The Benefits of Stock Options Investing

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How to Invest (2020 Beginners Guide)

Posted by Blain Reinkensmeyer | Last updated on Mar 29th, 2020 | Published Mar 28th, 2020

Investing is different than trading. Investing is about the long term view, e.g., years or decades, whereas trading is about the short term, think months, weeks, days, hours, or even minutes.

While I’ve written extensively on stock trading and day trading, this beginners guide is specifically about how to invest in the stock market as a beginner.

Personally, I’ve placed thousands of trades over my career. My day job is leading the charge at Reink Media Group, which owns and operates sites including investor.com, StockBrokers.com, and ForexBrokers.com. I still invest (and trade) though whenever time permits.

One last note before we get started. I’ve written this guide as a series of questions. That way, you can quickly scroll down and find what the answer that you seek.

Ok. Let’s dive in!

What is the Stock Market?

I like to think of the stock market as a marketplace. The product being sold are shares (ownership) of companies.

Some people are buyers, betting that the shares they buy today will be worth more in the future. Others are sellers, selling shares they own. Sellers believe the value of the company is going to go down in the future.

To buy and sell shares of stock, you use an online broker, which connects you to stock exchanges and other market centers. The two most notable stock exchanges here in the United States are the New York Stock Exchange (NYSE) and the NASDAQ. Combined, these two exchanges represent over $30 trillion in wealth (Wikipedia).

For example, Apple, which trades under symbol “AAPL”, is listed on the NASDAQ stock exchange. Meanwhile Disney “DIS” is listed on the NYSE.

Ultimately, the goal as an investor is to buy shares of stock, then sell them later for a profit as the value of the company (stock price) appreciates (goes up).

What is the S&P 500?

The S&P 500 is the most widely followed index in the world. From Wikipedia,

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The Standard & Poor’s 500, often abbreviated as the S&P 500, or just “the S&P”, is an American stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ. The S&P 500 index components and their weightings are determined by S&P Dow Jones Indices.

If you want to invest in the United States as a whole, the easiest way to do it is to buy a fund that replicates the S&P 500.

In fact, both Warren Buffett and Jack Bogle (founder of indexing and Vanguard) believe the S&P 500 is all you need to have a worldwide exposure. This is because the S&P 500 generates just over 50% of its revenues domestically. The rest comes from overseas.

What is the Dow Jones Industrials Average (Dow)?

The Dow Jones Industrials Average, or Dow for short, is an index that tracks 30 large publicly traded companies. The index is named after Charles Dow, who established it in 1896. Like the S&P 500, the Dow is frequently referenced as a representation of the overall US stock market.

Fun Fact: The Dow is frequently referenced on TV and media outlets simply because its price is higher than the S&P 500. All in all, it makes for better headlines, e.g. “The Dow dropped 1,000 points!”

The reality is though, institutional investors and passive investors do not invest in the Dow. Overwhelmingly, they choose the S&P 500 because it is far more diversified.

What is Passive Investing?

As a new investor, it’s important to understand the term, “passive” in relation to investing. I’m sure you’ve seen the phrase “passive investing” mentioned before. If not, no sweat, I got you covered.

The primary objective of passive investing is to buy and hold shares over the long haul. Once shares are purchased, no matter what happens to the price, you do not sell.

In fact, passive investors consistently buy more shares, ideally each month. By holding over the long haul, the power of compounding takes over. There are also tax benefits to holding long term, but that’s a topic for a different day.

While you can passively invest in any stock, the most common strategy is to invest in the overall stock market, e.g., the S&P 500. This way, you are diversified, which means owning shares of stocks in multiple industries or segments of the economy.

Historically speaking, over the past 90+ years, the S&P 500 has appreciated 9.6%, on average, each year. Certainly, some years are better than others (the S&P 500 fell -37% in 2008!) but over the long haul, the US economy grows in size, and with that, stock prices appreciate in value.

What are the Benefits of Passive Investing?

In summary, there are five key benefits of passively investing in the overall stock market:

  1. You can sleep well knowing you are diversified and own the entire stock market instead of just one single company.
  2. By buying and holding for decades, while reinvesting dividends, the power of compounded returns is realized.
  3. With passive investing in low cost index funds (ETFs or mutual funds), you are keeping fees as low as possible, which maximizes your returns.
  4. You are maximizing tax efficiency by buying and holding for decades instead of days (traditional, taxable account… not a retirement account).
  5. You remove all the emotions of second guessing yourself by keeping your investing approach simple.

How Do You Make $1 Million Dollars Investing in the Stock Market?

To illustrate just how powerful passive investing is, I built a basic spreadsheet that shows how putting $5,500 into an Individual Retirement Account (IRA) and investing the entire amount each year in Vanguard’s S&P 500 ETF (symbol “VOO”).

By investing $5,500 each year in a tax-deferred IRA and investing in the S&P 500, after 31 years you will have

$1,000,000. *UPDATE 2020: Now you can contribute $6,000 each year into an IRA.

