ratio?
Perhaps the best source I’ve seen for considering your own debt-to-income ratio comes from the Canadian government.
The Canadian Mortgage and Housing Corporation (CMHC) is an expert in both mortgages and housing. This Canadian government agency has crunched the numbers and identified what percentage of someone’s income can be safely spent on their debt obligations.
After years of research, CMHC has come up with a conclusion that works well. They figure people can spend up to 42% of their income on debt. Note that this always includes a mortgage payment as well. Even if you’re just a renter, I’d argue this ratio still makes sense. After all, you need a place to live. This necessary payment is essentially the same as having debt.
CMHC’s debt service ratio can give us a clue as to how much non-mortgage debt is ideal too. You see, there are two debt service ratios the company uses to determine how much house someone can afford. They say the average person can afford to spend approximately one-third of their income on their mortgage alone.
Combine that with the total debt service ratio, and the conclusion is clear. A good non-housing debt-to-income ratio is approximately 10% of your total income.
The CMHC calculation isn’t 100% ideal – for instance, it doesn’t factor in housing costs like property taxes – but I’d say it’s pretty darn reasonable.
How to Bring Your Debt-to-Income Ratio Down
The easy way to bring your debt-to-income ratio down is to pay off your debts. This much is obvious.
This is where the debt snowball effort can really shine. Say you have a small $2,000 debt but it requires a $400 monthly payment. Putting all your effort into eliminating this small debt will free up cash flow while lowering your debt-to-income ratio significantly.
Most debt isn’t that simple to eliminate, however. It’s long-term debt like student loans or a mortgage. There are only two ways to get your debt-to-income ratio down in this scenario.
The first way is to refinance these loans into something with a lower monthly payment. This will bring short-term relief, but it will inevitably cost more interest in the long run. You must weigh this option carefully before going down this path.
The other is a much better solution, but I’m the first to admit it’s not easy. The best way to decrease your debt-to-income ratio is to increase your income. The debt stays the same, but you have more disposable cash for everything else in your life.
It isn’t the 1950s anymore; making more money isn’t as simple as requesting a meeting with your boss. But it’s certainly not impossible. Easy ways to increase your top line might be getting overtime at work – assuming it’s even offered – or taking on some sort of side hustle.
The Bottom Line
It’s important to keep your debt-to-income ratio low. If you don’t, you run the risk of eventually being overwhelmed with debt.
Typically, you’ll want to stay within CMHC’s guidelines and keep your total debt-to-income ratio in the 40% range, a number that includes housing. It’s a reasonable amount to spend whether you’re renting or paying off a mortgage.
If you find yourself paying too much towards debt, don’t sweat it. You can take actionable steps – like paying off your smallest loan quickly to free up cash flow – to make your situation better. And increasing your income is also a good strategy.
Spending the correct amount of your income on debt will ultimately lead to a healthy financial life. You might not be able to afford everything you want but keeping your debt to a reasonable level will ensure a lifetime free of financial worry.