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Published: Dec 16, 2019 6 min read
Illustration by Jade Schulz

Welcome to Dollar Scholar, a personal finance newsletter written by a 27-year-old who’s still figuring it out: me.

Every week, I talk to experts about a money question I have, whether that’s “What if I don't have a 401(k)? or “How many credit cards do I need?” As I learn, I share simple ways to improve your financial life… and post cute dog photos.

This is (part of) the 22nd issue. Check it out below, then subscribe to get future editions of Dollar Scholar every Wednesday.

If you ask me, I'm an expert investor.

I mean, I invest in myself all the time. I recently bought a ticket for a Harry Styles concert scheduled for July 2020 — an investment in my future happiness. I moisturize nightly — an investment in preventing my skin from drying out during winter. Every once in a while, I get a Caesar salad for lunch — an investment in my health whenever I feel like I've eaten French fries too many days in a row.

I can admit, though, that I don't have a wealth of knowledge about actual investing. I learned from Issue #9 that my 401(k) is a good place to start, but what's the next step? Should I use investing apps?

First things first: The term "investing apps" can actually refer to a whole bunch of different services.

There are micro-investing apps, which focus on helping users invest small amounts of money, like Acorns or Stash. Then there are robo-advisor apps, which rely on algorithms to guide users on how to invest, like Betterment or Wealthfront. (There are also stock trading apps like Robinhood, but we're not getting into them now.)

Robert Farrington, the founder of The College Investor, said the biggest advantage of these programs is that they make investing painless for beginners.

Not only do they live in the palm of my hand, but also they avoid using technical jargon. They can often steer me in the right direction, serving up a mix of stocks and bonds based on my age or other priorities. Those are all huge pluses to a millennial like me (read: someone deathly afraid of having to ask a human financial advisor questions over the phone).

In addition, many investing apps allow people to start with small amounts of money. Stash brags on its website that I can invest "with as little as $5 at a time," while Acorns is all about investing spare change. Lowering the barriers for new investors can get people into the habit earlier.

That brings us to the major downside of these apps: the cost. Stash has plans that cost $1, $3 and $9 a month with various benefits. Acorns has a similar structure, with levels that'll set me back $1, $2 or $3 a month. Farrington said that while those dollar amounts might not seem high, they add up — especially when compared to the returns I'm getting.

"With those fees, these apps are really going to hurt you more than they're going to help you," he says.

Let's do some math. Mutual funds or ETFs are good ways for amateurs to invest because they let people buy a basket of stocks. But they do have fees — a percentage of the amount someone has invested, deducted automatically. This is called an expense ratio.

So if I invest $100 in a mutual fund with a 1% expense ratio, I have to pay $1 a year.

With an app, though, I might have to spend on fees on top of that. The cost of using Betterment starts at 0.25% of assets under management a year, which is fine. But with Stash or Acorns, which don't have asset-based pricing, I'm paying a minimum flat fee of $1 per month.

Following the example above, I'd be spending $12 a year to invest $100 — roughly equivalent to an expense ratio of 12%. And that's pretty damn high.

(In Acorns' defense, a spokeswoman told me the charge is more like a "technology fee." She also highlighted its Found Money program, which allows customers to earn investable cash bonuses while shopping at places like Walmart and Chevron. Cool.)

Still, it is possible to just deal directly with a major financial company. Charles Schwab, which doesn't have an account minimum or charge maintenance fees, offers free online trades for ETFs and stocks. Vanguard, where the mutual funds have low minimums, accounts only cost $20 if my balance is under $10,000 (and can be waived if I choose to get statements online).

These firms also have apps, though they're not quite so user-friendly.

"They are full service, so you have access to everything you could ever want to invest in," Farrington says. "But they're not as sleek as some of these startup companies you may see advertised on Instagram."

Bottom line: I can use apps to invest and make small amounts of money, but the costs may pile up. TBH, I might be better off doing some research and signing up on my own for something like a target-date fund, which offers a mix of stocks and bonds tied to my age. (If I do this, Money recommends checking out Vanguard's Target Retirement Funds, such as this 2035 one.)

Photo by Peter Ardito