As I noted earlier, historically speaking, the S&P 500 has returned 9.6%, on average, per year (source). Also, the Vanguard S&P 500 ETF (VOO) has an expense ratio of just .04% per year, which means the cost to hold the ETF fund would be only $40 for every $10,000 invested.

Remember, your $5,500 investment each year is pre-tax, which should make it even easier to save. In fact, I follow this exact strategy for my wife’s Roth IRA (post-tax individual retirement account).

One final note here is that once you are age 50 or older, you can contribute an extra $1,000 per year (known as “catch-up” contributions), so $7,000 instead of $6,000.

What is the Best Online Broker for Passive Investing?

Which online stock broker should you use to build your Warren Buffett portfolio? The answer is simple: it doesn’t matter.

Today all large online brokers offer $0 stock and ETF trades, so as long as you buy the ETF version versus the mutual fund version, the cost is $0 per trade.

Whichever broker you choose, reinvesting the dividends through a DRIP (dividend reinvestment plan) is also a free option.

One final note. If you do want to use mutual funds instead of ETFs, then I recommend going straight to the fund source and using Vanguard. Buying and selling Vanguard mutual funds is free with Vanguard. Just know that the online brokerage is NOT user-friendly.

Bottom line, it doesn’t matter which brokerage you use to passively invest in the stock market, just buy and hold until retirement.

What is a Robo-Advisor?

Perhaps you want to follow passive investing principals of taking a long term approach, keeping it simple, reducing fees, and investing in the stock market, but don’t want to actually place the trades yourself.

If this is you, then you will want to consider using a robo-advisor instead of trading on your own. In short, a robo-advisor is essentially an automated passive investing service. The costs are higher than doing it yourself, but it is less work overall.

Personally, I always recommend Vanguard Personal Advisor Services ($50,000 minimum) and Betterment ($0 minimum). And note, I make $0 off those recommendations.

Lastly, if you want to work with a financial advisor, use the city search tool on investor.com to find a financial advisor in your city.

What are the Benefits of Investing When You are Young?

One of the most important things that you can do as an investor is to get an early start on investing. Here are five crucial benefits:

  1. Time is on your side – The old saying “the early bird gets the worm,” certainly applies to investing when you are young.
  2. Compounded returns – Compounded returns are extremely powerful over the long run. Even investing $10, $50, or $100 a month when you are in your 20s can be massive over decades of compounding.
  3. Improved spending habits – Investing early helps develop good money spending habits. Learning to think like an investor versus like a consumer is a powerful mentality shift.
  4. More flexibility later on – Your personal finances are bound to get tight at times throughout your life. By starting to invest at a young age, you will provide yourself options on how to navigate life’s challenges.
  5. Quality of life – It goes without saying, the more money you have saved for retirement, the lower your stress and the better the “sleep factor”.

All in all, don’t wait to get started investing. Your future self will thank you later!

How do I Invest like Warren Buffett?

Warren Buffett is recognized as the greatest investor of all-time because of his discipline and conservative approach to investing.

Warren Buffett’s recommended passively invested stock portfolio is actually very simple. In fact, there are only two holdings: the S&P 500 and a short-term US government bonds fund.

What are the symbols for these two Vanguard funds? You can buy an ETF version or a mutual fund version. I personally use the ETF version, but either one works.

  1. S&P 500 index fund – ETF symbol VOO (no minimum), Mutual Fund symbols VFIAX ($3,000 minimum)
  2. Short-term treasury bonds fund – ETF symbol VGSH, VFIRX ($50,000 minimum), VFISX ($3,000 minimum).

Buffett, 89 years young, revealed his simple portfolio mentality in his 2020 annual letter to company shareholders (emphasis mine),

My advice to the trustee couldn’t be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers.

Buffett provided similar advice after Lebron James asked him what he should do with his own investments,

“Through the rest of his career and beyond, in terms of earning power, [he should] just make monthly investments in the low-cost index fund.”

The reason Buffett recommends Vanguard funds over other providers is because the funds have the lowest costs respectively for the instruments they are designed to follow.

Here’s one more Buffett quote on low costs and keeping investing simple,

Both individuals and institutions will constantly be urged to be active by those who profit from giving advice or effecting transactions. The resulting frictional costs can be huge and, for investors in aggregate, devoid of benefit. So ignore the chatter, keep your costs minimal, and invest in stocks as you would in a farm.

What is Age-Based Asset Allocation?

To build a portfolio that is properly diversified, you first want to look at your age and target retirement date. For this section I am referencing the largest asset manager in the world, Vanguard, which has a staggering $4 trillion under management.

When you’re young, it is recommended to take more risk and invest more heavily in stocks vs bonds to maximize returns. As you age, you then want to increase your bond holdings while reducing your stock holdings to lower risk. After all, you are getting ready to retire.

Here’s a good cheat sheet from Vanguard on the different allocations and historical returns.

