Does Microinvestment Constitute?
Platform mikroinvestirovaniya like Acorns , The Clink and The Stash, were hailed as the next big breakthrough in the field of financial technology in the past few years because they allow users to invest small amounts of money in the ETF at a meager fee. But depending on what you use it for, you will probably be better off with more traditional forms of banking and investing.
Here’s a breakdown of the three major micro-investing apps mentioned above:
- Acorns * : You connect your bank account to the app, and it takes coins from your purchases and invests them in ETFs for you based on your risk aversion. For example, if you spent $ 0.90 on something, it would take $ 0.10 to reach $ 1 and invest it. You can also set up recurring transfers to your Acorns account, like $ 10 or $ 20 per month. There is also a program called Found Money, which adds money to your investment account if you buy from one of Acorns’ partners. You are charged $ 1 per month up to $ 5,000 and then 0.25% of your balance.
- Clink: Clink differs from Acorns in that you can automate it to invest a percentage of certain purchases. For example, if you are dining out, you can ask Clink to add 20% of the amount you spend each time to your portfolio. You can also specify days for transfers. Its commission is the same as Acorns: from $ 1 per month to $ 5,000 on balance, then 0.25% of your total balance is charged annually. I tried to find contact information for Clink but couldn’t (I got in touch with the founder on LinkedIn), so maybe this is not what I want. * Editor’s Note: The Clink CEO responded after publishing this article and said the 2017 return ranged from 6.63% for a very conservative fund to 17.74% for a very aggressive option.
- Stash: In this application, the minimum account balance is $ 5 and you can choose from about 40 different ETFs. Stash seems to target those with special investment interests : for example, you can invest in Clean & Green , which “includes companies that produce solar, wind and other forms of renewable energy.”
An obvious but important point: this is not free money. If you live paycheck to paycheck or don’t care about your expenses, you need to be careful with these apps and how much money they charge from your checking account (the apps state they are not responsible for any overdraft fees).
With these apps, you make small, automated transfers to passive IFSA. These are not active investing platforms – you need to turn to online brokers like Ally, E * Trade or Fidelity or an app like Divy to do that . And these are not your standard roboadvisors like Betterment and Wealthfront, which allow you to invest in individual and joint non-retirement accounts, IRAs, trusts and 529 plans.
When do they pay off? It is hard to say. For example, the fund options for Acorns are fine (you can find the performance for the Vanguard S&P 500 ETF here). But generally, if you only invest extra change, the monthly fee wipes out all of your earnings.
“If you’re new to saving and investing, these tools will make it easier to get started when opening a traditional brokerage account might seem overwhelming,” says Julie Ford, Certified Financial Planner at Ford Financial Solutions, LLC. “I’ve also seen them provide a sense of victory and then motivation to keep saving as people see that small efforts and small amounts really add up.”
If you have access to 401 (k) it makes sense to max your contributions each year ( the contribution limit is $ 18,500 this year) for a tax advantage over apps. But if you are young and want to learn, they can be helpful.
If this exercise is just a way to save money, which it looks like it might be for some people, there are better options. Apps like Clarity Money, Digit, and Tip Yourself make it easy to save small amounts of money (I personally use Digit, although Clarity Money does the same, and some at Lifehacker’s office are big supporters of Tip Yourself) that really add up unnecessarily. The only downside is that you won’t get any profit from Acorns & co. You can make a profit, although your money will become much more affordable (withdrawing money from investment apps takes a few days compared to one or two days in savings apps).
* I created an Acorns account when I wrote this to get familiar with the app. I didn’t make money from this.