In recent years, the investment world has seen some big changes. As with many other industries, technology has been one key in democratizing the world of finance. It used to be that brokerages charge big fees. It didn’t make sense for anyone to start investing unless they had about $3,000 to 5,000 saved up first. Today, there are plenty of apps and other investment tools that make it easy for people to get started with $50 or less.
Robinhood is one of the most famous disruptors in the investment space. This app was one of the first to offer basic accounts with stock trades for free, with no brokerage fee. This means that investors can buy a share or two of stock at cost. It’s a great, easy way to get started in the stock market. Robinhood’s Gold-level premium accounts do have fees associated with them. After Robinhood democratized the stock market, other brokerages changed their fee structures to compete.
Other services, like Acorns, take a different track. This service makes it easy to get invested in exchange-traded funds or ETFs. Users select what level of risk they’re comfortable with and deposit small amounts like $5 or $10. The deposits can be automated and done weekly, or they can be made when the account holder is comfortable. Round-ups connected to spending on debit cards can also be selected.
Recently, apps like Acorns have also started to offer retirement accounts in the form of IRAs. IRAs are a tax-advantaged way to save. No tax is charged on the funds placed into the IRA until they are withdrawn. That means that over the years, IRA investors have big savings compared to more traditional investments. By maxing out a retirement account before turning to other investments, individuals can save themselves a lot of fees and taxes over the years.
One important note to remember is that the returns on most investments tied to the stock market max out at about 7%. It’s more important to pay down existing high-interest debts, like credit cards, than to start investing in the stock market. For people who have high-interest loans or credit card debt, the smart move is to pay that off and get started investing at a later date.