To determine allocation based on age alone, Vanguard recommends starting with a 90/10 (stocks/bonds) mix and maintaining it until you are 20 – 25 years from your desired retirement age. From there, you slowly adjust your allocation every few years until you reach retirement in which you ideally would be allocated 40/60 (stocks/bonds).

For example, if your target retirement age is 65 and you are currently 30, then you would want a 90/10 mix. Once you turn 40, you could reduce to say 80/20, or wait a few years to start transitioning. At age 60, you’d want to be around 60/40 or 50/50.

While the above certainly keeps things simple as a framework, there are a variety of factors that come into play. Your current income, debt situation, current savings rate, target retirement age, and personal goals are all important.

Bottom line, your ideal asset allocation mix may not fit into a broad, simplistic mold, and that’s ok.

I am not a professional advisor, nor do I have any interest in becoming one. That said, hopefully the above can at least help to provide a simple guide to use as a starting point.

What are Target Date Funds?

If you want to passively invest in a traditionally diversified portfolio by age, the easiest solution is to buy a Target Date Fund (TDF).

With a target date fund (Vanguard calls them target retirement funds), you buy one low-cost mutual fund and everything portfolio related is done for you automatically.

Vanguard has a fantastic free tool to determine what fund you need to buy based on your current age and desired retirement age.

Since I am 33, Vanguard’s tool recommended I buy the Vanguard Target Retirement 2050 Fund (VFIFX) which charges an annual expense ratio of only 0.10%.

In fact, in my company’s 401k, this is the only fund that I hold. I automatically invest 5% of my paycheck each month (which our company matches 100%) and it automatically buys this fund.

All in all, target date funds are another great way to passively invest for retirement.

Final Thoughts

Investing is a lot easier than many people think because the best representation of the United States is simply buying and holding the S&P 500.

The goal of passive investing is to keep costs as low as possible, buying more as you go, then letting the power of compounded returns work for you as you hold for decades.

All in all, you can choose any online broker to build a Warren Buffett portfolio and follow the advice of greatest investor on earth. Awesome.

Have a question or comment on this article? Email me or send me a tweet!

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What You Need To Know If Your Job Offers Employee Stock Options

Modified date: March 18, 2020

Does that mean that employee stock options are always a good thing? In some situations, that’s true. But in others, it can be more hype than substance.

What are employee stock options?

Employee stock options, also known as ESOs, are stock options in the company’s stock granted by an employer to certain employees. Typically they are granted to those in management or officer-level positions.

Stock options give the employee the right to buy a certain amount of stock at a specific price, during a specific period of time. Options typically have expiration dates as well, by which the options must have been exercised, otherwise they will become worthless.

As an example, an employee may be granted an option to purchase 2,000 shares of the employer’s stock at $100 per share. This is referred to as the strike—or exercise—-price.

The employee will be unable to exercise the options until they are considered to be vested. This is similar to the vesting of employer matching contributions to a 401(k) plan. The stocks are not owned by the employee until the vesting period requirement has been met.

An employer can set up a multi-year vesting schedule. For example, the employee may be vested in 400 shares each year, over a space of five years. That means that the employee would be vested in the first 400 shares after one year of service, than 800 shares after two years, and so on, up to 2,000 shares. One of the purposes of a delayed vesting schedule is to keep the employee with the company for several years.

Each year, the employee will be able to exercise the options. That means that she can purchase—then sell—the stocks included in the option. Naturally, the options will only have value if the market price of the company’s stock is higher than the exercise price of the option.

In our example, the employee would not want to exercise the option until the market price of the stock exceeds $100 per share. This is another incentive for the employee—it will motivate her to perform at a higher level, in order to help boost the value of the company’s stock.

Let’s say that the value of the company’s stock is at $150 after one year. The employee can exercise the option to purchase 400 shares at $100, or $40,000. She can then immediately sell those stocks on the open market, for $60,000, leaving a $20,000 profit on the exchange. This is why stock options are often considered to be attractive method of compensation.

The entire transaction can be completed seamlessly by the employee. The employee only needs to decide to exercise the option, and both purchase and sale are handled by the employer. In such a situation, the employer may simply issue a check for the difference between the market price of the stock and the exercise price directly to the employee. The employee doesn’t have to come up with money out of pocket to exercise the option—the stock is already hers.

The benefits of employee stock options

There can be huge financial benefits that come from employee stock options. Higher-level employees can often convert their options into six-figure and seven-figure profits. In such cases, the profits from stock options can exceed their base salaries.

In some companies, key employees can receive options over many years, and even throughout their careers. That holds the potential for the employee to become a millionaire just on stock options alone.

In a strong, growing company that has a steadily advancing stock price, the payoff is almost unlimited. In such cases, it may be in the employee’s best interest to accept stock options in lieu of salary.

The pitfalls of employee stock options

As attractive as employee stock options can be, and have proven to be for a large number of employees, there are some significant downsides.

