I started the Best Interest on December 16, 2018. It’s been two years! And this also marks two years since I’ve been tracking every single expense in my budget. E-v-e-r-y-t-h-i-n-g. Today’s post will be a year-in-review for both the blog and for my personal finances. There will be lots of fun numbers. And I’ll show you how my preaching works in practice.
To get your bearings, here’s the Year 1 Review.
Thank you!
Thank you. Yes, you. Thank you for reading, and thank you to my generous patrons.
I don’t write here because of financial gain (see the Sankey diagram in the Budgeting section). I write here because you’re reading. And because it’s incredibly fun and you readers make it rewarding.
I was recently asked about my mission statement. It’s just in draft, but:
I value helping and teaching. At my core, I want to help people improve their lives by teaching them valuable skills & knowledge. I think personal finance is a tangible, vital, and universal skill set.
Improving personal finance == improving lives.
Sharing with you is my mission. And you sharing your attention with me is a privilege that I don’t take for granted.
Every small compliment you’ve given me is extremely meaningful. I love answering your questions, your Tweets, and your Reddit comments. So again, thank you for being here.
Some Stats
Who doesn’t like statistics? Here’s what 2020 looked like on the Best Interest.
Back in 2019, about 19,000 people visited the blog. I was ecstatic.
In 2020, over 160,000 readers visited. I’m over the moon. In 2021, I’d like to hit 500,000.
As of this publication, about 210,000 words over 82 articles have been published in 2020. About 70% of those are my own, and the other 30% I can attribute to the wonderful bloggers I work with at the Money Mix.
The Money Mix is a group of like-minded writers, bloggers, and internet nerds. We share lessons learned, tips & tricks, and even share one another’s best written work. I’ve learned a ton since joining in April and attribute much of the Best Interest’s growth to learning from TMM.
The blog’s subscriber base grew by about 400% this year. If you haven’t joined, I send out a quick newsletter every week and include all new Best Interest articles.
Never miss another Best Interest post—subscribe here.
And lastly, the blog cost ~$2800 to operate and improve (notice the sweet logo?!), plus the hundreds of hours of writing and site maintenance. The mission makes it worthwhile. But if you’d like to support the cause, please join the patronage. I truly appreciate it. The more this site pays for itself, the more time I can devote to the mission.
Budgeting
Another year, another streak of tracking every single dollar using YNAB. If you’re looking for a smart Christmas present, YNAB is a great idea.
Note: you and I both get a free month of YNAB if you end up signing yourself (or someone else) up with the link above. No extra cost to anyone involved. You get a 34-day trial, and then an additional free month. That’s two months to figure out if you like it!
Below, you can see a snapshot of my YNAB journey from November 2018 until now. During this 2+ year period, I’ve used YNAB to budget and track every dollar that I earn and spend.
Is it overkill? Yes, tracking every dollar is overkill for most people. But I highly recommend that you run a budget, and I even interviewed some other experts for alternative budgeting ideas. Find the right budget for you.
Where the Money Goes
As for where my money actually goes, the Sankey diagram below is a terrific visualization.
I’ve normalized this diagram against 100% of my salary. Why? Because it helps visualize what percentage of my income goes where.
For example, 23.4% of my income went to taxes before I ever saw it. Only 59.42% of my income ever came to my bank account via paychecks and, therefore, was budgeted. Of that 59.4%, I spent about half and saved/invested the other half.
The bottom of the Sankey diagram shows how previous years’ investments grew, and shows the free money that comes from my employer’s 401(k) matching. If the stock market had gone down, the “Investment Interest” section could have been negative.
But as it sits, 2020 stock market returns added the equivalent of 25.44% of my salary to my portfolio. And my employer’s 401(k) match was equivalent to 6% of my salary (that’s free money, by the way). The Investments section below has more detail on those individual investments.
Between budgeted savings (Roth IRA, taxable brokerage account, emergency fund) and pre-tax savings (401k, HSA), about 45% of my salary went towards savings and investments. Add in the “extra” savings (investment returns, 401k match), and the equivalent of 76% of my salary went towards savings and investments.
Your results may vary. But this is how my preaching looks in practice.
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Investing
After plenty of questioning, I wrote an article in October that provided every detail of how I invest.
One of the nice things—for both you and I—is that it’s fairly easy to track my portfolio over time. There are four assets:
Large U.S. stock index fund (ex: Fidelity’s S&P 500 index fund, FXIAX)
Mid and small U.S. stock index fund (ex: Fidelity’s Russell 2000 index fund, FSSNX)
Bond index fund (ex: Fidelity’s Total Bond Fund, FTBFX)
International stocks fund (ex: Fidelity’s Total International Stock Fund, FTIHX)
As of 12/16/20, these assets have performed as follows in 2020:
S&P 500 Index = +13.3%
Russell 2000 Index = +17.6%
Bond Index = +3.6%
International Stock Index = +6.2%
For the 2019 year, these indices’ performances were:
S&P 500 Index = +28.9%
Russell 2000 Index = +23.72%
Bond Index = +9.9%
International Stock Index = +21.5%
What are the takeaways? 2019 performance was blistering, and 2020 performance feels oddly optimistic given current events. I don’t expect every year to be as “good” as the past two.
Nevertheless, I’m trying to leave my emotion at the door and stick with my plan. Specifically, I invest the same dollar amount every month, whether the market is up or down. If you want to learn why I’m confident in that plan (despite current events), I wrote all about it this past autumn:
Even if the markets are at all-time highs and it feels like a crash is coming, my outlook is long-term. I have faith the the long-term (10, 20, 30+ years) economic outlook is good.
Favorite Blogs Posts
I’m proud that my writing is highly regarded. I was featured this year on MSN, Grow/CNBC, the Ladders, the Good Men Project, SoFi, Budgets are $exy, the Plutus Awards Showcase, and elsewhere. Woohoo!
If you think my writing is worthy of someone else’s attention, I’d love for you to share it with them. Post a link on Facebook, Reddit, Twitter, etc. Send your Uncle Dave the article I wrote about him. If you found a post particularly useful, let your tribe know about it. Simple grassroots sharing.
Here are some of the best posts from 2020:
January—The 2010’s Will Happen Again—If you’re worried that the 2010’s were a “once in a lifetime” investing decade, this article will show you how that’s not quite true.
February—Index Fund Bubble: Arguments For and Against—I invest solely in index funds. So when well-known investors warned of a bubble, I wanted to understand for myself.
March—Viral Stock Market Strategies—Lots of Twitter experts discussed their personal investing techniques during the early days of COVID-19. So I wrote a MATLAB script to back-test all their best laid plans. Spoiler—the simplest approaches always fare best.
April—The Biggest Lesson from COVID-19—Slack. Safety net. Margin. Out of the many lessons from COVID-19, this article discusses the biggest one: how building slack in our systems—personal finance, business, hospitals, even hiking—is a life-and-death issue.
May—Jeff Bezos and the Meritocracy Kings—Jeff Bezos, resource allocation, Vonnegut, meritocracy, survivorship bias, systemic flaws, and quarantine kings.
June—Simple Financial Goals—a two-minute punch-list to start you down the path to better personal finances.
July—Do you know Dave?—a funny story about a man you know, and the perilous personal finance circumstances he finds himself in.
August—Long Term Investing Takes Faith—I returned from a camping trip rejuvenated. But memories of the rolling waves reminded me of slow, steady, long-term investing.
September—Amazing People Everywhere—inspired by Tim Ferriss’s Tools of Titans, I interviewed some amazing people in my own life, and asked them what lessons they’ve learned in their unique journeys.
October—The True Cost of Car Ownership—a detailed analysis of car costs, answering the important questions like:
How should I compare time owned vs. miles driven?
What’s the full-life true cost of owning a car?
How much does a car’s value depreciate over time?
How do I place value on the utility of my car (e.g. a work truck vs. a compact sedan)?
When is a used car purchase smarter than a new car?
How does leasing compare to owning?
Should I sink more money into an old beater? Or just get a new car?
November—Your Retirement Savings Goal for 2021—my first dabble into coding my own calculators. If you’re looking for an easy 2021 resolution, start by calculating your 2021 savings goal.
December—Curses, Miracles, and the Best Interest Student Loan Solution—The status quo is a haunting curse. The proposed solution is a divine miracle. I propose a middle-ground solution. And the math backs me up.
2020: Year of the Dog
We fostered nine sweet dogs in 2020. No dog goals for 2021, other than to keep fostering. There are lots of great dogs that just need a home. If you’re looking for a dog, consider adopting through a shelter or foster organization.
But because it’s fun and funny, here are the 2020 dog power rankings.
Starting at #9: Josie. She was one of Sadie’s puppies. And man, was she mean. Clearly, Josie learned that the meanest puppy always gets fed, and she would absolutely torment poor Oscar. If you’ve ever seen Tasmanian devils fighting on the National Geographic channel, that’s how Josie was at feeding time. Bad girl! But she’s a sweetheart now as a young adult 🙂
Next at #8, Ranger. While Ranger was a good boy, he chewed on too many things. Most dogs are athletes. Not Ranger. He was a happy, dopey, skittish, and unathletic dog.
