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 an IRA Account?
When it comes to saving for retirement, the 401(k) gets all the attention. It’s easy to see why, too.
Many people are offered employer matching options in their 401(k) plans, a major incentive to save in those specific accounts. There are very few things better than free money.
But investors should also utilize some of the other retirement savings vehicles out there, especially their IRA accounts.
Here’s an overview of IRA accounts, including what they are, the benefits and how you can start using one today to save for your future.
The Basics of IRAs
An IRA (it stands for individual retirement account) is a type of investment account that shields gains from taxes. Depending on your employment status, there are several types of IRAs. Folks with regular jobs will open traditional or Roth IRAs, while self-employed people or business owners will use SEP or SIMPLE IRAs.
While each of these IRAs offer slightly different rules, we’ll just focus on the major difference between the two types of IRAs for regular folks – traditional and Roth IRAs. Your contributions for a traditional IRA are tax deductible (provided you make under $75,000 per year filing individually or under $124,000 filing jointly), while Roth IRA contributions are made with after-tax dollars. That means any gains from a Roth IRA will accrue on a tax-free basis, while you’ll be stuck paying taxes on traditional IRA gains once you start pulling the cash from your account, something that is mandatory starting at age 72.
You can only open an IRA account with a company that is registered with the IRS, a list that typically includes major banks, brokerages, or other types of investment firms.
Additionally, you can only contribute to an IRA using traditional earnings. That means that income like social security, child support or investment gains are not eligible.
Each of the different types of IRAs have investment limits. Both traditional and Roth IRAs are limited to a maximum contribution of $6,000 per year, with Roth IRAs offering a maximum investment of up to $7,000 annually if you’re 50 or older.
Most IRAs are self-directed, which means the account holder will be making all the investment decisions. You’ll have your choice of a multitude of different investment products, including individual stocks, bonds, mutual funds and exchange traded funds. You can also buy real estate or tax liens through a traditional or Roth IRA.
And finally, since IRAs are only supposed to be used for retirement, you’ll be hit with an early withdrawal penalty if you start taking your cash out before age 59 and a half. This early withdrawal penalty is usually 10% of anything taken out of the account.
Which Is Better – IRAs or 401(k)s?
The big benefit of an IRA over a 401(k) is the tax status of the former. Remember, Roth IRAs grow on a tax-free basis. You’ll end up having to pay taxes on both traditional IRAs and 401(k)s when it’s time to start making withdrawals. That’s a big advantage for Roth IRAs right there, and it’s a main reason why so many Americans focus on that account.
Another advantage to Roth IRAs is you don’t need to start making withdrawals by the age 72 deadline. You can, in theory, let your Roth grow forever. Just remember that unless you’re working, you can’t add anything to the account.
The big advantage to 401(k) plans is the employer match. Your employer must open a 401(k) for you, while opening an IRA is usually an individual’s responsibility. You can also contribute much more to a 401(k), with the limit for the 2020 tax year up to $19,500 if you’re under the age of 50 and $26,500 if you’re older than 50. There’s potential for your 401(k) to get quite big over time, while IRA account balances are usually a little smaller.
Many Americans are using a combination of the two to save for retirement, with many focusing on Roth IRAs because of their tax-exempt withdrawal status. The tax savings from contributing to a traditional IRA aren’t especially needed because these folks are also saving in a 401(k) plan.
When Should You Start Using IRAs?
The obvious answer is as soon as possible. The miracle of compound interest means time in the market is the easiest way to really goose your retirement savings.
Before you invest in an IRA, be sure to think about a few things. If your income is low, for instance, don’t put money to work in a traditional IRA. The tax savings will be negligible. Instead, use a Roth IRA and save the traditional IRA contribution for a better time.
Most people use both kinds of IRAs in a more traditional sense. They graduate from college, start working, and then it’s time to begin putting money aside for retirement. This is exactly when the average person would start using an IRA, and it’s a sound strategy. Leave the fancy tax avoidance strategies for the pros and just start saving in a normal way.
How to Set Up an IRA
Most IRAs are self-directed, which means it’s up to you to set one up. Fortunately, the process is straightforward.
The first step is to find a company to host your IRA account. There are hundreds of different companies out there that have the proper IRS approval to offer IRAs. One way to pick the correct one is to identify the type of IRA you’re looking for. If you’re looking for a hands-off approach to investing, a company specializing in that would be a good idea. Or, if you want to actively trade, then a discount stock brokerage would be a better solution.
Remember, the institution that has your IRA shares this info with the government. This means applying for an account will take a certain amount of patience and paperwork. They need to do things correctly or risk losing all those accounts.
One solution that will make the IRA application process a little easier is if you go with your existing bank or stock brokerage house. Remember, they have all your information on file already. That’s the biggest part of the process, and an important step you’ll skip if you have an existing relationship with the company.
Finally, once the account is set up, you’ll have to decide what to do with it. Even if you take a hands-off approach and just throw the cash into a diverse portfolio of passively managed exchange traded funds, you’ll still have to monitor it and ensure everything is going to plan.
The Bottom Line
Opening an IRA is one of the most important moves you can make to secure your future. Now you must move onto the hard part, which is making sure you’re consistently throwing money into the account. Save consistently for a few decades and you’ll be well on your way to a prosperous retirement.