They are often offered by start-ups

Employee stock options are often offered by startup companies because they cannot afford to pay market level salaries. If you accept such a package from a startup company, and the company’s promise fails to live up to expectation, the stock options you receive may never exceed the exercise price. Should that happen, the options will be worthless.

The company’s stock could collapse

Sometimes this happens because an entire industry sector falls out of favor. Other times it happens because the company itself falls out of favor. It could be that one of its main products is overcome by a competitor. But it could just as easily be the result of a major lawsuit, or a sweeping regulatory change. Once highflying company stocks sometimes do go down—and stay down—for years at a time.

There could be a multi-year bear market in stocks

Even if a company is doing well, a multi-year bear market can depress its stock price. Should the market price of the stock become depressed after you are vested in the option, you will be unable to exercise the option. And if the market price of the stock doesn’t recover before the options expire, they will become worthless.

The employer can fail

It happens in the business world, the company collapses after making a series of bad business decisions. In most cases, employees will simply lose their jobs. But if you accept employee stock options in place of salary, you will stand to lose a lot more. The reduced salary that you accepted will never be replaced.

Termination prior to vesting

Since a major reason for providing employee stock options is to keep the employee with the company, you can lose the options if you quit or are fired before you become vested.

Should you accept stock options in exchange for a lower salary?

It’s likely that you’ve heard stories about people who became instant millionaires as a result of having employee stock options. And that certainly is true. But there are probably an equal number of cases where the options became worthless.

If you’re accepting a market level salary for your position, and are offered employee stock options, you should certainly accept them. After all, you have nothing to lose.

But if you are accepting a lower salary for stock options, be sure that you have a strong understanding of your employer’s business, and especially where they are heading. A well-positioned company with bright future prospects can turn stock options into a gold mine. But if the company is at all shaky, the options could well become worthless.

Do a good bit of homework, and get opinions from people who are in a position to know. The history of the company and its stock performance will hold a lot of clues. You will have to research your employer in much the same way that you would investigate a company that you were going to invest a large amount stock into.

When stock options are the major reason to accept a job offer, the history and prospects for the company’s stock are as important as the job itself.

Summary

Employee stock options can be a nifty perk, but be wary if they make up too much of your compensation package. Do your research and see if the stock is worth the investment.

If your employer is a startup, be careful and don’t put all yours eggs in a basket that might unexpectedly go kablooey. Stock options in a startup might make you a millionaire; in the worst-case scenario they could end up costing you money.

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Thank you for this article! I was recently given my first stock options as a management level employee at a start up, and I was not familiar with how it all works at all. I read article after article and none of it made sense to me! Thank you for actually writing an article in terms a beginner can understand! I feel much more educated and confident in my decision now.

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The Best Investing Apps That Let You Invest For Free In 2020

Investing is risky. It comes with few guarantees. The only investing guarantee I can offer is this: everything held equal, the less you pay in fees, the better your returns. And investing apps are making it easier than ever to invest commission-free.

Fees don’t have to stop you from making wise and lucrative investments. Thankfully, we live in the 21st century, and there’s never been a better time to be a small investor.

And now, in today’s mobile world, investing is becoming easier and cheaper than ever. Plus, with the investing price war that’s been going on, it’s cheaper than ever to invest!

Here are the best investing apps that let you invest for free (yes, free). You might also check out our list on the best brokers to invest.

Note: The investing offers that appear on this site are from companies from which The College Investor receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). The College Investor does not include all investing companies or all investing offers available in the marketplace.

1. M1 Finance

Best For: Building A Free Portfolio For The Long Term

M1 has become our favorite investing app and platform over the last year. With commission free investing, the ability to invest in fractional shares, automatic deposits, and more, M1 Finance is top notch.

If you’re looking for a way to create and maintain a free, diversified portfolio of stocks and ETFs, look no further than M1 Finance. They provide a pretty revolutionary tool/investing app that allows you to setup a portfolio and invest into it (correctly allocated) for free.

What do I mean? Well, imagine a portfolio of ETFs – maybe you have 5 ETFs at 20% each. Well, instead of having to do 5 transactions (and commission for each) when you buy, you can now simply invest and M1 Finance takes care of the rest – for free!

If you don’t know exactly how to set it up, you’re more than welcome to use one of their already setup portfolios as well.

It doesn’t get much better than M1 Finance when it comes to investing for free. ​Try M1 Finance >>

M1 Finance

Minimum Investment

Commission

Monthly Fees

Account Type

Promotions

2. Fidelity

Best For: ​ Full Service Investing At $0 Trade Prices

Fidelity is one of our favorite apps that allows you to invest for free. This surprises most people, because most people don’t associate Fidelity with “free”. However, Fidelity offers a range of commission-free ETFs that would allow the majority of investors to build a balanced portfolio. Plus, they now offer $0 commission stock, option, and ETF trades!

