Annuities and linked benefit products are sure and steady ways to protect future income and provide for self and family. There are few comparable products with the ability to protect money and provide the income needed for a comfortable future. While these products are great, there are other ways to invest to save for retirement that are growing in popularity. Investment apps are becoming a trendy way to save money, especially among younger generations. But what are these apps and are they safe to use?
Investing apps such as Acorns and Stash allow users to start with smaller amounts of money and choose how they want to invest their cash. Sophisticated software that directs money to the most promising investments is behind these apps. These apps make investing seem effortless by working with smaller deposits and encouraging smaller additions as you go. The idea is to build wealth over time and function like an investing savings account. But what are the drawbacks and benefits of such apps?
For starters, since most of these apps only require minimal deposits—sometimes as little as five dollars–investing doesn’t feel like a huge financial burden. With smaller amounts, the risk feels a lot lower as well.
Couple low investment amounts with small handling fees and this seems like the ideal way to invest and save for those on a tight budget. It’s important to note, as the amount in investment accounts grows, so too do the fees. However, the fees are still much lower than traditional investing firms.
On the other side, these apps do have their problems. For starters, many young people who use them lack a long-term perspective. Saving money over a few months seems great, but that savings may soon be used for the next bright and shiny item. Keeping perspective that this is a long-term plan doesn’t always sink in.
Another issue is the lack of tax benefits. Most people start using these apps thinking they will be able to by-pass any taxes, but the government always gets their money. Most of these apps lack the tax advantages of more traditional Roth IRA’s or annuities.
The bottom line: These apps are a terrific way to get started with saving and investing, but they shouldn’t be the only option. Starting with these is a great idea, before upgrading to more solid and beneficial products that ensure the greatest return.