Louis a.k.a. Mr. Bones a.k.a. Louie Long Legs comes in at #7. Not the cutest pup, and one of the only dogs that legitimately drew blood from his playful bites and claws. But he was just a pup, so you can’t hold it against him!
Jules is our current foster, and she comes in at #6. She’s a little whiny and took a poop behind the Christmas tree. Is she super cute? Sure. But a cute face only gets you so far on the Best Interest.
#5 is Raven, a solid puppy. The most athletic of Sadie’s puppies, there was nothing to dislike about Raven. If she has stayed around longer, she could have competed for the top 3. But she got adopted quickly and didn’t have much time to rise to the top of the heap.
Esther—coming in at #4—was one of two recent moms to come through our home. And poor Esther definitely missed her puppies, making multiple escape attempts over our fence. She was a sweetie. Not much is cuter than hearing a 25-pound part-Huskie give out a “big” wolf howl.
Sadie’s third-and-final puppy, Oscar, comes in at #3. This little guy was everyone’s favorite of Sadie’s three puppies. While we figured, “Ahh. Dad must have been a Blue Heeler,” we actually found out that Sadie is 55% Blue Heeler. Her recessive traits are expressed in her more slender physique and black color. Oscar’s phenotype, however, is very much the stocky, mottled grey Blue Heeler.
Scooby, the cutest bloodhound puppy around, is #2. Not only did Scooby have stellar looks, but he had the personality to match. He was playful, mostly potty-trained, and slept through the night from Day 1. He was wise beyond his weeks. The “Doobie Brother” was a very good boy.
Coming in at numero uno, it’s got to be Sadie. I’m a big softie for Sadie. She was our first foster and probably the only one who arrived at our door significantly unhealthy. She had been homeless in Houston, scrounging for nutrition to support herself and her three puppies (Josie, Raven, and Oscar). Sadie was only 27 pounds when she showed up. But we nourished her, fell for her, and adopted her ourselves! She’s now a sturdy 42 pounds and has been a great friend to all the other fosters to come through our house. She’s also kinda famous in the blogging world.
2021 and Beyond
In 2021, I’d love to help half-a-million (or more!) readers.
Monetization of the blog is something I’ve considered before. Right now, a few generous Patrons donate to the blog, and I don’t run ads (here’s why). But if the income from running ads allowed me to further the blog’s mission without interfering with that mission…would that be worthwhile? I’m interested in what you think about that idea. Do ads bother you?
Content-wise, I’m always looking for useful questions to answer. My own confusion inspired my Explaining the “Big Short” post. The many new parents in my life inspired this guide to 529 plans. If you want to learn something, let me know.
I’m excited for 2021! And I hope you are too.
Thank you for reading! If you enjoyed this article, join 6000+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.
-Jesse
Want to learn more about The Best Interest’s back story? Read here.
If you prefer to listen, check out The Best Interest Podcast.
A common misbelief is that one must be rich to invest. It’s easy to invest with little money in a variety of assets and save for your goals. More platforms let you “micro invest” and purchase small amounts of expensive assets.
Even if you only invest a few dollars each month, that money can start building wealth.
Consistently investing small amounts can be more effective than waiting to accumulate a lump sum because you can earn compound interest.
Some people may never invest because they don’t think they have enough money.
In This Article
Best Ways to Start Investing with Little Money
It’s possible to invest as little as $5 at a time and diversify your portfolio. As your financial situation improves, you can increase your monthly investments and try more ideas.
1. Invest in Index Funds
Investing in index funds can be the best option to start investing small amounts of money.
First, index funds let you invest in hundreds of companies with a single investment to quickly diversify your portfolio and minimize risk.
Second, most index funds have low investing fees and expense ratios. For example, a fund with a 0.03% expense ratio costs 30 cents in annual fees.
Most brokers don’t charge trade commissions to buy or sell index funds. Paying fewer fees means you can invest more cash.
Some of the types of index funds you can invest in include:
US stocks
International stocks
Emerging markets
Corporate bonds
Government bonds
Real estate investment trusts (REITs)
The various online stock brokers offer stock and bond index exchange-traded funds (ETFs). These funds trade like individual stocks. The share price fluctuates during the market day and you can buy shares at any time.
Your 401k provider likely offers index mutual funds. The investing strategy is the same except the share price updates once a day after the stock market closes.
Most online brokers offer index funds and don’t charge any trade commissions. However, some can be easier to invest with when you have little money.
Minimum Investment: $5 (varies by broker)
Betterment
Using a robo-advisor like Betterment can be one of the easiest ways to invest in index funds. This fully-automated investing app automatically rebalances your portfolio to maintain your target asset allocation.
You can also enable tax-loss harvesting to minimize your taxable investment income by selling investment losses to offset your investment gains.
You will answer several questions about your age, investment goals and risk tolerance to recommend an investment portfolio of stock and bond index ETFs.
As you grow older, Betterment shifts your portfolio to a more conservative allocation.
Not having to manage your portfolio is one advantage of using a robo-advisor when you don’t have the time or desire to self-manage your investments.
Betterment also offers fractional investing so you can buy partial shares of funds to instantly diversify your portfolio.
Other brokers may require you to buy whole shares which makes buying multiple funds at once difficult if you have limited funds.
You can create a portfolio with $0 and start investing with a $10 initial deposit. The annual account fee for Betterment is 0.25% of your portfolio value.
Acorns
Another unique way to invest in index funds is by using Acorns. This micro-investing app invests your spare change by rounding up your debit and credit card purchases.
You can choose to invest in a premade portfolio of stocks and bonds with different risk levels.
Acorns buys fractional shares of index ETFs when with as little as $5. Taxable and retirement investment accounts are available along with an online checking account.
Monthly plan fees range between $1 and $5 per month.
2. Workplace Retirement Accounts
A workplace retirement account such as a 401k, 403b or a Thrift Savings Plan (TSP), this can be the best place to start investing with little money. See if your employer offers matching contributions. If so, invest enough each month to earn the full match and invest “free money.”
If your workplace doesn’t offer a retirement plan or matching contributions, you can open an individual retirement account (IRA). Most brokers offer IRAs with no account fees or minimum initial deposits. You have multiple investment options.
One perk of investing with a retirement account is the tax benefits. You only pay taxes once. Traditional contributions reduce your current annual income, grow tax-deferred and you pay income taxes when you make a withdrawal. Roth contributions require you to pay income taxes upfront but your withdrawals are tax-free.
Your workplace retirement account investment options can include:
Stock index mutual funds
Bond index mutual funds
Target date funds
Company stock
The investment options are different for each employer yet most plans offer target date funds. Choosing a target date fund that’s nearest to your planned retirement year can be a good option. The fund invests in stocks and bonds and adjusts to a conservative risk tolerance as retirement approaches.
If you only decide to invest in a target date fund, you won’t have to rebalance your asset allocation. However, you should monitor the target date fund performance. You may also decide to self-manage your portfolio by buying index funds to reduce your investment fees.
You can invest as little as $1 at a time into each fund. If you’re uncomfortable managing your own retirement account, Blooom can provide a free portfolio analysis and recommend a portfolio allocation.
Minimum investment: $1
3. Individual Stocks
After establishing an index fund portfolio, you may decide to buy stock in individual companies. There are many online brokers to choose from and most don’t charge account fees or trade commissions to buy or sell shares.
You may decide to buy dividend-paying stocks to earn consistent passive income. Another option is holding companies with strong growth potential that can beat the stock market but may not pay a dividend.
M1 Finance is one of the best free investing apps. You can buy fractional shares of stocks and ETFs with a minimum $25 investment. There are also premade ETF portfolios that can make it easier to diversify. As you invest new money, M1 rebalances your asset allocation.
The minimum initial deposit is $100 for taxable accounts and $500 for retirement accounts to start using M1 Finance.
You can also consider investing with Charles Schwab. You can buy fractional stock slices as small as $5 for many stocks and there are no trade fees or account minimums. But, you will need to self-manage your investment portfolio.
Minimum investment: $5
Tip: Using one of the top investment sites can make it easier to research stocks.
4. Crowdfunded Real Estate
Real estate is a longstanding way to earn passive income without relying on the stock market. However, owning investment properties is expensive and can be time-consuming.
Thanks to real estate crowdfunding, you can invest small amounts of money into commercial and multi-family real estate. These properties have multiple tenants and can provide a more stable income than a single-family rental property. A property manager screens the tenants, collects rent and makes repairs.
You can earn recurring dividends from monthly rent payments. It’s also possible to make money when a property sells for a higher value than the original purchase price.
DiversyFund is one of the best crowdfunding platforms. You can start investing as little as $500. The Growth REIT lets you invest in multifamily apartments across the United States.
One downside of crowdfunded real estate is the multi-year investment commitment. Most platforms require a five-year investment to avoid early redemption fees. As a tradeoff for the long-term commitment, you can earn annual returns that compete with the historical S&P 500 average return of 7% per year.
Minimum investment: $500
5. Small Business Bonds
The bond index funds you invest in hold corporate and government debt. Investing in small business bonds can help you earn a higher yield. Worthy Bonds yield 5% per year and let you invest as little as $10 at a time.
