01 Aug The Pros and Cons of Investing Apps
What to consider before you press the buy button
By Tanisha A. Sykes
In the digital age, it’s easier than ever to invest. Today’s apps allow everyone, from neophytes to seasoned investors, to study investments, access market data, and manage portfolios. Experts say it’s never too late to start—but not all investing apps are created equal. “Investing apps have revolutionized how individuals manage their finances, making investing more accessible to the masses,” says James Allen, a certified financial education instructor (CFEI) and CPA who founded Billpin.com, a personal finance blog offering guides to improve financial well-being. “However, some apps can also encourage frequent trading, leading to a lack of diversified investments.”
First, educate yourself about the fundamentals needed for investing success—and the risks involved—then supplement your financial strategy with the right tools. Some apps focus on education and advice only, while others—including those discussed here—enable the user to buy and sell stocks, mutual fund shares, bonds, and so on. Before choosing an investing app, consider these pros and cons.
Easy access. Especially if you’re relatively new to investing, select an app that’s easy to use and doesn’t require a lot of technical know-how—an app like Betterment, which is designed to make investing easy whether you want to pay for a home or pad your retirement. Betterment automatically tracks your investment progress and reviews your options at each step. Also, select an app that will grow with you, one that offers robust research tools, various account types, and low fees, so you don’t get the urge to switch over the long term.
Allen’s top pick is Spire, “based on factors like user-friendliness, educational resources, and cost,” he says. Plus, you can access your portfolio from anywhere at any time.
Education. Investing apps can demystify investing for those who are less familiar by offering “real-time stock quotes, investment research tools, customizable portfolios, and trading capabilities, empowering users to make informed decisions,” says Clint Proctor, editor in chief of Investor.com, a site for DIY investors. He adds that the content, tools, and resources, including tutorials, articles, videos, and quizzes, enable users to learn about investment strategies while making informed decisions. Apps like Ally and SoFi score well in this area. One of Proctor’s top picks is Acorns because, he says, “it’s effortless to use and offers a great way to start investing without much knowledge of the stock market.”
Low cost. Traditionally, online trading of stocks requires a commission, and some brokerages still charge fees to complete trades. You can start trading for as little as $5 with some apps. While most mobile apps are generally free to download and use, and many offer zero-commission trades, “there may be fees associated with specific accounts or investment types,” says Proctor. For example, buying mutual funds or exchange-traded funds (ETFs) may require users to pay a management fee or expense ratio. “Features like low or no account minimums, low fees, and fractional shares make investing easy and accessible to everyone,” he adds. Robinhood touts the fact that investors can start building their portfolio with just $1, commission-free. Still, for every app, make sure to read about the fee structure before you invest to avoid any surprises.
Investment options. Many investing apps offer a plethora of investments, from stocks and bonds to ETFs to mutual funds. Some provide the chance to trade cryptocurrency. Others, however, focus on education, letting you do the buying on your own. “You will be able to trade securities such as stocks, bonds, ETFs, and options if the app is an online broker such as Robinhood, Fidelity Investments, or Charles Schwab,” says André Disselkamp, a personal finance expert and cofounder of Insurancy, a company managing business insurance and corporate pensions for start-ups. “Other instructional applications, like Wealthbase, do not allow trading with real money.”
Hidden fees. While many investing apps have a low entry cost, Wayne Bechtol, a certified finance professional in Texas, advises investors to look out for hidden fees like expense ratios, advisory fees, custodian fees, and commissions—fees that can lurk behind the fine print. Bechtol says, “Some apps show no or low fees, but they charge a fee for transferring money into or out of your account.” And don’t forget about monthly fees, which may seem low but add up, especially regarding the return on investment. Do the math to determine if those fees are worth it.
No guarantees. The best apps offer educational resources, customer support, and a transparent fee structure, “but investing money through investment apps does not guarantee returns,” says Bechtol. “Your money’s safety depends on the nature of your investment, which has nothing to do with the app.” It depends, he says, on your technical knowledge and luck! Any form of investing involves risk, which means your investments can rise or fall due to market conditions and uncertainty.
Lack of personalized advice. Investing apps are great if you’re starting out or have little to invest. Still, suppose your financial situation is more complex, or you’re considering investing more money. In that case, you may want to speak to a financial professional who can help you craft a plan to achieve your goals. Finance expert Bechtol argues that the biggest pitfall of investing apps is trusting the app to think for you. The app can help you to make decisions, but it’s up to you to know the pluses and minuses of each decision, he says. Otherwise, the results can be disastrous. Consider speaking to a professional if financial guidance is a priority.
Gamification supports risky decisions. If you’re used to seeing a burst of streamers or balloons every time you make a trade, beware that these gamified elements can lure you into making risker moves. “For example, the Robinhood app gamifies investment and encourages users to invest without understanding the consequences fully,” says Bechtol, an advisor at Fiona, an online marketplace where consumers can compare financial offers from various companies. That’s where making emotional rather than logic-based judgments can enter the fray, says Disselkamp. That’s one reason the US Securities and Exchange Commission and the Financial Industry Regulatory Authority have increased oversight of investing apps with gamelike features—to ensure that deceptive practices do not target younger or inexperienced investors.
The beauty of investing apps is that most are easy to navigate, simple to grasp, and relatively inexpensive for investors to join. But every investing app has associated risks. Therefore, it is up to you to do the due diligence by asking trusted family and friends for referrals, reading customers’ reviews, and testing out the app before investing. Then think about your saving and retirement goals and create an investing strategy to help you get there. Make sure you understand the ins and outs of the investing application before you press buy. DW
Tanisha A. Sykes is a personal finance and career development expert and seasoned journalist. Follow her on Twitter @tanishatips.