Why you should care
Managing money can be intimidating — especially when you don’t have a lot to begin with.
After finishing his master’s degree in January 2019 and beginning full-time work, New York–based Bill Walsh decided to pay off his student loans, but he swapped one kind of stress for another: No debt also meant no savings. To get a jump on nest-egging again, he tried a micro-investing app that automatically rounds up digital transactions — the equivalent of “spare change” — to the nearest dollar and invests this money in a stock portfolio. It was a passive way to save that didn’t require much thought, and each transaction was “too small to hurt,” he says. So far, he’s seen about 2 percent return on his invested funds.
You’ve likely heard of micro-saving apps. Perhaps the best-known is Acorns, which automatically squirrels away small amounts of cash from your checking account into a savings account. But these apps also allow for more investment opportunities than simple savings, which is good news for wary millennials who witnessed the 2008 crash and invest less in stocks than their older counterparts. Only 37 percent of adults under age 35 invest in the stock market (a dip from the pre-crash average of 52 percent), according to a 2018 Gallup poll. Apps like Stash, Betterment, Robinhood and Acorns use micro-investing and robo-investing (automatic investment and rebalancing) features to simplify the process, tailored to how much daily control users want over buying and selling.
Investing in the stock market yourself can be tedious, time-consuming and error-prone, says Arielle Sobel, senior communications manager at Betterment. And using a broker historically meant paying high fees, tolerating outdated technology and dealing with potential conflicts of interest, she notes. Micro-investing and robo-investing apps streamline all of the necessary steps into a more seamless user experience between connected devices, mobile phones and credit cards, says Jake Yormak, a partner at Story Ventures, an early-stage venture fund.
To make sense of all the noise, this board game can help determine what app might suit your fiscal needs.
Use Acorns if you … Want to start investing, but learning how to trade stocks isn’t high on your to-do list.
Acorns rounds up card purchases to the nearest dollar and channels the money into “passive exchange-traded funds” (ETFs). This app, which costs from $1 to $3 per month, has no account minimum (you can invest as little as $1 at a time) and is suited to lower-income earners. After linking a debit or credit card, you’ll be asked to set your investment preferences so the app can take care of the rest. Go with Acorns if you’re a new investor who isn’t looking to make decisions, and just want to get started with very small investments. On the downside, the potential for gains isn’t huge.
Use Betterment if you … Have money to invest but don’t exactly know how — and you’re overwhelmed by the plethora of choices.
Launched in 2010, Betterment was the inaugural robo-advising app, Sobel claims. Users answer questions about their age, goals, income and geography. But you don’t have to know which stocks to pick or when to rebalance the portfolio, as the platform handles it, she says. There’s no account minimum, and there’s a 0.25 percent annual fee. For investors who want to keep their money in more impact-oriented companies, Betterment offers a Socially Responsible Investing portfolio.
Use Stash if you are … Keen to save, but want to directly invest in the stock portfolios of your choice.
Stash is another round-up app offering stocks and ETFs — but unlike Acorns, users manage transactions directly, based on an ETF portfolio that’s created based on your answers to questions about your risk tolerance and goals. You can also invest as little as $5 in fractional shares. There is no minimum balance requirement, however, if your balance dips below $5,000, there is a $1 monthly account fee. For account balances over $5,000, there’s a 0.25 percent annual fee.
Use Robinhood if you are … A confident investor who wants to manage your own stocks — but without high transaction costs.
Robinhood caters to investors who want to trade stocks, options, ETFs and cryptocurrency without commission fees. A fun feature? “Collections” are stocks organized by sector or category (companies with female CEOs is one example). Users can sort collections to analyze stocks in an apples-to-apples comparison. But the app isn’t just for seasoned investors. It can offer a sense of empowerment for beginners who want to start managing money themselves, Yormak says.
Of course, these platforms have drawbacks: Micro-investing apps aren’t designed for those who can afford to invest more than $5,000 a year, an inflection point where low fees begin to make a meaningful dent in earnings, writes Choncé Maddox on the Money Under 30 website. Yormak highlights that the saturation of this market creates a “race to the bottom” in terms of fees companies can charge consumers, though this benefits users.
But for new savers like Walsh and those with limited funds to play with, it’s a good place to start saving — one coffee purchase at a time.