Each bond matures in 36 months but you can sell your position sooner with no early withdrawal penalty.
Read our Worthy Bonds review to learn more.
Minimum investment: $10
6. High-Yield Savings Accounts
It’s wise to keep cash that you need instant access to in a high-yield savings account. Banks are a low-risk way to earn passive income but your returns are not as high.
You might consider keeping your emergency fund in a high-yield savings account that doesn’t charge any account fees. Also, consider opening separate “sinking fund” accounts for various savings goals to avoid borrowing money. A savings account can also be a good place to park cash until you decide where to invest it and earn a higher potential return.
Ally Bank has a competitive interest rate for the high-yield savings account. There are no account fees or minimum balance requirements. The Surprise Savings booster tool can help you calculate a “safe-to-spend” amount and transfer your extra cash into savings.
Minimum investment: $1
7. Certificates of Deposit
Investing in stocks and bonds can provide higher investment returns but carry more risk. A bank certificate of deposit locks in a specific interest rate for the investment term. For example, a 12-month term CD has the same interest rate for the next 12 months.
Instead of keeping your free cash in an interest-bearing savings account, consider opening a bank CD with a similar or higher interest rate.
If the savings account interest rate drops, the CD can earn more interest until the CD matures. Most CDs have early redemption penalties if you withdraw the cash before the term ends. At the end of the term, you can redeem your CD balance penalty-free or renew the CD at the then-current term.
Some banks, including CIT Bank, offer no-penalty CDs. These CDs don’t charge an early withdrawal penalty but may offer lower yields than a term CD.
As bank interest rates are low, the passive income you earn from CDs can be lower than the inflation rate. But earning some interest income can be better than nothing.
Minimum investment: $100
8. Peer-to-Peer Investing
You earn income from savings accounts and bank CDs as the bank lends your money at a higher interest rate. Peer-to-peer lending platforms let you earn a higher rate as you lend directly to the borrower and bypass the bank.
Prosper lets you invest in crowdfunded personal loans with a three-year or five-year repayment term. Borrowers make monthly payments and you make money from the interest payment, minus a 1% service fee. The historical annual returns are between 3.5% and 7.6%.
You can lose money if the borrower defaults on the loan. To avoid losing money, Prosper lets you buy notes in $25 increments and recommends a $2,500 initial investment to properly diversify. You can invest in multiple loans to diversify your portfolio.
Prosper also assigns each borrower a risk rating and you can see basic credit profile details. There’s also an auto-invest feature that spreads your investment across multiple risk ratings. You might be able to easily diversify your portfolio by auto-investing and avoid investing in too many risky loans.
Minimum investment: $25
9. Physical Gold
Precious metals such as physical gold and silver are a popular alternative asset. Unless you invest in gold royalty stocks, you won’t earn dividend income. You make money by selling your precious metal investments above your purchase price.
Buying gold coins and bars can be one of the best ways to invest in gold. Physical gold is expensive and you may not be able to buy an entire ounce or gram at once.
Vaulted lets you buy fractional shares of physical gold bars. Your stash is held at the Royal Canadian Mint. Once your balance is high enough, you can request FedEx delivery to receive your physical gold. There is a 1.8% transaction fee to buy or sell and a 0.4% annual maintenance fee.
It’s also possible to invest in gold trust ETFs that trade on the stock market. Most investing apps let you trade these funds. The share price mimics the price of physical gold.
But most gold ETFs don’t offer physical delivery as the fund family owns the bullion.
Minimum investment: $10
10. Cryptocurrency
When you’re deciding what to invest in first, cryptocurrency probably isn’t going to be at the top of the list. After all, this digital asset is highly volatile and doesn’t earn interest.
Many people who buy crypto do so as an alternative to stocks and gold.
For example, you might buy cryptocurrency as a way to diversify once you hold a sufficient amount of stocks, index funds and gold.
The most popular cryptocurrency is Bitcoin. This cryptocoin has the best name recognition and more merchants accept it as payment instead of paper currency.
There are other “alt-coins” like Ethereum that can also be worth owning if you believe in the long-term potential of cryptocurrency.
It has been fairly difficult to buy cryptocurrency but more platforms are making it easy to buy cryptocurrency. PayPal and Square let you buy Bitcoin and use it to pay for purchases.
However, you won’t be able to move your Bitcoin balance off of their platform.
Another easy way to buy cryptocurrency is through an online broker like eToro. You can trade cryptocurrency futures after a minimum $50 initial deposit.
EToro also lets you copy the investment portfolios of experienced cryptocurrency investors which can improve your income potential.
A third way to buy cryptocurrency is using a digital currency exchange such as Coinbase. Buying directly from an exchange lets you own real Bitcoin and alt-coins. You can transfer them to a cryptocurrency wallet for added security from hackers.
No matter where you decide to buy cryptocurrency, you can buy fractional shares of Bitcoin and other coins. Investment minimums and transaction fees vary by platform.
Minimum investment: $2 (varies by platform)
11. Treasury Bonds
Most investors get exposure to government bonds by holding bond index funds in their brokerage account or 401k workplace retirement plan.
As bonds can be pricey and confusing to buy, bond funds make it easy to earn passive income.
You can have more control over which bonds you own by buying U.S. Treasury bonds. You can choose the maturity date. Each Treasury bond has a $100 minimum investment with a maturity date of up to 30 years.
It’s also possible to buy Treasury Inflation-Protected Securities (TIPs) as a hedge against future inflation.
Another option is purchasing Series I or Series EE Savings Bonds. Both types of savings bonds have a $25 minimum investment.
You can buy Treasury bonds from TreasuryDirect.
Minimum investment: $100 for Treasury notes and bonds ($25 for savings bonds)
12. Fine Wine
A long-term investing idea is owning fine wine. You can open a standard portfolio at Vinovest with a $1,000 minimum initial investment.
Vinovest automatically builds your wine portfolio making it easy to start if you’re unfamiliar with wine investing.
Each bottle in your portfolio remains in climate-controlled cellars across the world and is insured against damages. You decide when to sell your wine. It’s possible to request delivery if you want to open a bottle.
Collectible wine can increase in value as it ages and the scarcity of unopened bottles increases. Wine investing is like owning physical gold and doesn’t earn dividend income.
It can take up to 30 years to earn the best value before you sell a bottle.
Minimum investment: $1,000
13. Fine Art
Another unique investment option is investing in fine art. Masterworks lets you buy shares in classic and modern pieces with a $1,000 minimum investment.
The holding period for most pieces is between three and ten years. You earn a profit if the piece sells for a profit.
Due to the relatively high initial minimum investment and waiting years to earn income, you may invest small amounts of money in other ideas first to make money fast.
Minimum investments: $1,000
Summary
There are many ways to start investing little money today and earn recurring income. Many platforms have small minimum investments which make it easy to try several ideas and diversify your portfolio.
As you increase your income, you can boost your monthly investment.
How do you invest your money? Which idea are you going to try first?
Josh is a personal finance writer and Founder of MoneyBuffalo.com. He has been featured in publications like Student Loan Hero, Well Kept Wallet and the US News and World Report.
Investing in the stock market has never been easier. Many of the best online brokerages are designed for beginner investors and offer unique incentives for signing up. The good news is that you can enjoy free stocks just for signing up.
Investing in the stock market, real estate, or crypto has never been easier. Gone are the days when you had to be an expert or work with a stock broker to buy company shares or invest your money. You can invest your money in several ways, with options for every level of risk tolerance and investment understanding.
Many of the best online brokerages are designed for beginner investors and offer unique incentives for signing up. The good news is that you can enjoy free stocks just for signing up.
Table of Contents
How to Get Free Stocks
You have so many options today for investing in stocks, real estate, or crypto that investing platforms must work harder to gain your business. This means you can find many new discount brokerages and established investment platforms offering free stocks or financial bonuses to lure in investors.
We decided to look up the best free stock offers for those looking to take advantage of this opportunity.
Ready? Let’s dive in!
1. Public
Public is an investing platform offering commission-free stock trades, and it’s become a hit with young investors just starting. The platform is also a social online stock brokerage that lets you see how others invest so that you don’t feel alone in your financial journey. Public allows you to track the trade activity of verified investors with proven track records, so you’re always learning about investing options.
Another feature that makes Public attractive to young investors is that you can purchase fractional shares, meaning that you can start investing in more prominent companies even if you’re not in the financial position to buy whole shares.
Public’s platform also gives you access and exposure to asset classes like ETFs, crypto, luxury goods, and artwork. They plan to add real estate and music royalties to this list of asset classes soon.
We should note that Public doesn’t participate in payment for order flow like many other brokers do. This means that the company doesn’t sell your trades to third parties.
How do you get free stocks with Public?
Open an approved brokerage account with Open to the Public Investing.
Deposit at least $20 in your account.
Claim your reward from the top right of your home screen.
The reward, in this case, is a fractional share of a specific stock, ETF, or crypto token (you must open an account with Apex Crypto LLC for a crypto asset reward). The cash value of the reward you receive will vary from $1 to $300, with about 95% of participants receiving a reward valued at $1. According to Public, about 4.9% of participants will earn a reward valued at $5, and only 0.1% will earn a reward valued at $300.
