Investing isn’t just for the wealthy. A crop of services make it easy for savers to plant small amounts of money — like that fiver you found in the couch cushions — in the stock market.
Microinvestment apps like Acorns, Stash and Robinhood allow would-be Warren Buffetts to bypass brokerage account minimums and skip the struggle of saving up enough to invest in a mutual fund. We’re not talking about purchasing penny stocks, either, since that’s a practice more likely to make your money disappear than multiply. We’re talking about seeding a diversified investment portfolio.
Most of these services use investments called exchange-traded funds. Think of a meatloaf made up of multiple stocks. That’s a mutual fund. An ETF is a slice of that meatloaf, a smaller, cheaper portion packed with the same diverse range of ingredients. (See this full ETF explainer.)
Here are some companies that can help you put your lunch money to work in the stock market.
Link a credit or debit card to this microinvesting app and it’ll round up your purchases to the nearest dollar and toss the change into a computer-managed investment account of ETFs based on your risk tolerance and savings goals. You can also schedule regular transfers of as little as $5 to more quickly pad your portfolio. Acorns charges $1 monthly management fees, and it switches to 0.25% of the account balance once you amass $5,000 or more. College students with a valid .edu email address can qualify for up to four years of free management.
Like Acorns, with a $5 account minimum Stash lets savers divert money into any of 30- ETFs. The difference is that Stash presents the range of ETFs thematically so users can pick investments that align with their social or environmental values. (Motif is another hybrid robo-advisor/broker service worth checking out for thematically based pre-built portfolios.) The first month of account management is free. After that customers pay $1 a month in management fees for accounts under $5,000 and 0.25% on higher balances.
For savers who want to dive straight into purchasing individual stocks or pick from the world of all available ETFs, Robinhood is the cheapest investing platform you’ll find. Customers pay no transaction fee to buy shares in publicly traded companies. That’s a savings of $4 to $10 per trade you’d pay at a traditional brokerage. The drawback here is that you need to have enough money to purchase a single share of stock (or ETF), which may be an obstacle if you’re eyeing a high-dollar stock like Facebook, Google or Amazon. Also be aware that Robinhood’s investing platform is bare-bones compared with the research and investing tools that other, higher-cost brokerages offer.
Betterment, through its Betterment Digital service option, is one of the few robo-advisors with no minimum deposit requirement. On the surface the automated investing service sounds a lot like the apps that build you an ETF portfolio. But there are a few key differences. Betterment supports both taxable and tax-favored retirement savings accounts, meaning you can open and fund an IRA at Betterment but you can’t at Acorns. There’s also a wealth of digital advice and tools, and the 0.25% annual fee includes access to in-app messaging with financial advisors.
As you weigh your options (consider this side-by-side comparison of Betterment, Wealthfront, Acorns and Stash), the choice may simply come down to how actively you to manage your money.
Make sure every penny counts
There’s nothing wrong with starting small. Saving early and consistently can make it possible to save $1 million without even trying that hard. Just be aware of the shortcomings of petite portfolios.
Account and investing fees, for example, can have a disproportionately large impact on smaller accounts. Paying $1 a month ($12 a year) for a service may seem cheap until you consider that amount as a percentage of assets. If you have a $200 balance, paying $12 a year means shelling out 6% of your money.
When your small amounts of money become more substantial — say, something in the $500 to $1,000 range — consider moving the money into a more robust investment service. The advantage here is having access to tax-favored investment accounts like a traditional or Roth IRA, more investment choices and lower management fees.