Investing App Round Up

Ok, so you’ve decided to invest — that’s great! The next question should be, where? What broker should you use? And if you’re like me, you’re addicted to your phone and the first place you’d start to invest would be from the comforts of the throne, er, I mean, the couch. Right, the couch.

With that in mind, I thought I’d go ahead and give a little tour of the different “new” brokerages that are primarily app-focused. Specifically, Robinhood, Acorns, and Stockpile. Then I’m going to compare these new comers against some old stalwarts of the brokerage world: Fidelity and Vanguard.

For this comparison, I’m going to focus on buying investments and holding them. This is known as a “long” position, because you’re buying the stock/ETF/Mutual Fund and planning on the share price to rise over time. So I might mention options, but they won’t be the focus.

Furthermore, I really really love automatic investments. So I’ll make sure to focus on the automatic investment capabilities of each of these brokers, or rather, their short comings. With that said, let’s get into each of these firms!

Robinhood

Robinhood was one of my first “app-focused” brokerages. Their big claim to fame was having no-fee trades. No-free trades? That’s crazy! And in the beginning it was. Their goal was to democratize investing and remove barriers such that everybody can have access to the investment markets.

To this end, they offered no-fee trades of stocks and ETFs. They are relatively straight-forward where you purchase whole shares of different assets.

However, their shtick was originally limited to using their app. That’s now changed, with Robinhood for web being available since October of 2017. So in a way, they’re now just like the stalwarts of the online brokerages, like Vanguard, Fidelity, or E-Trade.

But as I stated, their financial model is very different. So how do they make money if trades are free? Well, they have a “Gold” program where they charge a monthly fee to purchase stocks on margin. Additionally, any money in your account that’s not invested, earns 0.00% interest — Robinhood likely uses that cash to invest for their own benefit, rather than paying out interest as a money market account. So don’t use this as a savings account — keep your excess cash here to a minimum.

The short of it?

Trading Fees: NONE
Account Fees: NONE
Minimum Balance: NONE
Assets Available:  According to Robinhood: “You can trade over 5,000 stocks on Robinhood Financial, including most U.S. equities and exchange traded funds (ETFs) listed on major U.S. exchanges. We’re also excited to offer options trading!” However, they don’t offer mutual funds, bonds, or foreign stocks. But they do offer crypto trading (as of Sept 2018, these include 16 cryptocurrencies including BTC, ETH, LTC, and so on).
Automatic Investing: They offer automatic deposits, but not investing. So that’s really only a feature for their benefit (because they don’t pay interest on the money market amounts). It is easy to invest once the money is in, but I’d prefer the option to automatically invest the money, not just deposit the money.
Accounts available: Just a regular, basic, taxable investment account. No tax-advantaged retirement plans at all.

Who is this for?

Frankly, I’m not sure. Robinhood could be a great gateway for many folks, e.g., millenials, to encourage them to invest because of their no-fee structure. However, I feel that they generally push their “Gold” (margin) plans hard, which encourage people to trade on margin. Basically they encourage people to put in a few hundred dollars and then dabble in daytrading…

That’s not my style, I take long positions only. Furthermore, there are only ETFs and no mutual funds offered. This allows for some diversification, but I can’t see anyone becoming a serious investor with Robinhood. There’s no retirement accounts, either.

Ultimately, they have a slick interface and no-fees, but that’s about it. Also, unlike some firms, you have to purchase entire shares. So to get a slice of Amazon, you’ll need to deposit close to $2,000 at the current trading prices to get just a single share. Only have $1,500? No Amazon for you, my friend.

Nevertheless, if you want to check them out, I recommend you give my friend Alfred’s referral link a try, you’ll get a free share of something: https://share.robinhood.com/alfredo61

Acorns

Acorns logo (PRNewsFoto/Acorns)

Acorns is a little different in their approach to investing. They are truly focused on getting non-investors to start investing. They aim to remove a lot of the complications and make it as easy as possible to invest. They also believe in “microinvesting” where you can invest based on a variety of methods. In particular, they offer the following:

  • Round-ups – Invest spare change by rounding up your everyday purchases
  • Recurring Investments – set up daily, weekly, or monthly automatic investments
  • One-time investments – similar to “traditional” accounts

Additionally, they offer “Acorns Later” which is their retirement account — based on an IRA (either a traditional or Roth, whichever type is based on their choosing).

They’re also a bit of a robo-advisor, since you choose your “financial situation and goals” and then they recommend a mix of ETFs for you to invest in. This ends up with you being diversified across many different stocks.

Overall, they’re trying to make investing very user-friendly, which is something that I can get behind. They also are all about automatic investments, which is fantastic. Furthermore, they seem to only push for ETFs, in lieu of individual stocks. I think that’s a great approach for everybody.

