Where to Invest
Episode #7 of the course Investing money for beginners by Maureen McGuinness
You’re over halfway through this course! I hope you’ve found the first half helpful. Let’s move on to investing services.
According to research, we’re more likely to get divorced than to change bank providers. Luckily, millennials are more likely to switch banks to get a better rate. The same behavior should be applied to where you invest your money. I’ve switched providers just once during the last seven years of investing, but every year, I check to ensure my provider is still competitive.
Investment service providers are needed to give you access to the stock market. Through a provider, you can buy funds, stocks, and bonds. There are two types of providers: traditional and robo. However, you may also invest through your employer by purchasing stocks of the company where you work or by using special apps.
A traditional provider is an investment service that would have traditionally been accessible only through mail and telephone. You may have also been given paper certificates to prove your ownership in company shares or funds. Today, most traditional providers can be accessed online.
Traditional providers act as a one-stop shop for investing. Investors can research the companies they want to invest in, buy and sell their investments through the provider, and track the performance of their investments.
Traditional providers suggest that you take financial advice before investing through their platform, as they provide no advice when you invest with them. All investors are required to select their own shares and funds. The main service provided is to enable you to purchase and sell your investments.
Examples: Fidelity, Charles Schwab, The Vanguard Group, Wells Fargo
A robo advisor is an online investment service. Robo advisors are suitable for investors who wish to gain the benefits of expertise while being more hands off with their investment. They allow investors to get a ready-made portfolio depending on their appetite for risk. Compared with a traditional provider, robo platforms enable investors to start investing with very little money, but that means you may end up paying more in fees for the convenience of the service.
Examples: Betterment and Wealthfront (US only); Nutmeg or Wealthify (UK only)
If you have a retirement account through your employer (e.g. a 401(k) in the US), you are already investing in the stock market. Most companies will provide you with a retirement account as part of your total compensation. Some pay into the account regardless of whether you contribute, but many pay based on a minimum contribution from you (a contributory arrangement). Many with the latter arrangement will match your contribution up to a limit, which means you can essentially get free money from your employer. An extra benefit is that the money you contribute is usually deducted from your gross pay each month, which will not only help you contribute to your account without paying tax but may also reduce your tax liability each month.
Company Stock (UK only)
Your employer may also let you purchase company stock at a discount as one of your benefits. In the UK, this is called Save As You Earn (SAYE), or Sharesave or Savings Related Share Options Schemes. Most employers require employees to save up to some amount in the scheme every month for several years. You can often arrange for the payment to be taken from your pay every month. At the end of the term, you can buy shares in the company at a price that was fixed at the outset, which is usually sold at a discount.
In recent years, “spare change” apps have popped up to provide investors with the ability to invest from a few cents. This provider is an extension of a robo adviser, but instead of having a minimum investment of $100, you can invest from a few cents. Providing a simple service comes with its cons—investors may not be investing enough for their goals.
Examples: Moneybox, Acorns.
Tomorrow, you’ll learn some tips on how you can keep your costs low.
The Only Investment Guide You’ll Ever Need by Andrew Tobias
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