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Millennial Money Mission:

Get in the know about smartphone investing apps!

Smartphones offer easy and instant access to apps that can help you navigate the complex world of investing. However, the variety of financial apps offered to investors can be daunting, especially if you are new to investing. This alert will help you understand some options when investing with smartphone apps and highlight things to consider before committing to app-based investing. 

Thinking of using a smartphone app for investing?

You may already use smartphone apps to do your banking, make purchases, transfer money to your friends, or find deals on products and services. With so much of your financial life tied to your phone, it makes sense that you might also consider an app (or two) to help you invest. Since investing can help you reach short- and long-term financial goals, there are many things to consider when choosing an investment-focused app. 

What kinds of apps are available?

Financial services companies that offer smartphone apps take various approaches to help people invest their money and monitor their portfolios. These apps range in focus and cost. Here are some examples: 

  • Buying and selling investments: Trade stocks, bonds and other investment products. 
  • Turning daily spending into investing: “Round up” your daily purchases and take the “spare change” to automatically buy investments for a predetermined portfolio.
  • Investing through automatic allocation: Direct a certain percentage of your income to an investment or retirement account.
  • Assigning a portion of spending to investing: Monitor your spending and saving habits and assign a percentage of your overall spending to an investment account.

How can using investing apps be helpful?

Investing is a life-long pursuit that can help you meet your financial goals. If you’re just getting started, an app may help you take more control of your finances or better understand the investing world. For example, if you have trouble making yourself save money to invest, you may favor an app that does it for you. However, once you build a small investment portfolio, you should reevaluate if you still need the app and if there are better options for you. This should become a habit as your needs and expectations change.

How can investing apps be problematic?

The ease of using smartphone apps to invest can make anyone a day trader. The new ease of access to securities markets combined with open online chat and discussion forums suggesting the most viable stocks make it tempting to invest based on social sentiment instead of the fundamentals of the investment itself.  Smartphone apps give instant access to trading and portfolio management services, with market access at your fingertips. If you are fairly new to investing, jumping right into trading stocks, bonds, and other complex financial products may not be in your best interest. For example, if you are an emotional person who is swayed by market gyrations, you may end up buying investments at high prices and selling at low prices. Even if you are paying low, or no, trading fees, frequent buying and selling can cost you in the long run. You may also end up with a portfolio that isn’t balanced or diversified. 

Things to think about when using investing apps:

  • Investing on autopilot: Putting your investment portfolio on cruise control may be attractive to people who think investing is difficult and complex. However, if you don’t pay attention to your investments or the services you are using, you may not be happy in the long run. Also, if you use a number of different apps, you risk over-complicating your finances. 
  • Cyber and data security: Read the terms of service and understand how the company will protect your financial data. With any online application, there’s a risk of being hacked. Check consumer reviews and internet searches for information about any data breaches the app may have experienced.  
  • Customer service and access: If you have an issue with your account or the app, you’ll want to be sure that you have access to someone (a live human!) who can help you fix the problem. Be sure you are comfortable with the level of service the app provides, and read customer reviews. 
  • Fees and charges: People are attracted to these types of services because they offer low-fee alternatives to traditional financial service firms. Being fee conscious is good, but a lower fee structure could mean less service and information. Read the fine print to determine what the total fees and charges are for an account. Over time, fees add up and impact your overall returns. 
  • Investment offerings: If the app is allocating money to investments for you, understand the investment products and track record of the investment management firm overseeing the products. You want to be comfortable with the types of investments an app is putting you into, the risk you are taking, and the fees being charged. 

  • Social Investing: Resist the pressure created by social media, chat platforms, and buy/sell indicators influenced by online chatter and anonymous sources who insist they know best. Do your homework about who is making the recommendations and check with a licensed professional.

What can I do to avoid possible pitfalls of using financial services apps?

  • Be cautious and do your research. Don’t use a smartphone app just because a friend suggests it to you. If you are new to investing, you may find yourself using an app that isn’t suitable to your needs or is fraudulent.
  • Remove Emotions and Think Long Term. An impulsive investment today can derail your long-term investing strategy. It is important to take emotion out of the equation and talk to a licensed professional or at the very least, take time to research the options before making an investing decision.
  • Stay engaged. Technology can make your investing life easier, but you should monitor and check in on your portfolio regularly. Being an informed, engaged investor will help you build the skills and knowledge you need to meet your long-term financial goals.  

The Bottom Line

Technology is rapidly changing the way we invest and manage our finances. When using online services or apps, be sure to use smartphone apps that you understand and fit your financial needs. 

To learn more about investing, its benefits, potential pitfalls, contact your state or provincial regulator.

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