2. moomoo
Moomoo claims that you can trade like a pro on their platform. There are no commissions, account minimums, hidden fees, or trade minimums with moomoo. The platform offers free investing tools with real-time data and AI support, plus you have access to global markets (US, Hong Kong, and China-A-shares) under one account. It also has US-based licensed specialists who are available for professional support.
How do you get free stocks with moomoo?
The moomoo home page states that you can get up to 15 free stocks valued between $3 to $2,000 each when you sign up. The offer is subject to change at any time.
Here are the different ways to get free stocks with moomoo:
Open a brokerage account and draw for a chance to earn one free stock worth between $3 and $2,000.
Deposit $100 into your account during the promotional period, and you will be entered into a draw four times to earn one free stock worth between $3 and $2,000.
Deposit $1,000 into your account during the promotional period, and you will get ten chances to draw for free stock worth between $3 and $2,000.
According to moomoo’s current promotional page, the free stock is completely random based on a specific probability distribution. There’s a 95% chance you’ll get a free stock worth $3 to $9.99, a 4.9% chance of getting a stock worth $10-$99.99, and a 0.1% chance of getting a stock worth $100 or more.
3. M1 Finance
M1 Finance is a free investment platform with a wide variety of professionally chosen portfolios for you to invest in. M1 Finance also offers various brokerage accounts, so there’s likely an account that will match your investing preferences.
The company refers to its platform as the “Finance Super App” since you can manage all of your financial tasks, like investing, spending, and borrowing, in one place to simplify your life. The platform comes with a checking account and lending services, and you can earn 1% cash back as a Plus user of the M1 Finance checking account.
M1 Finance is known for letting users invest in pies, which means that you can invest in different securities that make up slices of the whole pie. You can create a custom pie of stocks and ETFs based on your investment strategy. If you want to leave the guesswork to the professionals, you can use one of the expert pies created for different investors.
How do you get free stocks with M1 Finance?
M1 currently offers up to $500 for free if you deposit at least $10,000 within 14 days of opening a new brokerage account.
When you deposit $10,000 to $29,999.99 to your account, you get a $75 bonus. When you deposit $30,000 to $49,999.99, you get a bonus of $150. When you deposit $50,000 to $99,999.99, you get a $250 bonus. To earn a cash bonus amount of $500, you have to deposit over $100,000.
You can also use the M1 referral program to get $10 for free. When you sign up for an account through a friend’s link, you both get $10. You can then use this money to invest how you wish through the platform.
* Account Minimum $100
* Build custom portfolios (or)
* Choose expert portfolios
* Stocks, ETFs, REITs
Open an account
4. Robinhood
This investing platform was a game changer during the pandemic as many young folks turned to Robinhood to begin their investment journey. While there were some controversies related to Robinhood that came along with the 2021 meme stock rallies, you can’t ignore this easy-to-use app that has changed investing.
Robinhood’s popular commission-free app is designed for investors of all levels. You can invest in stocks and crypto through Robinhood, and it also provides ETFs, margin trading, and options trading for those looking to level up their investments. With 24/7 professional support, educational resources, and the ability to purchase fractional shares, it’s clear why many young investors have turned to Robinhood and its straightforward mobile app.
How do you get free stocks with Robinhood?
To get free stocks with Robinhood, you must open an account. Once you’ve linked your bank account, you’ll be given a specific dollar amount and will pick your gift stock from a list of America’s top 20 leading companies, based on market cap, in their respective industries. You can use the cash value you’re gifted to purchase fractional shares of the companies offered on the list in case you don’t earn enough to buy a total share.
The Robinhood website doesn’t specify the exact cash value you’ll receive, though it ranges from $5 to $200, with about 98% of the new account holders being granted a reward running from $5 to $10. You can use whatever amount you’re gifted to purchase stocks or fractional shares of a company.
You do have to keep the stock for three days from the day you claim it. When you sell the shares, you can use the money to purchase other stocks. If you want to withdraw this money from your account, you must keep the share’s cash value in your account for at least 30 days. Once the 30-day window is up, you can withdraw your funds without restrictions.
5. SoFi Invest
SoFi Invest is a part of the SoFi family of products. Their mission is to help people reach financial independence and realize their ambitions. SoFi Invest is an app designed to let you track and trade money. The investment platform lets you trade stocks and ETFs with no commissions, invest in IPOs before they hit the public market, invest in crypto, and even set up simplified automated investing.
The platform also offers educational resources to help you learn more about investing if you’re not comfortable with it yet. SoFi has many other personal finance products, including student loans, credit cards, banking, credit score monitoring, and personal loans. You can essentially use SoFi to handle all of your personal finance needs.
How do you get free stocks with SoFi Invest?
You must open an Active SoFi Invest Brokerage Account with SoFi Invest and deposit $10. Then you become eligible for a signup bonus that ranges from $5 to $1,000. The promotional offer gives a 0.028% probability of earning $1,000 and an 85.488% chance of gaining the $5 reward.
6. Webull
Webull is one of the new players in the stock broker space, offering zero commissions and no deposit minimums. Every member gets smart tools for smart investing. Webull allows you to diversify your portfolio with various investment products like stocks, fractional shares, options, ETFs, ADRs, and OTC.
Webull also attracts more sophisticated investors by offering innovative tools like advanced charting and comprehensive financial analysis. When you become a member, you get access to a community with millions of folks discussing investment strategies, so you’re not alone during your investment journey.
How do you get free stocks with Webull?
According to their website, Webull’s process is fairly simple, and you can get up to 12 free fractional shares with a value ranging from $3 to $3,000. This promotional offer ends on January 4, 2023.
Here are the two ways you can get free stocks with Webull:
Open an account with Webull to get two free fractional shares.
Deposit any amount of money in your new account and get up to 10 free fractional shares.
The free stocks, which include NYSE or NASDAQ-listed companies with a minimum market cap of $2 billion and a share price ranging from $3 to $300, are chosen randomly. The odds of being rewarded a stock ranging between $151 and $300 is approximately 1:10000.
7. Groundfloor
Groundfloor is a real estate crowdsourcing app aimed at debt investments, so you can get into real estate without allocating a significant portion of your savings. Real estate investing platforms have become more popular over the last few years, with more apps like Groundfloor popping up.
You can invest with Groundfloor in two ways:
The “Stairs” saving account: This is essentially a high-interest savings account with a 4% APR, no fees, and no minimum balance. You can leave your money there and let it grow until you’re ready to start investing.
Groundfloor real estate crowdsourcing: You can invest in individual renovation loans or use automatic investing tools to find projects you can fund based on your chosen criteria.
Groundfloor claims to be the only investing platform where you can securely earn up to 10% on your money with investments backed by real assets. The platform is known for “savesting” since they try to combine saving with investing.
Groundfloor has grown to about 200,000 users and over $240 million in assets under management. Groundfloor generally repays all investments every 4-12 months, which is rare considering that real assets back your investments.
How do you get free stocks with Groundfloor?
When you invest $100 into your new Groundfloor account, you get a $50 credit within 30 days. All you need to do is link your bank account, pick your investments (or let Groundfloor do it for you), and collect your interest. You and a friend can also earn a $50 referral bonus when you get them to sign up for Groundfloor using your referral link.
8. Plynk
Plynk is an app designed to make investing easy for beginners, helping you learn about financial investments as you go. You can start investing for as little as $1, so you don’t have to be intimidated by the investment process or by setting aside a large chunk of capital.
Plynk uses simple language that’s easy to understand and teaches you about investing concepts as you work on growing your money. They offer many tips and how-tos to guide you through the process. Plynk will ask you some questions that it will use to narrow down investment opportunities based on your interests.
How do you get free stock with Plynk?
You create an account, then link your bank account to earn the $10 signup incentive. You can also get up to a $100 deposit match as a bonus for a limited time.
9. Fundrise
Fundrise helps you start real estate investing with only $10. This real estate crowdsourcing app is focused on long-term investments. The best part of investing with Fundrise is adding real estate exposure to your portfolio without dealing with any of the hassles typically involved in owning and renting out properties.
Fundrise has multiple investment options depending on how much capital you have to work with. There’s a Starter level for those who want to begin with as little as $10 and packages that go in tiers up to $100,000 for accredited investors.
Fundrise also recently launched the Innovation Fund for those who want additional diversification. This investment is focused on high-growth private tech companies that could provide lucrative returns in the future.
How do you get free stocks with Fundrise?
Fundrise will automatically deposit $10 as a bonus when you open your new account and link your bank account via its promotional page. Several terms and conditions apply as to who qualifies for this offer. You can use the bonus cash for investing in one of Fundrise’s fund options. For more information on Fundrise, check out our full review.
* Invest in real estate with $10
* Open to all investors
* Online easy to use site and app
Invest now
10. Firstrade
Firstrade is a full-service online brokerage that allows you to invest in stocks, options, and mutual funds while you get access to a full suite of investment products, research, tools, and even customer service. The best part is that you get all of these services for free. Firstrade offers zero-dollar commission trades and $0 options contract fees on its award-winning platform.
Firstrade has an extensive list of services for investors, including some of the following perks:
Extended-hours trading: You can get pre-market news and after-market-hours sessions.
