Advertisements for no fee trades on stock purchases are everywhere, but the catch is that you must deposit large sums of money in order to take advantage of the deal. How can young adults, who are just entering the workforce, realize their retirement saving goals? Luckily, when it comes to investing, no fee investing is beginning to rival large corporations such as TD Ameritrade and Charles Schwab. Not only is no fee investing catching on, trading directly from a smartphone with a few taps is providing opportunities for new investors to gradually enter the market.
The introductions of Acorn and Robinhoob revolutionized the way people save and invest with minimal fees, and the term minimal is used because Acorn charges one dollar a month to use their services, but the value is evident.
Founded by Vladimir Tenev and Baiju Bhatt, Robinhood aimed to eliminate the seemingly large fees charged for placing trades on the retail side when institutional investors are placing trades for substantially less. The application is simple, allowing its user to place trades for any stock or ETF that is traded on the the major US stock exchanges. Users can deposit funds whenever or schedule money to be deposited at predetermined times too. What got everyone to take note are no trading fees but with that brought critics asking how a company such as Robinhood will make money if they were not charging a fee.
The answer is they retain all interest earned on cash not invested in stocks, so you don’t get even the low interest money in an online savings account will give you. No fee investing may lack important statistical data, but this is insignificant because most information about companies can be found for free on websites such as Yahoo Finance and CNBC. Also, no fee investing allows people to purchase a couple shares of a company and not be eaten alive by high fee costs. Robinhood opened a gateway to the market by allowing the newest investors to feel comfortable about casual investing. The drawbacks are evident though with minimal charting and lack of features, but those may be substituted with other free products such as Tradingview.com or Finviz.com.
Another application with extremely low fee investing is Acorn. Yes, there is a one-dollar fee and we’re discussing no fee investing, but what this app offers is certainly worth the $12 yearly fee.
Founded by Walter Cruttenden and Jeff Cruttenden, Acorn brought financial awareness to millennials through reinvesting spare change when a debit card is used. Same as Robinhoob, Acorns is an excellent way for new users to begin saving for their retirement in an inexpensive manner. Obviously the goal is not to become insanely rich, but rather expose people to the power of saving and the fun of investing. Acorn has portfolios that the spare change will deposit into to be invested. For a minimal fee, the portfolios are already prepared, allowing peace of mind for new users that their funds will be relatively stable.
New Investors May Never Know a World with High Fees
Low and no fee investing is the way of the future. Millennials no longer want to pay outrages fees to invest little sums of money, and they also want the convenience of being able to invest as they please. Minimal fee applications are only going to become more numerous as the year progress and large corporations must compete. It’s understandable that the extras are not included such as top notch charting and detailed information, but that all can be found using other free channels. No fee investing allows new investors to enter the market without the fear of fees, and if they incorrectly purchase their investments, it won’t cost $20 round trip to fix the mistake. Having the ability to bring in new users and gently expose them to the market is an effective way of bringing and retaining users. Convenience, low fees, and simplicity will pay dividends for people trying to invest their hard earned dollars while raising awareness of personal finance.
That’s my take anyway. What about yours? Have you used any of these services before? Or you are using some more traditional brokerage firms for your investments?
Editor's Note: I've begun tracking my assets through Personal Capital. I'm only using the free service so far and I no longer have to log into all the different accounts just to pull the numbers. And with a single screen showing all my assets, it's much easier to figure out when I need to rebalance or where I stand on the path to financial independence.
They developed this pretty nifty 401K Fee Analyzer that will show you whether you are paying too much in fees, as well as an Investment Checkup tool to help determine whether your asset allocation fits your risk profile. The platform literally takes a few minutes to sign up and it's free to use by following this link here. For those trying to build wealth, Personal Capital is worth a look.