Additionally, they have no minimum balance and no trading fees. However, they do charge $1/month for a basic investment account (fee waived for college students!), $2/month for an investment account with a retirement account, and then $3/month for an investment, plus retirement, plus checking.

In a way, I like that the lowest cost option is focused on investing and the highest cost option finally includes a checking account. These fees are only for users with <$1 million invested, as for those with more than $1 million in assets with Acorns, you apparently have to contact support to determine your fees…how’s that for transparency?

Trading Fees: NONE
Account Fees: $0-$3/month, depending on services and whether you’re a college student
Minimum Balance: NONE
Assets Available:  As of this writing, they offer 7 ETF’s: LQD, SHY, VB, VNQ, VOO, VWO, and VEA. Your portfolio would be made up of a mix of these.
Automatic Investing: This is their bread-n-butter, with more ways to automatically invest than most! They offer automatic investments by “rounding-up” your transactions (e.g., buying $10.29 at Target would then round up to $11.00 and set aside $0.71 for investing). They also offer daily, weekly, or monthly automatic investments of periodic amounts that you specify.
Accounts available: Regular investing accounts, IRAs, and checking

Concerns

With such “microinvestments”, it may give people a false sense of success. E.g., if you simply use the “round-ups” then you may be investing less than $100 a month. That’s great for a teenager or a college student, but I don’t think that is wise for many people if you want to seriously save for retirement.

Additionally, they obfuscate a lot of their product. For instance, when it comes to their “Acorns Later” retirement product, they just state that it’s an IRA and they they “automatically select the right type of IRA for your lifestyle and goals” without mentioning whether it’s a Traditional IRA or a Roth IRA. I like a little more control over my accounts.

Who’s this for?

I think this is targeting the “millennial” crowd very well, in terms of their language and style. Furthermore, I think in general their investment philosophy is very wise (automatic investments into a range of ETFs based on your risk level). The one concern I have is their marketing the round-up idea. It’s a cute little shtick and it’s a way to separate yourself from the competition, but ultimately, I’m concerned that it’s just not saving enough to make a serious impact in your lifelong savings.

That said, they do have a better investment philosophy than Robinhood, in that they steer you directly to ETFs, and only 7 ETFs at that. So overall, I would recommend them, just making sure that you are investing enough on your own and not relying on the “round-up” feature. Furthermore, watch out for the fees. $1-$3 a month doesn’t feel like much, but they could increase it in the future. Additionally, there are places that you can invest for less, since many mutual funds through Fidelity or Vanguard will have zero trading fees.

Stockpile

Yet another app that’s trying to take the investing world by storm. Their approach is also to try and offer a unique investment method to reach younger investors. For Stockpile, they offer fractional shares (e.g., you can buy $5 worth of Amazon, which would be around 0.0025 shares at today’s prices), which is a very cool thing. However, each trade is 99¢, deviating them from Robinhood and Acorns by charging per trade.

Despite the trading fees, they do not have any minimums or monthly fees. Additionally, because their focus is on fractional shares, they have a much more reduced set of securities available to trade compared to regular brokerages or Robinhood. But of the ones they offer, fractional shares are a really great offering. Want to invest in Amazon? All you need is a few bucks. Furthermore, I think you can be more efficient with your investing since you’re not limited to buying shares in increments of the share price, you can buy as many shares as your money allows and keep more of your money invested rather than having a few hundred dollars always sitting in the money market account.

However, they do not have any options for automatic investing. They do allow for auto-deposit, but that just puts it into your cash account and doesn’t use it to invest in any security. This is just like Robinhood. However, for Stockpile, this is a huge feature gap!

One of my favorite brokerages was Sharebuilder — they encouraged automatic investing and dollar-cost averaging by investing a set amount of cash on a recurring basis. This resulted in fractional shares just like Stockpile offers. However, Stockpile doesn’t allow you to set the auto-deposits to also auto-invest in a security and I think that’s a terrible thing.

Trading Fees: $0.99/trade
Account Fees:  NONE
Minimum Balance: NONE
Assets Available:  As of this writing, they offer “1000+ stocks and ETFs”. So no mutual funds. No crypto.
Automatic Investing: Le sigh… doesn’t exist. They offer automatic deposits, but not investing. Too bad.
Accounts available: individual and custodial accounts. No retirement accounts.

Who’s this for?

Despite my dislike of their missed automatic investment opportunity, they do offer something that the other “next-gen” brokerages don’t: Custodial accounts. And, reading their website, it seems that they’re really targeting the kid/teen audience.

I personally think this is beautiful. I recall investing as a teenager using a custodial account with fractional shares. While there’s still a push for buying individual stocks rather than ETFs or mutual funds, they do offer ETFs. Additionally, for teens, I think individual stocks are far more engaging than “boring” investments like ETFs. This could get them hooked at an earlier age.