Trade ideas: You get access to premium research from trusted platforms like Morningstar, Benzinga, and Zacks.
Free educational resources: There are free tools and live webinars for investors of all levels.
According to Firstrade’s website, you can get up to $4,000 in cash bonuses when you sign up. While you don’t get paid in stocks, you get the next best thing, cash.
How do you get free stocks with Firstrade?
It’s very easy to earn free stocks with Firstrade, as all you have to do is fund your account to get a cash bonus. This promotion ends on January 17, 2023, and there’s a list of criteria for earning free stocks based on how much you invest. Here’s how much you can earn in cash with Firstrade:
Deposit or transfer amount
Cash bonus
$5,000+
$50
$10,000+
$100
$25,000+
$300
$100,000+
$700
$500,000+
$1,500
$1,000,000+
$3,000
$1,500,000+
$4,000
You can also get up to $200 in transfer fee rebates for account transfers and $25 in wire transfer fee rebates.
11. Acorns
Acorns allows you to save, invest, and learn with one simple app. You can set the Acorns app to save and invest for you automatically. For example, you can turn on the Round-Ups feature to invest your spare change by rounding up your purchases to the next dollar and allocating the difference to your portfolio. According to Acorns, the average new user will invest an extra $166 within four months by just rounding up and investing their spare change.
Acorns also offers diversified portfolios that experts create, including ETFs that professionals from top investment firms manage. With over 10 million sign-ups, Acorns has been helping millennials save money daily.
With Acorns, you can earn bonus rewards by purchasing products from many top brands. Since Acorns works with over 15,000 brands, including Apple, Amazon, and many others, you have multiple opportunities to earn rewards.
How do you get free stocks with Acorns?
To get your $10 sign-up bonus on Acorns, simply create a new account and make your first investment of at least $5. Acorns also offers a $5 investment referral bonus to you and a friend when you get your friend to sign up. Find out more about Acorns in our full review.
12. Stash
Stash is an investing app tailored for beginners, allowing users to start investing with very little cash. With only a $5 investment minimum, Stash allows new investors to start small until they’re more comfortable.
Stash offers banking and investing tools to its ten million-plus users. You can automate your investing, put your money into stocks, or let Stash create a customized investment based on your financial preferences. If you’re unsure which investment option to choose, the Smart Portfolio will automatically expose you to stocks, bonds, and cryptocurrency.
Among other unique features, Stash can work with parents or guardians who want to open a custodial account for their children to invest in their future. Stash also offers a Stock-Back debit card that lets you earn 1% in stock on all of your purchases. The Stock-Back card rewards you with stocks of the companies you shop with.
In addition to no hidden fees, Stash offers a Stock Round-Up feature where you can round up your purchases to the nearest dollar and invest your spare change in stocks. This platform is an easy, educational, and convenient way to invest in stocks.
How do you get free stocks with Stash?
Stash is currently offering $5 to anyone who signs up for a Stash Invest account which you can use to spend on more investments.
Stash also has weekly stock parties, where investors can earn bonus stock in a well-known company for participating in the party and sharing a referral code with friends.
13. Charles Schwab
Charles Schwab is one of the country’s biggest, most well-known banks and brokerages, with many physical locations available nationwide.
The Schwab digital platform offers various financial tools and accounts for investors of every level. You can find different brokerage accounts depending on your investing goals. The Schwab brokerage account features options trading, margin trading, and checking account features like paper checks and debit cards.
You can utilize the robo-advisor investing tool for a more hands-off approach to investing your money. You can also visit a physical branch near you if you have any pressing issues. There’s also 24/7 access to investment professionals if you have questions.
How do you get free stocks with Charles Schwab?
Charles Schwab touts that new investors will get its investing 101 course and a $101 cash bonus. You have to open up a Schwab Starter Kit, which includes $101 of Schwab Stock Slices, investing education, and other financial tools (like budget planners, for example).
To get free stocks with Schwab, you must open your account and fund it with $50 within the first 30 days. Then you’ll receive $101 to split equally between the top five stocks in the S&P 500.
Which is the Best Online Broker For Free Stocks?
If you’re looking for free stocks while opening up a new investment account, the good news is there are plenty of options. Those newer to investing will want to explore the various choices to see which broker works best for their unique financial situations. Every app offers distinct features and benefits that will hold different values depending on your current financial situation.
The investing app you go with will also depend on what you’re looking to invest in, as you can choose between different assets like stocks, ETFs, real estate, crypto, and so on. The best part of investing in 2023 is finding a platform that will match your investment strategy, so you can shop around until you’re satisfied.
As always, we urge you to carefully read the fine print to ensure that you qualify for free stocks if you’re solely signing up for the financial incentives.
This is another guest post from JoeTaxpayer. On my blog, I’ve shared several articles that discussed the Roth IRA conversion event of 2010 in great length and detail. While this is can be a great opportunity for many, there are several instances that a conversion does not. I looked to JoeTaxpayer to share some pros and cons of the Roth IRA conversion and for unforeseen consequences that could result.
There’s been much hype regarding the ability for anyone to convert their retire money to Roth regardless of their income. Many professional planners and writers of financial blogs have offered compelling reasons why one should convert. Today, I’d like to share some scenarios where you might regret that decision.
You don’t have a crystal ball
All signs point to higher marginal rates, this is one factor that prompts the advice to convert, but who exactly would that impact, and by how much? Let’s look at the first risk of regret. You are single, and an above average wage earner, just barely in the 28% bracket. (This simply means your taxable income is above $82,400 but less than $171,850, quite a range). Any conversion you make now is taxed at 28%, by definition. You get married, and start a family quickly, your spouse staying home. That same income can easily drop you into the 15% bracket as you now have three exemptions, and instead of a standard deduction, you have a mortgage, property tax and state tax which all put you into Schedule A territory and a taxable income of less than $68,000. Now is when you should use the conversion or Roth deposits to take advantage of that 15% bracket, before your spouse returns to work and you find yourself in the 25 or 28% bracket again. It’s then that you should convert enough (or use Roth in lieu of traditional IRA) to ‘top off’ your current bracket.
Life isn’t linear
It’s human nature to expect the next years to be very similar to the past few. Yet, life doesn’t work quite that way. The person who makes more money year on year, from their first job right through retirement is the exception. For more people, there are layoffs, company closings, major changes in family status, disability, and even death. Except for permanent disability or death, the other situations can be considered opportunities to take advantage of a full or partial Roth conversion. If one should become disabled, the ability to withdraw that pretax money at the lowest rates is certainly preferable to having paid tax on it all at your marginal rate.
Transferring your 401(k)
The Roth conversion is available for holders of 401(k) (and other) retirement accounts as well as holders of traditional IRA accounts. Back in October 07, I cautioned my readers on a somewhat obscure topic they need to be aware of when considering a transfer from the 401(k) to their IRA and the same caution exists for conversion to a Roth. Net Unrealized Appreciation refers to the gains on company stock held within your 401(k). The rules surrounding this allow you to take the stock from the 401(k) and transfer it to a regular brokerage account. Taxes are due only on the cost of that stock, not the current market value. The difference up to the market value at time of sale (thus the term Net Unrealized Appreciation) is treated as a long term capital gain. Current tax law offers a top LT Cap Gain rate of 15%. A loss of 10% or more if you are in the 25% bracket or higher and convert that company stock to a Roth.
Taking Money At Retirement
Given the low saving rate of the past decades, all projections point to fewer than the top 10% of retirees coming close to ‘retiring in a higher bracket.’ Consider how much taxable income it would take to be at the top of the 15% bracket in 2010. For a couple, the taxable income needs to exceed $68,000. Add to this two exemptions, $3,650 ea, and an $11,400 standard deduction. This totals $86,700. Using a 4% withdrawal rate, it would take $2,167,500 in pretax money to generate this annual withdrawal. What a shame it would be to pay tax at 25% to convert only to find yourself with a mix of pre and post-tax money that puts you toward the bottom of that bracket. Whose marginal rates do you believe will rise? Couples making less than $70,000? I doubt it. What’s the risk? That you should be in the 25% bracket at retirement? That’s still break even in the worst scenario.
What About Your Beneficiaries
While a tax-free inheritance might be great for the kids, a properly inherited, properly titled Beneficiary IRA can provide them a lifetime of income. Consider, if you leave a portion of your traditional IRA to your grandchild, a 13 year old, his first year RMD (required minimum distribution) will only be about 1.43% of the account balance. For a $100,000 account left to him, this RMD falls shy of the current $1900/yr limit before he is subject to the kiddie tax. To insure that he doesn’t withdraw the full remaining amount at 18 or 21, consult a trust attorney to set up the right account for this purpose. If left to your own adult children, the advantage can go either way depending on their income and savings level.
Are You a Philanthropist?
If you don’t have individual heirs you wish to leave your assets to, the ultimate poke at Uncle Sam is to leave your money to charity. No taxes at all are due. Leaving Roth money to charity just means that our government already got its piece of the pie.
