On the other hand, if you had any money in, say, an investment account that puts your money into ETFs (which is similar to an index fund) last year, it probably would have grown by about 11%. That's some good growth! Over the long term, you can expect a 6-7% return on their money. This, according to Warren Buffett in a Bloomberg article. I would argue he knows what he's talking about, no?
You can (and should) have both a savings and investment account. I think of an investment account as more of a semi long term thing. As an example, if you have cash you don't plan on spending right now, and you want it to grow, an investment account is the way to go.
Let's say you've decided to open an investment account. Where do you start? There are several ways you can go about opening one. I'll go through three different ways you can get your money invested.
Companies like Betterment are perfect for the young, or new investor. If you don't know much about investing and/or don't care to know much about investing this is your best option. I think of this kind of like a savings account (not FDIC insured) that has the potential to earn 6-7% interest in the long run. Betterment does all the hard work for you. You tell them your savings goals, and they will come up a recommended savings plan for you. All you have to do is deposit the money. It's really that simple. As for the cost, they'll charge you between 0.35% and 0.15% management fee (depending on how much you have invested with them), or a $3 a month management fee if you don't have automatic deposit and your account is under $10,000. To add, you can also open an IRA with them.
If you know (or think you know) how to invest your money you can use an online brokerage company. You've heard of them before: Etrade, Scottrade, TD Ameritrade, ShareBuilder. You have more options with your money here than you do Betterment. You can trade individual shares, ETFs, index funds, etc. They typically charge you a fee (starting at roughly $7) per trade. If you don't know anything about investing, this is not for you, because YOU make all the decisions.
Sometimes called "full service brokers." I'm talking about the guys like Stifel Nicolaus, Raymond James, or Morgan Stanley. I used to have an account with one of these guys. The brokers that work there know their stuff. And that can be used to your advantage. An account at a company like this is perfect for people that have a lot of money to invest, but may want some hands-on help (or advice) when it comes to investing. One of the big differences, however, is that you're assigned a broker. And if you want to make a trade you have to call your broker. To add, these firms are a lot more expensive. I'm talking maybe 10% of the total of each trade. So, for example, a $1,000 trade would cost you $100. To some, that's worth it. For me, it was a bit expensive.
There are many ways you can invest your money, and they are all certainly worth looking into. A lot of it comes down to personal preference. You should invest in whatever it is you feel most comfortable doing. Do your own research before making a decision.
Personally, I think there will soon be more and more robo advisors, like Betterment, out there. I also think the old fashioned full service brokers will soon go by way of the dinosaurs. How do you invest your money? I'd love to know.
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