What are the Pros and Cons of Investing Apps?

What are the Pros and Cons of Investing Apps?

We’ve all heard it: The only bad question is the one left unasked. That’s been the premise behind our “Questions You Were Afraid to Ask” campaign over the past few months. Each has covered a different investment-related question that many people have but are afraid to ask. So far, we’ve discussed the essentials of how the markets work, the differences between various types of investment funds, and the ins and outs of stocks and bonds.

A few months ago, however, an acquaintance of ours asked us a question not about investments but investing. Specifically, she wanted to know about the modern trend of using mobile investing platforms — aka “investing apps.”

It’s a terrific question, because the use of these apps — and the number of apps available — has exploded in the past few years. So, in this message, we’re continuing our series by answering:

Questions You Were Afraid to Ask #10:
What are the pros and cons of investing apps?

Mobile investing apps enable people to buy and sell certain types of securities right from their phone. These apps have provided investors with quick and easy access to the markets. For new investors who are just getting started, these apps have made the act of investing more accessible than ever before.

That’s a good thing! Even today, many people only invest through an employer-sponsored retirement account, like a 401(k), 403(b), SEP IRA, or ESBA. They may lack the resources, confidence, or ability to invest in any other way. But not everyone has access to an employee-sponsored retirement account. And while 401(k)s are a great way to save for retirement, many people have other financial goals they want to invest for at the same time. Mobile apps provide a handy, ready-made way to do just that.

Continuing with the accessibility theme, many apps enable you to invest right from your phone – anytime, anywhere. In addition, many apps don’t require a minimum deposit, so you can start investing with just a few dollars. Finally, the most popular apps often charge extremely low fees – or even no fees at all – to buy or sell stocks and ETFs.

Many apps also come with features beyond just trading. Some apps will help you invest any spare change or extra money, rather than let it simply lie around in a bank account. Others enable you to invest automatically – daily, weekly, bi-weekly, monthly, etc. That’s a great option because investing regularly is a key part of building a nest egg.

It’s no surprise that these apps have skyrocketed in popularity. In fact, app usage increased from 28.9 million users in 2016 to more than 137 million in 2021.¹ Part of this surge was undoubtedly due to the pandemic. With social distancing, many people used the time to try new activities and learn new skills from the safety of their own home…investing included!

But before you whip out your phone and start trading, there are some important things to know. Investment apps come with definite advantages, but also some notable downsides. When you think about it, an app is essentially a tool. Like any tool, there are things it does well and things it can’t do at all. And, like any tool, it can even be dangerous if misused.

The first issue: the very accessibility that makes these apps so popular is also what makes them so risky. When you have a tool that provides easy, no-cost trading, it can be extremely tempting to overuse it. Researchers have found that this temptation can lead to overly risky and emotional decision-making, as investors try to chase the latest hot stock or constantly guess what tomorrow will bring.² The result: Pennies saved on fees; fortunes potentially lost on speculation.

The second and biggest issue is that while these apps make it easy to invest, they provide no help with actually reaching your financial goals. No app, no matter how sophisticated, can answer your questions. Especially when you don’t even know the questions to ask. No app can hold your hand, or help you differentiate between emotionally charged headlines versus events that warrant portfolio changes. No app can help you determine which investments are right for your situation. Just as you can’t hammer nails with a saw, or tighten a bolt with a shop vac, no app can help you plan for where you want to go and what you need to get there.

Take a moment to think about the goals you have in your life. They could be anything. You may want to start a new business, visit the country of your ancestors, design and build your own house. Perhaps you prefer to play as much golf as possible, visit every MLB stadium, or send your kids to college without any debt. Maybe you’ve always wanted to write the next great American novel, tour national parks in a motorhome, or attend the Olympics Opening Ceremony.

Achieving these goals often requires investing, but there is more to investing than just buying and selling stocks. More to investing than simply trading. Investing, when you get down to it, is the process of determining what you want, what kind of return you need to get it, and where to place your money for the long term to maximize your chance of earning that return. It’s a process. A process that should start now, and last for the rest of your life. A process that an app alone cannot handle – just as you can’t build a house with only a saw.

So, our thoughts on mobile investing apps? They are a tool, and for some people, a very useful one. But they should never be the only one in your toolbox.

Happy investing!

1 “Investing App Usage Statistics,” Business of Apps, January 9, 2023. https://www.businessofapps.com/data/stock-trading-app-market/

2 “Gamified apps push traders to make riskier investments,” The Star, January 18, 2022. https://www.thestar.com/business/2022/01/18/gamified-apps-push-diy-traders-to-make-riskier-investments-study.html