Comparing the Best Free Investing Apps is about Your Goals, Not the Best Features
Free investing apps! There are so many choices, how do you know which is going to best grow your dough? Which no fee sites are legit and which should you avoid?
I’m reviewing the most popular investing sites; Robinhood, Acorns and M1 Finance – detailing the pros and cons of each. I’ll then compare them in a head-to-head to reveal the best app for different investors.
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Stop Paying Fees to Invest Your Money!
Fees are the #1 killer of wealth. Even at 1%, the average annual fee on a mutual fund, you’re out over $105,000 on fees and the money you should be making on those fees. That’s over one hundred grand of your money, lost to fees.
Used to be, you didn’t have a choice. I remember being excited to open my first online investing account in 2000. I was 23 and in the Marine Corps so my bills were basically paid. I was ready to put my extra cash to work and excited that Brown & Company was offering $5 a trade fees.
That was about as good as it got back in the day.
Now you’ve almost got too many choices for free investing apps and commission-free trading. From Robinhood to M1 Finance and Acorns offer no fee investing, how do you decide which is the best to grow your dough?
In this video, I’ll compare the three biggest free investing apps; Robinhood, M1 Finance and Acorns. I’ll first review each app, detailing the pros and cons, then we’ll look at a side-by-side comparison at the end of the video.
How Do Free Investing Apps Work?
Now I know a lot of you are hesitant to switch to the no fee sites, it seems too good to be true, right? They’ve got to be making money somehow.
The great part is, these investing sites really are free for the most part. There are three ways these sites make money and none of them really affect regular investors. First is most of the sites offer margin investing, borrowing on your account value to invest more, so they make money on the interest charged.
The apps also make interest on your uninvested cash balance. Some have automatic investing but you usually need at least $10 cash balance to trigger the auto-invest or you might just have a cash cushion in your account waiting for stock prices to come down. That money is marked to your account but it’s sitting in the investment apps overall account and earning interest.
Finally, most of these apps lend your shares out to short-sellers and collect the interest charged on that as well. When someone shorts a stock, they borrow the shares to sell and pay an interest rate on the borrowed amount until they buy the shares to close the trade. You won’t know that your shares are lent to a short-seller, it doesn’t affect your account in any way, but the platform earns that interest on the borrowing.
So no need to worry that these apps are lying about being free or making money at your expense in some way. They are free and can still make money at no cost to you.
Comparing the Free Investing Apps
Now let’s look at those three platforms; M1 Finance, Robinhood and Acorns then we’ll compare them against each other.
Our first app here is one I’ve used the most and probably one of the newer sites, M1 Finance.
M1 is completely free to use, there are no monthly fees or a percentage charged on your account. When you open an account, you pick the stocks and funds you want in your portfolio. The site then applies any money in your account to those investments, in the percentages you choose.
Another great part about M1 is that it’s automated. You can set up for a monthly withdrawal from your bank and the platform will automatically invest that cash commission-free into your stocks. It will also reinvest dividends in your account once they hit a certain level.
I’m using M1 Finance for the 2019 stock market challenge on YouTube. I’ve created a portfolio of ten dividend stocks and will be tracking it through the year against some of the biggest channels on YouTube.
The portfolio is already beating the stocks in the S&P 500, I picked M1 Finance for our dividend portfolio because it allows retirement accounts like the Roth and the traditional IRA. Putting my dividend paying stocks in these tax-deferred accounts means I don’t pay taxes on them every year when collected, that money stays in my account and I can reinvest it.
You can add or remove stocks from your portfolio. If you want professional help, M1 also features expert portfolios which it calls pies, that you can use for your investments. There are expert pies in about every theme conceivable like dividend investing and tracking pros like Warren Buffett.
M1 also allows fractional shares, meaning you can invest any amount in a stock even if it’s not enough to buy a full share. This is a problem with some of the other apps like Robinhood where you’d need the full amount to buy at least one share.
For example, if you wanted to invest in Amazon, you would need nearly two grand to buy a share on Robinhood or other apps. With M1 Finance, you can invest whatever you want, say $500 and the platform would buy you a fraction of a share.
The platform just launched a borrow feature that allows you to borrow up to a third of your account value and the rates are pretty low, just 4.25% right now. I wouldn’t always recommend trading on margin or borrowing against your account but it’s a nice feature and the rate is way under the comparable program on other platforms.
One thing I don’t like about M1 is they use a trading window, so you put in the stocks you want to buy or sell, then your trade is entered once per day. This helps aggregate all the orders for the platform and enables that fractional share investing but it also means you don’t get that instant trading you get on other sites. This one isn’t for traders.