The also offer fractional share investing, meaning that you can invest dollar-based, not just share-based. This is a big win for people starting with low dollar amounts.

Fidelity IRAs also have no minimum to open, and no account maintenance fees. That means you could deposit just $5, and invest it for free. That makes this a much better deal compared to companies like Stash Invest.

Furthermore, Fidelity just announced that it now has two 0.00% expense ratio funds – yes free. So, you can not only invest commission free, but these funds don’t charge any management fees. Truly free investing.

But to make it a top app, it has to have a great app, and Fidelity does. Their app is the cleanest and easiest to use out of all of the investing apps we’ve tested. They have a ton of features, but it all works well together.

Plus, you get the benefit of having a full service investing broker should you need more than just free. Check out Fidelity’s app and open an account here.

Fidelity

Minimum Investment

Commission

$0 for stocks, ETFs, options

Monthly Fees

Account Type

Taxable, IRA, HSA, 401k, Trust

Promotions

3. TD Ameritrade

Best For: Free Options Trading

If you’re a trader, you may have heard of TD Ameritrade – or maybe one of their platforms, like thinkorswim. With TD Ameritrade’s commission free pricing structure (for stocks, options, and ETFs), they are more compelling than ever to use as an investing app.

TD Ameritrade offers over commission free ETFs from industry giants iShares, Vanguard and more. Because of the diversity of no load ETF funds, TD Ameritrade is my top broker for people who want to consider tax loss harvesting on their own.

Remember, TD Ameritrade also offers $0 commission stock, ETF, and options trades.

Furthermore, TD Ameritrade also have no minimum and no maintenance fee IRAs. That makes it a better pick to options such as Acorns, which charge maintenance fees.

TD Ameritrade’s mobile app also offers research, information and portfolio analysis that makes the free investing that much sweeter. Just remember, TD Ameritrade charges for some ETFs, mutual funds, and equity trades. Filter for no load ETFs before you buy.

It’s app also isn’t as user friendly as Fidelity’s but we put them as a very, very close second. ​

TD Ameritrade

Minimum Investment

Commission

$0 for stocks, ETFs, options

Monthly Fees

Account Type

Taxable, IRA, HSA, 401k, Trust

Promotions

4. Robinhood

Best For: 100% Free Stock Trades & Limited Crypto

Robinhood is an app lets you buy and sell stocks for free. Users can buy or sell stocks at market price. The app allows you to make limit orders and stop loss orders too. Unless you’re an active trader, this is plenty of functionality. Plus, the app comes with a clean user interface and basic research tools.

Most serious investors should pair Robinhood with one or more free research tools. This will help them develop a more systematic approach to investing. That said, you can’t beat Robinhood’s free trades, but its shortcomings here make it third.

They also allow options, fractional shares, and cryptocurrency investing, but these are limited as well.

The drawbacks are really limited, but one of the biggest is that the platform has become unreliable in recent months with large outages impacting investors.

If you’re curious how Robinhood makes money, it’s through Robinhood Gold. Robinhood Gold is a margin account that allows you to buy and sell after hours. Buying on margin means you double your expected returns. It also means you double your expected losses. The result (based on the magic of compounding) means that trading on margin tends to eat into your principal.

Robinhood

Minimum Investment

Commission

$0 for stocks, ETFs, options, crypto

Monthly Fees

Account Type

Promotions

5. Vanguard

Best For: Low Cost Index Fund Investing

Vanguard is consistently known as the low cost investment service provider. They were one of the original mutual fund and ETF companies to lower fees, and they continually advocate a low-fee index fund approach to investing.

At Vanguard, you don’t pay any commissions when you buy and sell Vanguard ETFs. You also pay no account service fees if you sign up to receive your account documents electronically, or if you’re a Voyager, Voyager Select, Flagship, or Flagship Select Services client.

Furthermore, Vanguard recently announced that they won’t charge a commission on a huge amount of competitor’s funds and ETFs as well!

Vanguard also doesn’t have an account minimum, and there is no minimum purchase requirement, except the cost of 1 share.​

What holds Vanguard back is that their app is a little more clunky that the other apps. It feels a little “old school”, and it seems to be built for the basics only.

However, it is free, so maybe only the basics are needed?​

Vanguard

Minimum Investment

Commission

$0 for stocks, ETFs, options, crypto

Monthly Fees

Account Type

Taxable, IRA, 401k, and More

Promotions

Runners Up

There are a lot of apps and tools that come close to being in the Top 5.​ When the competition is so good, it’s hard to make the cut.

Webull

Webull has been gaining a lot of traction in the last year as a competitor to Robinhood. It’s an investment platform that is app-first, and it focuses on trading.

Webull offers powerful in-app investment research tools, with great technical charting. This is a step above what you can find on most other investment apps.

Chase You Invest

Chase You Invest has been around for a while, but earlier this year they made their platform truly commission-free. That’s what makes it a runner up on our list of free investing apps.