Avoiding Roth IRA Conversion Regrets
Today, I’ve shared with you some scenarios that are cause for regretting a conversion. As I always caution my readers, your situation may differ from anything I addressed here, and your unique needs are all that matters. If you have any questions on when or if a conversion makes sense for you, post a comment and we’ll be happy to discuss.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Please see a tax professional before implementing any sort of IRA conversion. Joe TaxPayer is not affiliate or endorse by LPL Financial.
Did the movie “The Big Short” go right over your head? Does Nasdaq sound more like a foreign country than a stock market index? When you hear about bear markets and bull markets, do you envision adorable cartoon mammals browsing for fresh produce at a local farmers market?
You’re not alone.
The stock market can be confusing, and if you’re not a financial wizard in the Wall Street inner circle, you might be tempted not to bother with stock and options trading at all. But you’d be missing out.
That’s where apps like Robinhood come in. In this Robinhood review, we’ll discuss how Penny Hoarders can go from novice traders to expert stock market gurus, no matter how much or how little they have to invest.
What Is Robinhood?
Robinhood offers a unique brokerage account with commission-free investing from your smartphone. Robinhood has been around for the better part of a decade — the company launched April 18, 2013. Its two founders, Vladimir Tenev and Baiju Bhatt, met at Stanford University as roommates and eventually moved to New York City to build finance companies.
Upon seeing firsthand how Wall Street insiders and powerhouse firms paid almost nothing when trading stocks while average Americans had to pay a commission fee for every trade, they instead headed to California to develop a financial product that allowed everyone to trade easily and affordably.
The resulting financial product, of course, was Robinhood. The company today is headquartered in Menlo Park, California.
Robinhood has not been without its challenges. It’s famous for serious outages during market surges in 2020 and its role in the early 2021 market chaos related to the Reddit forum called r/wallstreetbets, where it restricted member access to securities like GameStop, Nokia and AMC. More recently, Robinhood laid off 23% of its staff, just one example of the massive tech industry layoffs in 2022, and also has been in the news for questionable trades.
However, Robinhood’s overall mission to make stock market trading accessible for everyone is admirable, and it is one of many investment and trading tools that seeks to put power back in consumers’ hands to elevate the financial status of the average American.
That’s a product that, even with its flaws, we can get behind.
What Tradable Securities Does Robinhood Offer?
The Robinhood platform is a great solution for free(!) trading of stocks, options, ETFs (exchange-traded funds) and ADRs (American Depositary Receipts), as well as cryptocurrency trading. The trading platform requires no minimum balance, offers fractional shares and includes plenty of educational resources. While Robinhood is most known for trading stocks and crypto, you can also use it for cash management.
Robinhood does not, however, offer access to mutual funds and bonds.
In 2021, Robinhood began to offer IPO access, meaning investors could purchase shares of stock in new companies at the IPO price before they go public. And in 2022, it introduced individual retirement accounts, or IRAs.
What Can You Trade on Robinhood?
U.S. exchange-listed stocks
U.S. exchange-listed ETFs
Options contracts for U.S. exchange-listed stocks and ETFs
ADRs for more than 650 globally listed companies
Cryptocurrency
What Can’t You Trade on Robinhood?
Foreign-domiciled stocks
Select OTC equities
Preferred stocks
Tracking stocks
Stocks that trade on foreign exchanges
Royalty trusts
Units
Closed-end funds
Mutual funds
Bonds
Fixed-income trading
New York registry shares
Limited partnerships
Chinese securities affected by the Nov. 2020 executive order
Spanish ADRs
How to Get Started with Robinhood
To sign up with a Robinhood brokerage account, simply visit the website and press the black “sign up” button.
Hot Tip: Robinhood is currently offering one free fractional share upon signup. There are 20 fractional shares available to choose from. To generate its 20 offers, Robinhood chose the two largest S&P 500 companies within each of the top 10 sectors based on market cap.
To open an account with Robinhood, you have to meet a few individual requirements:
You must be 18 or older.
You need a valid Social Security Number (Note: You may not use a Taxpayer Identification Number).
You must be a legal U.S. citizen, U.S. permanent resident or have a valid U.S. visa and have an address in the 50 states or Puerto Rico (exceptions made for members of the U.S. military stationed outside the country).
The Robinhood trading platform is accessible via the web or app (iOS and Android).
The process of activating your account can take some time. You’ll start by submitting an application. While Robinhood reviews the application, you can queue one deposit to fund your account, but you won’t be able to use that money to make trades until account approval.
Typically, Robinhood will take a few days to either approve your application or request more information. If they request more information or documentation, be prepared to allow five to seven days for review.
How Much Does Robinhood Cost?
Trading with Robinhood is free. That’s the whole reason its founders launched the company: free stock trading for regular people. That means you won’t pay commissions on equity trades or options trades. However, you could wind up having to pay account transfer fees, wire fees, check fees and live broker fees, among others.
In addition, Robinhood Gold allows you to trade on margin at a 7.75% annual rate (11.75% for non-Gold members). It also allows you to make bigger deposits with faster fund access. This fee for the margin account is $5 per month.
Robinhood Gold, Explained
Margin trading means trading with borrowed money. If you invest in a bad stock and lose money on the investment, you’ll owe that money back.
For example, say you borrow $500 to invest in a stock worth $500. But that stock plummets to $100. You will still owe the remaining $400 back to Robinhood. That’s what makes margin trading a little too risky for novice traders.
Not only that, but if you borrow more than $1,000 to trade on margin, you’ll owe 7.75% yearly interest on that borrowed money above that $1,000.
Because Robinhood is targeted at new investors — and margin trading is a risky practice that can break even the savviest stock market gurus — we recommend that you invest with your own money, and make sure it’s money that, if lost, will not financially ruin you.
In fact, one of our biggest stock trading tips for beginners is to stay away from margin trading.
So How Else Does Robinhood Make Money?
If Robinhood is commission-free and not everyone uses Robinhood Gold, how does Robinhood make money off you? Robinhood spells this out transparently on its website:
Rebates from market makers and trading venues: Robinhood has developed relationships with market makers and trading venues that pay Robinhood rebates for directing orders to those makers and venues. In the industry, this is known as payment for order flow (PFOF).
Stock loans: Robinhood can loan stocks held in your account to traders and hedge funds for short selling. Robinhood gets to keep the money it makes from this; you as the investor do not share in the wealth.
Income from cash: If you have idle cash sitting uninvested but haven’t moved it into a cash management account, Robinhood earns interest on that cash.
Cash management account: Every time you use the debit card for your cash management account, Sutton Bank (the card issuer) earns a fee, which it shares with Robinhood.
Robinhood Gold: Robinhood makes money off every Gold subscription, both from the monthly fee and from margin interest.
Robinhood Review: Key Features
In this section, we will break down some of the hallmark features of Robinhood.
Robinhood: At a Glance
Feature
Details
More Details
Trading fees
$0
n/a
Account minimum
$0
n/a
Tradable securities
Stock options
ETFs ADRs; crypto
Mobile app rating
4.2 on App Store
4 on Google Play
Customer support
Talk to a live agent 24 hours a day, 7 days a week
30-minute guarantee
Other key features
Fractional shares
IPO access
Beginner perks
Educational resources
Free stock at sign-up
Commission-Free
Robinhood’s schtick has long been that it offers commission-free trading. That means you will spend $0 for stock trading and $0 for options trading. ETFs also are commission-free.
This was the original mission of the founders, but in the time since launching their revolutionary idea, some of the bigger, traditional players, like Fidelity and Charles Schwab, have latched onto the same idea — and are backed by a better customer support system and a better-supported platform.
That has meant the Robinhood trading platform has had to find new ways to differentiate, like cryptocurrency and fractional shares. More on these below.
No Account Minimum
Of course, you will need to put money in your account to invest, but Robinhood does not have an account minimum, nor does it charge you for having a low or zero balance. And with fractional shares being an option, you can get started investing with as little as a dollar in your account.
Note: To purchase a security on margin (through Robinhood Gold), you need to have at least $2,000 in your account. This is not a Robinhood requirement but rather a regulation set by the Financial Industry Regulatory Authority (FINRA).
Cryptocurrency Trading
Cryptocurrency is still a foreign concept to many investors, but just because something is new and scary (also, it’s been around since 2009, so it’s hardly new anymore) doesn’t mean you shouldn’t invest. Not all brokers allow you to buy and sell cryptocurrency, but Robinhood offers support for multiple cryptocurrencies, including Bitcoin, Dogecoin and Ethereum, with Robinhood Crypto (open 24/7).
In keeping with the whole “Robinhood is free” theme, Robinhood charges 0% for crypto exchanges. Some competitors charge up to 4%.
Fees
Not only does Robinhood offer free trades on stocks, options, ETFs and ADRs, it also has no account fees, inactivity fees or ACH transfer fees. Robinhood Gold, as mentioned, currently costs $5 a month.
Mobile App
Robinhood was created in the heart of Silicon Valley in Menlo Park, so, unsurprisingly, its mobile app is streamlined and easy to use. At the time of writing, the Robinhood app had 4.2 stars in the App Store based on more than 4 million reviews.
Its website, too, is streamlined. It doesn’t have a lot of extras, which is great if you are a novice trader. A more senior investor may find the site lacking, however.