I love the portfolio-view of investing though, letting you invest instantly across all the stocks and funds in your portfolio and rebalancing with the click of a button. It really lets you create a diversified portfolio covering lots of stocks and bonds, across funds and individual names and then invest evenly across all of them without paying a fee to buy each one.
Robinhood Investing App
Next is probably the most popular free investing app, especially on YouTube, the Robinhood app.
Robinhood started as just a mobile app but has since added a website as well. When I opened my account, it felt a little weird not having that website option and doing everything on my phone. Then again I’m an old timer so smartphones are still a little weird to me.
Like M1 Finance, Robinhood is completely free to use. You’ll never pay a fee to buy or sell stocks. The app is probably one of the easiest I’ve used with everything laid out so even us tech newbies can use it. It literally took me less than two minutes to open an account.
Besides free investing, Robinhood is best known for its free stock program. When you open an account, you get a free share of stock which you pick at random so it’s kind of like a game. You also get a free share of stock whenever you refer a friend that opens an account and they get a free share as well.
The free stock program assigns you a share at random but it’s from a list of stocks between $3 to $150 with the average around $10 for free shares.
I love the twist on the referral program idea though I’m not so sure I like getting my stocks at random. For example, I got a share of Groupon recently which…yeah, really excited about that.
There are some nice features on Robinhood you don’t find on other free sites. You can place limit and stop orders, so it’s much better suited for traders. There’s no account minimum and you can even invest in cryptocurrencies like Bitcoin and Ethereum.
There are a few downsides to Robinhood. You can’t buy fractional shares so you’ll need the full amount for each share you buy and they don’t yet have retirement account options. There’s also no auto-invest or reinvestment option so you have to reinvest all your dividends manually.
Besides those few downsides, Robinhood is a solid app that’s easy to use and actually a lot of fun with the free share program.
Acorns Investment App
Acorns isn’t technically free but the cost is so low that it’s basically free. I wanted to include this one because it’s a different type of app and could be better for a certain type of investor.
After creating an Acorns account, you’ll link up your debit and credit cards. Then every time you make a purchase using a linked card, Acorns will round up the amount to the nearest dollar and invest the difference in your portfolio.
For example, if your grocery bill comes to $47.23 then Acorns would round that up to $48 and put the difference of $0.77 into your investment account.
It’s a great way to save and invest without having to do anything.
Acorns adds another benefit here though in that it’s a robo-advisor. So after answering a few questions about your age and retirement goals, it’s going to suggest one of five professionally-managed ETF portfolios.
These are all combinations of Vanguard and iShares funds so the expense ratio is ridiculously low, around 0.1% on average. The funds invest across all the major asset classes including stocks, bonds and real estate including international exposure.
Acorns keeps all your money invested. It automatically invests any new money and reinvests dividends and all this is completely free. You never pay a commission to invest money.
The only fee is a $1 per month on accounts under $5,000 or 0.25% on accounts over five grand. That’s pretty common for robo-advisors so I feel like Acorns is a free investing app with the fee on the robo-service.
Taxable and retirement accounts are available and students with a .edu email qualify for up to four years of the service for free.
Another benefit is that Acorns has partnered with over 300 retailers like Nike, Walmart and Apple to give you extra cash back whenever you shop with a linked card. Just use your debit or credit card at one of these partners and they’ll put a percentage cash back into your investing account.
Acorns is a solid option for anyone that wants a set-it and forget-it strategy and not have to worry about picking stocks themselves.
Free Investing Apps Review
Comparing the three investing platforms, you really get a sense that it’s not so much one is better than the rest but which is best for you as an investor. M1 and Robinhood are both completely free which is always nice but you get a completely hands-off strategy for just $1 with Acorns. You get more order options with Robinhood but automated investing and retirement accounts with M1 Finance.
I feel like M1 Finance is best for investors that want a portfolio-wide approach, that want to create one portfolio of stocks and ETFs and then reinvest in it as easily as possible. The rebalancing tool and model portfolios make this super easy to do.
With Robinhood, I feel like it’s more of that individual stock-picker’s app with the multiple order types available and that free stock program that makes it a really fun app.
Acorns then is best for those that want an easy, hands-off strategy and that savings tool built in. With everything automated and the robo-advisor service, this is truly a set-it-and-forget-it investing strategy.
Finding the best free investing app isn't so much finding the one app with the best features but finding the one that matches your needs best. The best investing app for me might not be the best for the type of investing you want to do. Make sure you compare apps side-by-side and pick the best for your goals.