Chase You Invest is also one of the few apps here that offer a solid bonus for switching! You can get up to $625 for opening a new account!

Charles Schwab

Charles Schwab also offers commission free stock, options, and ETF trades, similar to Fidelity and TD Ameritrade. In fact, Charles Schwab advertises that they offer more commission-free ETFs that most other companies, and they even offer some commission free mutual funds.

However, what keeps Charles Schwab out of the top is that they have a $1,000 account minimum for some account types.

Public

Public is another free investing platform that emerged in the last year. It’s actually a rebrand of the Matador investing app. Public is one of the few investing apps that allows fractional share investing, and they also offer a compelling interest rate on cash deposits.

E*Trade

E*Trade also offers a large selection of commission free ETFs. We are actually big fans of E*Trade for our solo 401k account, but they don’t make the top 5 when it comes to investing apps and free investing.

They just recently announced $0 stock, ETF, and options trades, but we’ll see how they compete with others on this list.

While they do offer IRAs with no minimums, and charge no transaction fees, we didn’t find their app as user friendly as the rest. Similar to their website, it’s just a bit harder to use. However, we still really like E*Trade and they are definitely a runner up.

Axos Invest

Axos Invest offers absolutely free asset management.

If you opt into their automation program you’ll pay a 0.02% fee each month (prorates to a 0.24% fee). The fee maxes out at $20 per month. In a year or two, Axos Invest may leap to the top of the list, but the company doesn’t allow enough customization for users today.

Other Investing Apps

There are other investing apps that we’re including on this this, but they aren’t free. However, they are popular and may be useful to some investors.

Acorns

Acorns is an extremely popular investing app, but it’s not free. Acorns charges anywhere from $1 to $3 per month, but it does make automating your investments easy!

Acorns allows you to round up your spare change and invest it easily in a portfolio that makes sense for you. However, if you don’t have a lot of money invested, that monthly fee can eat up your returns.

Stash

Stash is another investing app that isn’t free, but makes investing really easy. They have turned the investing process into an easy to understand platform, and they don’t charge any commissions to invest. However, they do charge a monthly fee that ranges anywhere from $1 to $9 per month.

Stash used to be known for $5 investing, but they have since gone to $0 minimums, and they allow fractional share investing.

Investing App FAQ

Here are some common questions about investing apps.

What makes an investing app different than a brokerage?

Investing apps are mobile first investing platforms. They are brokerages (just like the names you may be used to), but they allow investors to trade and invest in an app.

Are investing apps safe?

Yes, they are just as safe as holding your money at any major brokerage. These apps all are insured by the SIPC and have a variety of investor protections.

Can I invest in anything on an app?

Depends on the app. Some apps significantly limit what you can invest in, while others offer the full ranges of investment options.

Are these apps really free?

Yes. The top apps we list don’t charge a monthly fee to use, and don’t charge a commission to invest in stocks, ETFs, and options. Of course, these apps may charge service fees for additional services, such as wire transfers, paper statements, and more.

Have you ever heard of any of these investing apps? Which one is your favorite?

Filed Under: Brokerages
Editorial Disclaimer: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, or other advertiser and have not been reviewed, approved or otherwise endorsed by any of these entities.

Comment Policy: We invite readers to respond with questions or comments. Comments may be held for moderation and are subject to approval. Comments are solely the opinions of their authors’. The responses in the comments below are not provided or commissioned by any advertiser. Responses have not been reviewed, approved or otherwise endorsed by any company. It is not anyone’s responsibility to ensure all posts and/or questions are answered.

About Robert Farrington

Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here.

He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.

He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.

Comments

Great article I think you forgot betterment. Also there is a new trading platform tastyworks. Great platform

Robert Farrington says

There’s a constant debate between Betterment and Wealthfront. We prefer Wealthfront, but Betterment is good too.

Remember, Tastyworks isn’t truly free. They advertise $0 closing trades, but they do charge a commission to open a position (which is currently $5 for stocks). That’s on par with what most other discount brokers charge currently.

I am a bit confused when you guys say free trade on these apps. I have Td Ameritrade for a long time but when I buy or sell stocks they charge me like $9. So is it only the ETFs that are free trades. Thanks

Robert Farrington says

Yes, it is the ETFs in the list we shared in the article – over 100 different ETFs in just about every sector. If you’re looking for free stock trades, look at Robinhood, which does offer 100% free stock trades (it’s just not as robust a platform).

Am I understanding this correctly? Fidelity is not free since they will charge $4.95 on U.S. equities trades. At face value this seems more expensive than Stash, which charges $1 flat fee. However, if only investing in Fidelity IRA or Fidelity ETFs it is free. Whereas Stash will charge $1 / month and you must stay within Stash ETFs?

Robert Farrington says

Fidelity does charge $4.95 for equity trades (i.e. stocks or non-commission free ETFs), but has 100s of commission-free ETFs and mutual funds. You can invest in these in any accounts at Fidelity, but their IRA has no minimum balance requirements, which is awesome – meaning you can start it with just $5 if you really wanted to.

