A Beginner's Guide to Investment—Plus, the Best Apps for You
According to a financial expert, here's what to know about the market before you commit to one.
The decision to start investing is nothing short of daunting, from choosing the right time to researching your options, weighing the risks, and, eventually, diving in. Thankfully, you don't have to go it alone. A multitude of phone apps streamline the experience by compiling everything you need to invest on one user-friendly platform, and, in some cases, going a step further to create a portfolio for you based on your assets, financial situation, and risk tolerance. "What you're looking for is an app that gamifies the process," says James Royal, investing reporter for Bankrate. "That makes it easy and fun to learn about investing and stay on the right track." Here, Royal shares his favorites, plus a few key pointers for those new to the market.
Great for beginners or people who prefer an autopilot approach, Acorns rounds up credit or debit purchases to the nearest dollar and adds the difference to an ETF (exchange-traded fund) portfolio that it selects based on your financial goals. Each ETF is a collection of stocks and bonds that's traded at a value determined by all of its components, so your risk (and reward) is based on the combined performance of several assets—generally safer and smarter than putting all your eggs in one basket. The basic option is $1 a month, and it ticks up to $3 for the advanced one, which includes a retirement account with tax advantages and a linked checking account with reimbursed ATM fees.
Once the app has built your ETF portfolio, it's easy to sit back and let it roll. "Most good investing is really hands-off," Royal says. "Research shows that you'll do better over time if you have a diversified set of funds and regularly add to it. Then, just hang on and wait for the market to go up, rather than trying to move frequently in and out of it."
If you have some savvy in terms of picking your own funds, or you'd like to be directly involved in the investing process, Robinhood will be more your speed. You'll select individual stocks, options, or ETFs (or even just fractions of shares, if you want to diversify your portfolio without spending a ton) and can move money in whenever you deem best. "This involves a bit of research, but if you're interested in learning about investing, it's not a huge hurdle," Royal says. "For example, it's hard to go really wrong with something like a Standard & Poor's 500 index fund, which holds stakes in hundreds of America's best companies."
The sign-up process for Robinhood is quick and simple, and once you're approved (usually within an hour), you'll enjoy commission-free trading on an organized interface where you can view and sort stocks by category and compare their performance side-by-side. Though the basic service is free, more experienced investors may want to opt into Robinhood Gold ($5 per month) in order to access extensive market-research reports and try their hand at margin trading (as in, trading with money borrowed from the broker). At any point, the app also allows you to sell your investments and have the money transferred to your bank without a fee.
If you're interested in getting a feel for the market and learning about stocks without garnering any significant risk, try out a stock simulator like Wealthbase. This app lets you pick and bet on stocks with friends, setting up games that last however long you want—to the end of the month or even just that day. And there's a social-media element, too: A feed will show which stocks each of your fellow players have picked in the current game, and a chart will demonstrate who's in the lead at any given moment. Plus, the option to chat within the app allows you to stoke some friendly competition and gain insight into why your friends picked certain stocks. It's free to play with up to 10 people, or you can pay $2 a month to organize an ad-free game for a larger group with a customized game page and moderation by a game host.
How to Get Started
No matter which investing app or platform you choose, it's important to heed one rule at the get-go: Do not time the market. If you add a bunch of money to the market at one time—for example, depositing $5,000 into an Acorns account—your funds will all get invested at once, which is risky, given that the prices for the many assets you've just purchased could nosedive the next day. "Instead, take advantage of dollar-cost averaging," says Royal, "by adding, say, $200 every two weeks or $500 a month. This reduces your risk over time and ensures that you don't buy anything at too high a price."