It’s a new year, and there are a lot of new innovations related to finances and investing. It seems like every few months there’s a new disrupter on the block, looking to capitalize on technology to change the face of investing.
As an investor, it’s a good idea to know what’s available to you — and what platforms are likely to work best for your personal investing style and financial situation. Here’s what you need to know about investing in 2015:
It’s Easier Than Ever to Start Small
One of the biggest investing myths still circulating is that you need a great deal of money to invest. This just isn’t true. You can start with a small amount of money, and invest consistently over time. With the help of a strategy like dollar cost averaging, you can use your small amount of money to build up a portfolio over time. As long as you increase your investment contributions as your financial situation improves, you can make a difference in your long-term ability to build wealth.
Now, there are a number of opportunities to start smaller than ever. New platforms like Acorns make it a simple matter to automatically invest. You can basically use spare change to build your portfolio, as well as invest large amounts over time. The fees are relatively small; if your account balance is under $5,000, you only pay $1 per month. For accounts with more than $5,000, the fee is 0.25% per year. That’s not a bad fee, either. You can start with as little as $5, and you don’t have to worry about transaction fees.
Another app promising low fees (zero commissions) to invest is Robinhood. You can get early access by signing up, and get started investing with a small sum. Since you don’t have to worry about paying anything unless you trade on margin, this can be a great way to start investing with a small amount of cash.
Of course, there are other online brokerages, like the more traditional TradeKing, that allow you to open an account with a small amount of money and with low-priced trades. But these disrupters make it easier than ever to get started — no matter how little you have to start with.
Robo Advisors Offer More
Another trend for 2015 is the continued rise of robo advisors. While it’s unlikely that robo advisors will replace traditional financial planning completely, there are plenty of robo advisors that offer hybrid services that are attractive to a number of investors.
First of all, there are the old standby robo advisors like Betterment. You can set aside a regular amount of money, and Betterment will use Modern Portfolio Theory to create an asset allocation that should work for you and your long-term goals. Betterment has increased its offerings, though. The brokerage now offers tax harvesting services that make the most of your trades, and there are a number of different options, including a degree of customization once your account value reaches a certain point.
These types of robo advisors require that you invest a little more money if you want to take advantage of the services. However, they can be ideal for the investor who is a little more hands-off when it comes to long-term investing (like retirement investing).
Other robo advisors offer those with a little higher net worth access to planning services. Personal Capital, Wealth Front, and Future Advisor all combine aspects of robo advising with more personalized service when it comes to asset management. You can receive tweaks to your portfolio that are a little more tailored to your risk profile. It’s still largely determined by algorithm, but it’s often cheaper than more active efforts by a money manager, and it allows those with a net worth that doesn’t qualify one for a major financial management firm to reap some of the benefits of advising.
If you like the idea of reasonably priced services that allow you to be hands off for the long-term, robo advising offers a range of options that might appeal to you — and help you build your nest egg.
Since the passage of the JOBS Act in 2010, the groundwork has been laid for investment securities crowdfunding. More platforms have been developing to allow you to invest in this way. From getting in on real estate crowdfunding, to investing in startups, investment crowdfunding offers new opportunities. This type of investing is aimed mainly at the mass affluent. These are investors who can’t quite get the capital together to invest in major real estate investment clubs or act as venture capitalists, but who might have between $20,000 and $100,000 available for some of these investments.
Securities crowdfunding is only available to accredited investors, however. If you want to take advantage of these opportunities, you need to earn more than $200,000 each year for the last two years (or $300,000 if married) or you must have a net worth of at least $1 million — not including your primary residence. If this is you, 2015 offers some exciting opportunities, since more and more platforms are offering investment crowdfunding.
Deciding How to Invest Your Money
As you can see, there are ample opportunities for almost anyone to begin investing this year. Deciding how you want to invest your money is a big decision, though. You need to take the following items into consideration:
- How much do you have available? First of all, figure out how much money you have available to invest. If you only have a small amount to invest, you can take advantage of some of the new investing platforms aimed at those who think that $5 is too small amount. It’s not. On the other hand, there are also plenty of options for those in the middle of the spectrum, as well as for those who are starting to see large amounts of capital freed up for investing.
- What can you afford to lose? It’s important to be aware of what you can afford to lose, as well as what you stand to gain. Investing in a startup through securities crowdfunding might seem exciting, but if you just barely qualify as an accredited investor, you might not be able to see $20,000 of capital tied up — and possibly lost. Be realistic about your expectations, and make sure that your investments don’t ruin your cash flow.
- Are there other options? Don’t forget to look into other options. If you have access to an employer’s retirement plan, this might be a good choice. Additionally, you might want to invest in a 529 plan if you are saving for your child’s college. Look at what else is out there, and consider the costs and benefits. Being able to obtain an employer match and have the money automatically deducted from your paycheck can go a long way.
You really should start investing this year, if you aren’t already. Take the time to think about your options, and decide what is likely to work best for you. If you are already investing, look at the new options, and figure out if your situation calls for a change in the way you do things. As long as you can reduce your costs and boost your real returns, you should be on the way to building even more wealth in 2015.