Now, let’s talk about Stash and why it’s more expensive than Fidelity. Stash only allows you to invest in ETFs and some individual shares (like Berkshire Hathaway) – and these are almost identical to the ETFs that are on Fidelity’s commission free ETF list. They’re not unique to Stash – they’re publicly traded ETFs. But unlike Fidelity, you’re not only paying the ETF expense ration, but you’re also going to pay $1/mo on top of that. For low account balances, that can add up to a lot.

Let’s look at an example to break it down. If you’re interested in Technology Stocks, you might consider investing in Stash’s Internet Titan’s ETF. This ETF is actually ticker symbol FDN, which is First Trust Dow Jones Internet Index Fund. This ETF has an expense ratio of 0.54% – which is pretty high for a domestic ETF.

If you want to invest in a similar ETF at Fidelity, you’d probably go with FTEC, which is Fidelity MSCI Information Technology Index ETF. It invests in the same companies, and it has an expense ratio of 0.08%. It’s also commission-free to invest in. The Stash ETF is 6.75x more expensive to own than the fund at Fidelity. Plus, you have that $1/mo fee on top of it!

So, if you have a $1,000 investment in this fund, it would cost you:
At Stash: $12 (the $1/mo fee) + $5.40 (the fund’s expense ratio) = $17.40
At Fidelity: $0.80 (the fund’s expense ratio) = $0.80

In percentage terms, your investment would end up costing about 1.74% per year in fees. At Fidelity, it’s just the 0.08%. So, when you add in the monthly fees, it ends up being 21.75x more expensive to invest at Stash than Fidelity!! All those extra fees are doing is hurting your return over time.

I would add, if you’re looking to buy individual stocks (and not commission free ETFs, look at Robinhood, which is #3 on the list).

Thank you Robert for that detailed explanation! The breakdown with the Technology Stocks ETF really helped.

Stockpile offers trades for $1, and can buy fractional shares, u do t have to have the full amount to by a stock. Basically $.99 cent trades, not to shabby, id say no less than $100 though that way ur keeping at at 1% fee, which isnt that bad, to be able to buy into any stock

Robert Farrington says

A 1% free is really bad.

Yea but stash u can invest $1 into the etf everyday, u dont have to wait until u have the full amount to buy 1 full share. U can buy fractional shares which literally means u can invest $5 into any etf stash has, which they have good ones

Depends on how much u can invest, if ur gonna go with stash, i wouldnt invest any less than $25 a week, that way expense is at 1%. Stash has some good sector ETF’ that speculatively can outperform ur basic s&p 500 index, and after $5,000 the expense is only 0.25% whish isnt bad if u think a social media index can outperform an s&p index by 0.25%

Robert Farrington says

You do realize that you can invest in the same ETFs elsewhere without paying any management fee (0.25% or higher). And if you invest in the same social media index, on say Robinhood or M1, you automatically outperform anyone using Stash because there is no management fee on top of your regular expenses?

Robert Farrington says

There’s where we disagree. With multiple platforms listed above, you can buy fractional shares. As for good ETFs, Stash has some good ones, and some poor ones. I think you might find this article about whataboutism and excuses helpful as a frame of reference when comparing investment platforms and options: https://www.thecollegeinvestor.com/21437/financial-whataboutism/

Whats unique about stash is, u can buy fractional shares of a stock, granted there list of stocks are limited at the moment, they continue to add more, and its a flat $1 month fee, so depending on how much u r investing u can figure out the expense. And once u get balance to $5,000 its a flat 0.25% which is very reasonable to be able to buy fractional shares and invest weekly or daily.

Robert Farrington says

You realize that you can invest on Robinhood or M1 for free, and M1 allows fractional share investing and you can invest daily or weekly should your heart desire.

And while, for some people, a 0.25% free might make sense, for what you get on Stash, it really doesn’t.

Jose Ortiz says

Could you please advise me on what app is best for a beginner like me that wants to start investing/saving money and what might be best to invest in?
Thank you in advance.

Robert Farrington says

If you want to do things more hands on – any of the apps 1-4 would work.

If you want a hands-off approach, look at Betterment to simply connect your account to save and automatically invest.

So let’s say I just wanted to go buy some stocks on the stock market like Pepsi or Ford. Spending in the one or $2000 range but not selling or buying very often. What would you recommend So I’m not getting hit with a lot of these in the long run

Robert Farrington says

If you want to buy stocks for free – Robinhood is the way to go.

If you want to buy and hold ETFs and Mutual Funds, Fidelity and TD is the way to go.

If you don’t want to ever think about it, and just want to invest and have it done for you, Betterment is the way to go.

Jared Connell says

I’d these brokerages offer commuting free trades, how do they make money? I understand that some of them offer free etf trades in hopes that you’ll trade in stocks or other funds km the list, but how do places like robinhood make any money?