They even offer gift cards for investments — can you imagine giving a child a gift card for a share of Tesla? For $25 of Netflix? I think it’s a great way to introduce kids and teenagers to investing.

I could see myself getting my kids accounts and every Christmas and birthday, helping them deposit their gift money into their Stockpile account for investing. Sure would beat the savings account!

For adults, Stockpile is still great for their fractional investments, but if you’re serious about saving and investing, you’ll need true automatic investments, which is something that Stockpile just flat out doesn’t offer.

 

Fidelity

A true full-featured broker. Fidelity has been around since 1946 and offers a myriad of accounts and a multitude of investment options. I’m not even sure what to write about them because they’re so full-featured. Furthermore, they have a loyal following for investors as well as they have a number of employer’s retirement accounts. For my wife and I, both of our work-based retirement accounts are administered through Fidelity. Makes for easy updates with a single log in.

The one quibble I have is that I was using Sharebuilder (then become Capital One Sharebuilder and now is Capital One Investing and soon will be part of E-Trade) which offered fractional shares for automatic investments in stocks and ETFs. Alas, Fidelity does not. For their automatic investments, they only allow you to invest in Mutual Funds. Of course, you can auto-deposit all you want and then trade manually, but I want things done automatically.

Thus, all I had to do was to find a low-fee, low-ER mutual fund that was close to my chosen ETF(s) to automatically invest in. Not a big deal, but a change coming from Sharebuilder. I was told the reasoning behind requiring automatic investments was that you specify a day for the investment, but not a time, and mutual funds only price themselves once a day whereas stocks update every minute throughout the day.

Trading Fees: Depends. Most trades are $4.95 but a number of ETFs and Mutual Funds are commission-free.
Account Fees: NONE
Minimum Balance: NONE (for their Individual brokerage account)
Assets Available:  Stocks, ETFs, Mutual Funds, Bonds, Options, CDs, Precious Metals. Basically everything.
Automatic Investing: Offered only for Mutual Funds, not stocks or ETFs.
Accounts available: Individual brokerage, Trad/Roth IRA, SEP IRA, Self-employed 401k, SIMPLE IRA, 529, Custodial Investment Accounts, ABLE, DAF, Annuities,

Who is this for?

Frankly, anyone who’s more serious about their finances. I do like Acorns’ hand-holding approach and their investing philosophy (but perhaps their marketing is off). But Fidelity is full-featured. You can do almost anything with them. Additionally, when it comes to retirement, they put it very prominently on my dashboard my “Retirement Score” — this is a simple gauge letting you know whether your savings rate puts you on track to retirement. We need more alarms like these!

We need Acorns to show people that simply “rounding-up” your finances isn’t going to be enough to get you serious savings by retirement!

Ultimately, between Fidelity and Vanguard, they’re offering more or less the same products, just with slightly different pricing structures or fund offerings.

Vanguard

Ahh yes, the fan favorite of many Bogleheads. Vanguard is known for providing excellent funds, however they also offer a brokerage service that aims to help sell those funds. Vanguard was started in 1975 by John Bogle (perhaps a good indication why his disciples love Vanguard) and overall, they are very full-featured, much like Fidelity, however they really direct you towards their funds and ETFs through their pricing.

Trading Fees: NONE for Vanguard ETFs, but between $0-$25 per trade for non-Vanguard ETFs and stocks. Fees depend on assets invested in Vanguard products.
Account Fees: $0 if you sign up for e-statements for most accounts
Minimum Balance: NONE, minimum investment is one share.
Assets Available:  Stocks, ETFs, Mutual Funds, CDs, Bonds.
Automatic Investing: Similar to Fidelity, they offer automatic investing into their Mutual Fund products.
Accounts available: Regular investing accounts, IRAs, 529, Annuities, SEPs, i401k, SIMPLE, 403b, Custodial accounts

Who is this for?

Like Fidelity, this is a pretty full-featured brokerage account. However, trades are slightly more expensive than Fidelity. Nevertheless, Vanguard funds have a huge following and therefore there are a large number of individuals that invest with Vanguard brokerage as well. I highly recommend Vanguard or Fidelity for anyone that’s getting serious about investing. Their products are vast, they offer apps, they both offer automatic investments into Mutual Funds, and they’ve been around forever.

The take away?

The Best

I like Fidelity and Vanguard the best. I’ll also allow you to go with Acorns, since they rely on Blackrock and Vanguard funds.

The Rest?

Robinhood? Eh, it’s more for “I want to dabble in day-trading” folks. And lastly, Stockpile I think is better served as a modern day savings bond for your kids and teens — let them invest $20 of their babysitting money in Apple and see where it goes!

Where do you invest? What are you thoughts? Any other folks I should’ve included? Let me know!

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