Market Watch: Millennials Turn To Investment Apps

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Technological advancement has made goods and services more readily available, allowing consumers to take comfort in achieving satisfaction at a faster rate. Apps like Facebook and Instagram allow us to interact with friends around the globe instantaneously. As well there are those like Uber and Airbnb that helped build the gig economy by providing more affordable options in the transportation and hospitality industries.

Thus, it should come as no surprise that investment apps have acquired success by providing the same qualities of comfort, readiness and affordability as those mainstream apps. But does this mean that investment apps overshadow the “normal” means of investing? I tried to see how investment apps measure up to the traditional channels of investment.

No matter the platform, one should keep in mind basic steps when it comes to investing. The first is to consider the amount from your savings that you’ll use to invest, given you have a fair amount to start with. Trading platforms often indicate a minimum amount required to invest.

The next is to plan your investment portfolio by setting an investment goal. It’s important to find out what your risk-level is as that will determine if your portfolio may be too ambitious and needs revision.

Afterwards, choose an investment style and its costs. Consider the trading fees you must pay for each fund you wish to invest in. Experts advise that investing in mutual funds – a pool of investors that invest in the same asset – is less risky than investing in individual bonds where the investor will bear the brunt of the risk.

A traditional method of investment is going directly to a broker to help you invest in stocks and bonds at the cost of the trade fee, with typical brokers fee around $10. In the U.K., the commission is just under $17 with their larger retail brokers.

Some less traditional channels for investment are through online trading platforms. An example of an online platform includes TD Ameritrade, one of the largest in the U.S., which charges $6.95 per trade. Another is E-Trade, which has a costs $10 for each individual stock or other investment ordered.

Fidelity is another example of an online investment platform, selling several low-cost mutual funds. This means you can invest a fair sum of money with them for a small fee or at a low cost. Back in 2016, Fidelity revealed twenty-seven of its funds that could be invested in with this process.

As more millennials enter the workforce, their demographic has shown an increase in the level of their generation’s investments. This interest is apparent particularly with millennials in the gig economy, or who are otherwise not working full-time. In fact, many millennials are attracted to investments with internet and tech companies that are new or recognizable to their generation.

One explanation for this increased activity from young investors is their youth. Investment experts have stated that most young investors are risk-takers, feeling less nervous given their longer time horizons for investment growth. Experts added that young investors have a stronger chance of receiving high dividends in their future and support their investments as they work toward more long-terms goals like retirement.

The other explanation for heightened investment activity are investment apps which millennials find compelling. An advantage of investment apps is micro-investing, where individuals can make small investments at low trade fees. The relatively low to non-existent trade fees seen with most investment apps make micro-investing easier for low-income individuals to access the stock market.

A popular investment app is Acorns, which invests the change found from rounding up your purchases to the nearest dollar. The app charges $1 a month for any portfolios under $5,000 and has a $5 minimum account requirement. Acorns is popular for managing your investments while you shop, so the user can relax while the system works to increase your investments. One of the app’s diverse investment styles include exchange traded funds (ETFs).

Similarly, Stash stands outs from other investment apps in its diverse funds. With Stash, you’re given the option to invest in stocks, bonds and commodities. The app also has a $5 minimum and $1 monthly subscription to start investing.

Another app that enables micro-investing is Money Box, a U.K. app like Acorns, whose platform or interface makes saving easy and fun for its users. Freetrade is another U.K. investment app, that encourages young people to invest by offering commission-free trading for portfolios under a U.S. equivalent of about $14,000.

Robinhood, a new investment app unicorn, allows you to buy and trade stocks without having to pay any fees. Robinhood is notable for its zero commission to use their trade investment platform and for not requiring a minimum account size to invest. The app’s target demographic is millennials, with the average user somewhere around their late 20s. The co-founders Vlad Tenev and Baiju Bhatt made the app to allow young people access to the stock market for free and hopefully turn them into new investors.

The emergence of numerous investment apps has improved how young investors access the stock market. The new behavior of millennials is a polar opposite to that following the 2007-08 financial crisis, when they started to distrust financial markets. These investment apps give users more confidence to pursue investments in a way that’s adaptable to their comfort. Rather than overshadow the more traditional means to invest, these apps offer an alternative to encourage young investors to take more risks and pursue new channels to access financial markets.