Robert Farrington says

It’s also important to note that a company like Robinhood has much smaller expenses than a big firm. They are leveraging technology to keep costs low.

I think M1 an RH are best for me. M1 seems the superior for long term, due to auto investing setting which basically let’s you drip all divys from any stocks, just 10$ minimum order. Plus the fractional shares are a nice bonus. RH is a nice alternative to going to a casino, the biggest cons are limited available securities able to be traded and most their focus recently seems to be on crypto exchange, which is about a 3% fee for buys and sells. But RH biggest pro I think is once you have connected your bank account there is no wait time to use that cash to buy, same for selling. Incoming funds are always immediately available. Outgoing funds are pretty fast, they say up to 5 business days, but I’ve never waited longer than 3 days, one time it even transferred the next day. Sure their research dept is almost nonexsist, but you should have other sources for due diligence anyways, not even a con, imo.

Great resources! I’m interested in trying Fidelity or M1 after reading this. Does anybody have longer term experience with either of these companies? I’d love to hear about the experience from a year or longer.
I have had funds with Vanguard and I have been pretty pleased. Their customer service has always been awesome!

Robert Farrington says

I’ve been with Fidelity for over a decade and they’re great. I’ve been fiddling with M1 for a year or so, and I love it! One of the best investing platforms I’ve seen.

Thank you for the information and apologies if this is a trivial question.

Which platforms lets me manage multiple portfolios (say I want to manage a separate portfolio for each child and one for myself).

Robert Farrington says

All of the major brokerages (Fidelity, E*Trade, TD Ameritrade) allow this, but the law requires you have a power of attorney to do it.

So, what you would have to do is open each account, have each child sign a power of attorney for you, and then the account will show in your dashboard.

Thanks for the response.

I did not explain the question correctly. I do not mean official, named separate accounts but rather only a way to manage my money in separate “buckets” so it is easy to track.

Another item I ran across (at M1 for example) is that they can only support US permanent residents (vs residents on Visas), is that typical for these services?

Lorenzo Morales says

I would like to invest, but as a retired teacher I have very little left over at the end of the month.
Just to mention, around a dozen years ago I knew this retired teacher who spent between 10 minutes to 40 minutes a day managing his online portfolio. Doing this he was able to supplement his retired living style while clearing around $70,000 a year.
Today, he rides on luxury cruise ship traveling port-to-port visiting and ,eating new people around the world for about $1,000 a month. Great he has a roof over his head, gets three square meals and all his needs catered to hand to foot for around $1,000 a month, better than any senior citizen community has to offer, while still making $2,000 a week from his online investment portfolio.
As a retired teacher with little to invest is such a lifestyle stile reachable in this day and age and if so what are your professional suggestions?

Robert Farrington says

I first (to level-set expectations) wouldn’t expect to even get close to that level. That took years of compound returns and growth to achieve.

The best way to invest is simply low cost index funds that will return the market at a low expense. This list has the best ones to do it at.

If you’re not sure where to go, find a financial planner in your area to help you.

What are your thoughts on uStocktrade in comparison to Robinhood (besides UST charging $10 per trade and $1 per month and Robinhood being free)?

Robert Farrington says

What type of investing are you going to be doing? Or are you going to be trading?

Perhaps you weren’t aware of the Matador and Webull competitors to Robinhood at the time of the dissemination of your article on the subject. They allow commission free trades, as well.

Robert Farrington says

Hey Dave! Familiar with both. We just put out our Webull review here. Matador is coming soon.

They have some potential (especially for traders versus investors), but they don’t make the top 5.

Hi, does anyone know if any of these platforms support non-u.s.a citizens? Like international students?

Robert Farrington says

No, you must have an SSN to use any US-based investing platform.

Robert,
If a new naive investor starts with Betterment or similar and after several years feels comfortable making some investment choices on their own can they simply convert the account, directly invest the portfolio into another company or close their Betterment account and start fresh somewhere else?

Robert Farrington says

You can always transfer out any time. However, Betterment is a great tools. A better option if you want to invest a bit on your own would be to open a second account and try it out a bit. For the long term, it’s not necessary, but some people want to for fun.

Can someone tell me what platform is best to start and begin investing and or trading? I am a stay at home mother with my own business and want to start investing for my girls future. Where should I start?

Robert Farrington says

We recommend M1 Finance above, that’s why it’s #1 on the list!

I want to start options trading. I use Robinhood, and it lets me trade options, but doesn’t allow spreads for me. As per Robinhood, I need more experience with trading options to enable speads. So is there any other app which lets me trade option spreads for free?
Thanks.

Robert Farrington says

There are no other apps that let you do it for free.

Great information it clarified most of my questions. I am a beginner and want to invest. I want to an app to automatically transfer my money and the app do the work. Which one is the best? I am leaning to M1 app…will it automatically invest or i have to monitoring closely?

Robert Farrington says

M1 automatically invests into the setup that you create.

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