Customer Support
While Robinhood offers customer support, this seems to be the biggest issue raised by members. Customer review sites often are littered with complaints that customer service is virtually nonexistent, especially pre- and post-market.
In an effort to improve its relatively low-rated customer support options, Robinhood rolled out a new customer service feature in 2021. This allows customers to request a call back, 24/7. Robinhood promises an agent should call within 30 minutes.
No Mutual Funds and Bonds
While commission-free stocks, options, ETFs and even crypto are a big pro of Robinhood, its lack of mutual funds and bonds can be frustrating for traders who want to diversify. As far as retirement accounts go, mutual funds are a key part of a retirement investment strategy.
Fractional Shares
True to its goal of making growing financial wealth more accessible to average Americans, Robinhood released fractional share options in late 2019. This means, if you can’t afford an expensive stock valued at, say, $1,000, you could instead buy a fraction of the stock, maybe $100 worth of it, or even just $10.
Right now, Robinhood allows you to buy as small as one-millionth of a share. Just like full shares, trading of fractional shares can be done in real time and is commission-free.
Recurring Investments
Another tool that Robinhood has introduced in recent years is recurring investments, which is a nice pairing with a fractional share investment strategy. For example, if Company X’s stock hovers around $200, you can set up a recurring investment in a fractional share at $25/week. Within roughly eight weeks, you could own a full share.
Most brokers structure recurring investments as buying by the share, which typically leaves your account funded with some uninvested cash. But Robinhood’s recurring investments are structured as buying by a dollar amount, which makes the best use of all your invested cash.
IPO Access
New in 2021, Robinhood gave customers access to purchase stocks in upcoming IPOs (initial public offerings) at the IPO price. No minimum account balances or special status requirements are necessary.
Cash Management Account
Another cool feature of Robinhood is the associated cash management account. You can have your paycheck deposited here, use it to pay bills and deposit checks, and, of course, fund your account. Like a proper bank account, this account gives you access to more than 75,000 fee-free ATMs (pretty much everywhere Mastercard is accepted) and comes with a debit card. And the best part: It earns 1.5% APY (4.65% APY for Gold members). For reference, the FDIC says the average interest rate for a savings account is 0.33% APY. And because the account is operated through a network of banks, you’ll get more than the typical $250,000 FDIC insurance; instead, the account is insured up to $1.25 million.
Educational Resources
A lot of now-outdated Robinhood reviews mention the lack of educational resources. We couldn’t find anything to be less true of Robinhood. Perhaps in response to some of those reviews, Robinhood has stepped up its game, with plenty of online resources on the website as well as a daily financial newsletter called Robinhood Snacks. Robinhood markets it as a “3-minute newsletter with fresh takes on the financial news.”
Pro Tip
Serious investors keep up with this kinds of news. It may not have the same appeal as celebrity gossip, but it will help you make wise decisions investments decisions.
Robinhood makes it easy to access news from Reuters, Cheddar, WSJ Markets, etc. Upgrading to Robinhood Gold gets you access to Morningstar, Nasdaq and Nasdaq Totalview Level 2 Market Data.
What Customers Are Saying About Robinhood
Because of Robinhood’s role in the recent GameStop market chaos and following layoffs in 2022, many angry investors and emboldened Redditors spoke their minds online, meaning Robinhood’s current ranking on sites like the Better Business Bureau (BBB) and Google Play is suffering. This is more a reflection of reviewers’ overall criticisms of capitalism, hedge fund managers and the 1% than it is on Robinhood, which, if you take a step back, is really trying to help the average investor.
Pros and Cons of Robinhood
There’s a lot to love about Robinhood, especially if you are a new trader. More experienced traders may prefer a different approach to trading, however. Weigh these pros and cons before deciding on a Robinhood brokerage account.
Pros
The educational content is great if you are new to the stock market and want to learn the language.
The cash management account makes it easy to fund your investments and earns a decent APY.
You can strategize by combining fractional shares and recurring investments to diversify your assets and minimize uninvested cash, no matter how much you have to invest.
The commission-free trading and no account minimum truly make this accessible to anyone who wants to invest.
Robinhood gives you the option of investing in cryptocurrency and access to IPOs.
The mobile app and online trading platform are known for their ease of use.
There are no account or trading fees, nor are there account inactivity or ACH transfer fees
Robinhood is running a promotion wherein you get free fractional share upon signing up.
Cons
The role Robinhood played in limiting investments in squeeze stocks (like GameStop) in early 2021 brought the original mission of the company into question. The 2022 layoffs didn’t help.
Customer support is lacking, especially compared to larger brokers. Robinhood customers complain that customer service is especially challenging pre- and post-market.
Robinhood lacks mutual funds and bonds.
By not charging investors commission, Robinhood instead makes money through the payment for order flow, a common standard among online brokers. Some critics say this is a conflict of interest.
Are There Alternatives to Robinhood?
If you want to stay away from major players like TD Ameritrade and Charles Schwab, Robinhood is arguably the most popular trading tool.
Its most notable competitor is Webull. Both Robinhood and Webull have their advantages; it truly comes down to your personal preferences. But Robinhood and Webull aren’t your only options. In fact, we’ve rounded up the best investment apps currently offered; choosing the right app depends on your own specific needs and investment strategy.
Frequently Asked Questions (FAQs) About Robinhood
Still have questions about opening a Robinhood account? We’ve provided answers to some of the questions our readers are most commonly asking.
Is Robinhood Safe?
Yes, Robinhood is a safe platform for investing. Robinhood is a member of the SIPC (Securities Investor Protection Corporation), meaning your funds are insured up to $500,000. Robinhood also is regulated by the Securities and Exchange Commission (SEC).
Is Robinhood a Brokerage Account?
Yes, Robinhood offers a brokerage account as its key offering, but you can also open a cash management account with Robinhood.
Does Robinhood Pay Dividends?
Robinhood processes your dividends automatically, crediting cash to your account by default.
Is Robinhood Gold Worth It?
Most investors will be fine with Robinhood’s free investing accounts. Being a Robinhood Gold member is ideal for margin trading, but we don’t recommend this unless you are a more seasoned investor.
Timothy Moore covers banking and investing for The Penny Hoarder from his home base in Cincinnati. He has worked in editing and graphic design for a marketing agency, a global research firm and a major print publication. He covers a variety of other topics, including insurance, taxes, retirement and budgeting and has worked in the field since 2012. Freelancer Lauren Richardson contributed to this post.
What to learn how to start investing for beginners? Here’s my tips on where to start investing, even if you have little money.
I always say the first thing you need to do if you want to start investing is to just jump in. However, what if you don’t really even know how to start investing?
In addition to not knowing how to start investing, it can be scary, stressful, and overwhelming to begin.
Even though it can be scary, it will probably be one of the best decisions you make when it comes to being prepared for retirement.
With today’s post, I hope to make it easier than ever with my beginner investing tips so that you can start investing your money and build a retirement fund as soon as possible.
Just as a refresher, you want to invest because:
It can help make sure you aren’t working for the rest of your life.
You can retire sooner rather than later.
You can lead a good life well after you finish working – traveling, pursuing your hobbies, volunteering, or whatever you choose!
Compound interest means the earlier you save the more you earn.
You won’t have to rely on your children or others in order to make ends meet.
Investing is important because it means you are making your money work for you. If you weren’t investing, your money would just be sitting there and not earning a thing.
This is important to note because $100 today will not be worth $100 in the future if you just let it sit under a mattress or in a checking account. However, if you invest, you can actually turn your $100 into something more. Investing for the long term means your money is working for you, potentially earning you an income.
For example: If you put $1,000 into a retirement account that has an annual 8% return, 40 years later that would turn into $21,724. If you started with that same $1,000 and put an extra $1,000 in it for the next 40 years at an annual 8% return, that would then turn into $301,505. If you started with $10,000 and put an extra $10,000 in it for the next 40 years at that same percentage rate, that would then turn into $3,015,055.
Related content:
I’ve talked a lot about savings here on Making Sense of Cents, and in my post 56% Of Americans Have Less Than $10,000 Saved For Retirement, I stated that 56% of Americans have less than an average of $10,000 in retirement savings and 33% have no retirement savings at all. This is something incredibly important to address! And, some of those statistics are because many don’t know how to start investing.
Other interesting statistics mentioned in this article include:
42% of millennials have not begun saving for retirement.
52% of Gen Xers have less than $10,000 in retirement savings.
About 30% of respondents age 55 and over have no retirement savings whatsoever.
Nearly 75% of Americans over 40 are behind on saving for retirement.
One of the biggest reasons I’ve noticed is that people don’t realize that they should be saving more or, like I said, they don’t know how to start investing. Again, investing for beginners can feel daunting, so don’t feel like you are alone. And, the reality is that you don’t need much to get started.
If you have never invested before and are wondering how to start investing, I have broken down the steps to make easy to start investing for beginners, even those who feel like they don’t have much money to invest.
How to start investing for beginners:
1. Start saving your money.
“The best time to invest was yesterday; the second best is today!”
That’s one of my favorite investment quotes, and it explains why starting to save for investing should happen right now.
And, my top investing tip goes right along with it: start setting money aside today.
