With the rise of online investment tools, investing has become easier, more convenient, and more accessible than ever before. Today, a range of investment apps are available, allowing users to make trades quickly and seamlessly from their smartphones. While expanding access to financial markets is a positive development for potential investors, it’s important to look at the pros and cons of using any particular investment tool. In this article, we’ll examine some of the main benefits and drawbacks of investment apps.
Investment App Advantages
Investment apps are attractive to many investors because of their low costs, convenience, and ease of use.
Low Fees & Investment Minimums
Many of the investment apps available today offer very low barriers to entry. Many have no minimum account balance, so users can sign up and start investing with any amount they like. They may offer fee-free trades or charge a low monthly rate to use the app. Some provide the option of rounding up purchases and automatically investing the change, and some allow users to purchase fractional shares, making it more affordable to invest in companies that have high share prices. As a result, they can be particularly appealing to those who have very little to invest.
Convenience
With investment apps, users can make trades quickly and easily directly from their smartphones. Portfolios can be managed on the go from anywhere with internet access. Some even have alerts that can be configured to send notifications when a stock’s price makes specified types of movements. This makes it easier for users to stay on top of their portfolios and seize opportunities when they strike, or possibly make panic decisions.
Ease of Use
Many investment apps are very user friendly, making them attractive to new investors. There is a wide range of functionality in these apps, however, so it’s important to choose one that fits your investment style and comfort level. For example, Acorns allows users to choose from a list of portfolios composed of exchange-traded funds (ETFs), which include a variety of stocks and/or bonds. Robinhood, on the other hand, allows users a great deal more freedom of choice in their investments, encompassing not only ETFs but also individual stocks, options, and even cryptocurrency. Of course, this broader range of choices also means investors need to be savvier about how to invest wisely.
Investment App Drawbacks
Before diving into investing via an app, it’s important to understand the risks involved. While all investment includes an element of risk, the ability to make transactions quickly and with little guidance can create a perfect storm for poor financial decision-making.
Minimal Guidance
Many investment apps include tools that help users understand the basics of investing. However, they don’t provide personalized investment advice. A good investment for one person may not be a wise choice for another. To get the most out of your investments, it’s important to consider your own financial goals, priorities, values, and risk tolerance. Especially for newer investors and those wanting to make larger investments, the advice of an experienced advisor can help ensure investment decisions support their long-term goals and avoid putting their hard-earned money at greater risk of loss than they’re prepared to handle.
Fees Can Add Up
Even low fees add up over time. As a result, those who use apps for investing low dollar amounts can end up losing a hefty percentage of their investment dollars in monthly fees. Additionally, many apps may offer some fee-free trades but charge fees for specified transactions like options contracts or overseas investments. Before using a trading app, be sure you understand its fee structure and how it will impact you based on the amounts you plan to invest and the types of investments you intend to make.
Impulsivity
A major drawback to all this quickness and convenience is the potential for impulsive moves. Perhaps putting large sums of money on the line shouldn’t be too quick and easy. Before using an investment app, honestly appraise your own tendency to make impulsive decisions. It’s important to weigh investment choices carefully, with consideration for their long- and short- term impacts on your financial security and an understanding of how they align with your goals and priorities. If you know you’d be tempted to make sudden, consequential moves on an investment app, it might not be for you.
The Advantage of Personalized Investment Advice
Investment apps have their place. They can make it easy for investors to actively manage their own investments and make trades on the go. However, it’s wisest to begin your investment journey with a solid foundation of knowledge. Particularly if you’re considering making large investments, consulting with an experienced and trusted financial professional can help you build a strong investment strategy from the start. Then, if you want to also use an app to manage your investments on the go and make low-cost trades, you’ll be equipped to do so with greater confidence.
WRP Wealth Management takes a personalized approach to investment management. We help our clients get the most out of their investments with tax-efficient strategies that are aligned with their individual goals, values, priorities, and appetite for risk. Learn more about our approach, or visit our resource center to browse our library of free ebooks.