In order to invest your money, you need to actually set aside money for investing. How much you set aside is entirely up to you, but I think more is always better if you can manage it.
Okay, you may be thinking “How much money should I save if I don’t have much money?!”
The key here is saving as much for investing as you realistically can. This may be nowhere near 20% at first, heck, this might not even be 5%, but any little bit will help. If you are not able to save that much, just save something! Investing for beginners can be as little as $25 a month – seriously, every little bit does help.
Even if it’s just $1 a day, set that amount aside and start saving even more.
You may want to look into Acorns, which is a cell phone app that rounds up your credit card and debit card purchases, and then invests your spare change. Acorns automatically invests for you, and you can get started in under 5 minutes. This app is amazing!
You can always work your way up to saving a higher and higher percentage of your income to put towards investments. Starting small is an easy way for beginners who are wondering how to start investing. I understand that some people have financial situations in which they may not be able to save as much money as they would like. Living paycheck to paycheck, being in medical debt, or having a major unexpected expense can wreck a person’s financial situation and their goals, and I understand that.
However, there are options to getting out of those negative financial situations. Cutting your spending is an obvious one, but you can also find more ways to make extra money. It may be a challenge, but you are worth the work it takes to reach your financial goals.
Even if you are working towards day-to-day financial stability, you can still start investing. Like I said, even the smallest amount of money can be put towards investing. Not only does investing now help you reach retirement sooner, it may help you prevent negative financial situations from happening the in future.
2. Find an online brokerage or an expert to manage your investments.
So, now that you have actually started to set aside money, you will want to decide how you will invest it.
There are two main things you could do with your money. Either invest your money yourself, such as through an online brokerage, or find an expert to manage your investment portfolio. Part of learning how to start investing includes determining the company, platform, or person you will use to invest your first dollar.
There are many online brokers and brokerage accounts for you to choose from. My favorites include:
Ally Invest – This is a full service discount broker that doesn’t have a minimum amount, so you can start investing with them right away.
Betterment – Betterment offers an affordable way to invest your money. They have over 400,000 customers and over $14 billion has been invested through their service. With Betterment, you can invest with as little money as you want each month, which is great for a new investor!
Vanguard – I absolutely love Vanguard, and I recommend that you check them out. This is a great way to introduce both new and old investors to the stock market.
Also, if your employer has a retirement plan, then you will definitely want to look into that as well. If your company offers a retirement plan match, then this is where you will want to start as their retirement match is pretty much free money!
Also, in case you are wondering, a 401(k) is a type of retirement account that you get through an employer.
3. Decide where to put your money.
After you open your brokerage account, you will want to decide how exactly you will invest your money in the stock market. I think this might be one of the biggest hurdles for those wondering how to start investing and how to invest in stocks. There are a lot of what ifs in the investment world, and a good brokerage or expert will help you navigate as you decide where to put your money.
Basically, where you invest your money depends a lot on the level of risk tolerance you are willing to take and the time you have to watch your funds mature. A simple way of explaining this is that more time equals more risk and less time equals less risk.
For example: if you are in your 20’s and are using your investments for retirement, you have 30-40 years worth of investing ahead of you. You will likely be able to make some riskier investments knowing that the market will bounce up and down over time. If you are closer to retirement, you will probably want your funds in something that you are confident will make small but steady gains.
Choosing the stocks, mutual funds, etc. that you invest in is not the easiest thing because no one knows what will happen in the future. This is why it’s important to have a diverse portfolio.
When learning how to start investing for beginners, a professional will help you determine your goals, your risk level and how to diversify your investments in a way that will benefit you.
Even if you do have a professional helping you, it’s always important to do your own research on the types of investments available and which ones interest you.
Please remember that I am not an investment professional and that you should do your research when choosing who/what to invest in.
Related: How To Start An Emergency Fund
4. Monitor your investment portfolio.
So, you finally have invested your money, congrats!
The next step is to regularly track your investments. This is important because you may eventually have to change what you are invested in, put more money towards your investments, and so on.
Now, the key here is to not go crazy, and checking on your portfolio can be an exciting thing when investing for beginners. But, you do not want to become a person who checks their investments every hour of the day. That won’t help you at all as small changes in the stock market most likely won’t matter to you, especially if you are investing for your long-term future.
However, you do want to occasionally check your progress as things may change in the market, your investment interests may change, and you may even alter your goals.
A free tool that I recommend using to monitor your investments is Personal Capital.
You can see your investment portfolio all in one place so that you can easily track your performance, see your investment allocations, and easily analyze everything related to your investments. The Personal Capital Retirement Planner will also tell you if you have saved enough for retirement.
To protect my privacy, this image is not mine – it was provided by Personal Capital.
5. Continue the steps above over and over again.
Learning how to start investing is the first step, but the final one is to continue investing well into the future, and you will want to continue these steps over and over again. Now that you know what steps to take, it only gets easier from here.
The hard part is done!
How much money should a beginner invest for the first time?
Even if you think you don’t have much, you can still start!
If you want to start with just a few dollars, I recommend reading A Beginner’s Guide to Micro-Investing.
How can I start investing with little money?
As a recap, you can start investing with little money by following these tips:
Start saving your money.
Find an online brokerage or an expert to manage your investments.
Decide where to put your money.
Monitor your investment portfolio.
Continue the steps above over and over again.
What questions do you have when it comes to how to start investing for beginners? What investment tips do you have to share?
Webull is an online brokerage that offers commission-free trading on stocks, options, and ETFs. Key features of the platform include real-time market data, advanced charting tools, and a customizable newsfeed.
With most investing apps now offering commission-free trading, online brokers must find more creative ways to stand out. Robinhood, for example, is now offering a 1% match on IRA contributions. Webull, on the other hand, tries to place the focus on the customer by offering free stocks, fractional share investing, a user-friendly trading platform, extended hours trading, and 24/7 support.
But is Webull a suitable platform for beginner investors? In this Webull Review, I cover Webull’s trading platform, key features, pros and cons, and more.
About Webull
Launched in 2017, New York City-based Webull is a self-directed investment platform that offers commission-free trading. You can buy and sell stocks, options, exchange-traded funds (ETFs), and even cryptocurrencies. And unlike many newer online brokers, you can trade over-the-counter (OTC) stocks with Webull.
Webull describes itself as “a financial company with the customer at heart, the Internet as our foundation, and technology as our lifeblood.” The company delivers on this description by providing a user-friendly investment platform, free real-time quotes, multiplatform accessibility, full extended hours trading, and 27/7 online support.
Key Features
Zero Commissions
No deposit minimums
Hold crypto alongside stocks, ETFs, etc.
Taxable or IRA accounts available
Supports margin trading
Paper trading option
Access to initial public offerings (IPOs).
Webull Community allows you to share investment strategies with other investors on the platform.
24/7 online customer support
Free stock bonus, as well as a referral bonus program
Is Webull Legit?
Yes, Webull is 100% legitimate. They are a US-based broker-dealer, and a FINRA, SIPC, NYSE, and NASDAQ member. It’s estimated that Webull has more than 12 million users and over $40 billion in Assets Under Management (AUM).
At the time of this writing, the company has a rating of 4.4 out of five stars from more than 174,000 Android user reviews on Google Play and 4.7 out of five stars among more than 275,000 iOS user reviews on The App Store.
Unfortunately, they rate poorly with other major rating agencies.
Webull has a Better Business Bureau “F,” the lowest rating on a scale of A+ to F. It scores 1.07 out of five stars, though that rating is based on just 54 reviews.
The company doesn’t do much better with Trustpilot, where it rates 1.3 out of five stars, or “Bad”. However, it’s worth noting the Trustpilot rating is based on just 137 reviews.
Webull Account Types
Webull offers two taxable account types: cash and margin. With the cash account, your buying power is limited to the funds you have on deposit. The margin account allows you to use leverage for the purchase of securities in excess of the cash value of your account.
The margin account requires a minimum of $2,000 to be maintained in the account at all times. Since a margin account will involve leverage, you must maintain a minimum account balance of $25,000 for unlimited day trades (see below).
You can also open a Traditional, Rollover, or Roth IRA with Webull. Each user can have one IRA account, but you must have an individual account before you can open an IRA.
Day Trading Rules
According to FINRA rules, you can make no more than 4 day trades in a margin account within five business days; otherwise, you will be flagged as a pattern day trader (PDT). That will trigger the requirement of the $25,000 minimum balance.
Margin accounts are also available for LLCs, C-Corps, and S-Corps with 2X overnight leverage and 4X day trading leverage.
Webull Trading Platform
The platform offers intuitive tools and support for traders and supports extended hours of trading, both before and after the market closes.
You can do the following on the Webull trading platform:
Real-time quotes
Customizable screens
Stock market trading ideas from top traders
Sort stocks between top gainers, top losers, and most active and best-performing industries.
More than 50 technical indicators and 12 charting tools.
Quant Ratings to provide an overall rating for each stock based on objective data.
The ability to analyze your past trading performance to look for areas of improvement.
Real-time stock alerts to notify you of price action and technical conditions.
In addition, you can execute the following orders:
Limit order
Market order
Stop order
Stop-Limit order
Trailing Stop order.
Stop-Loss/Take-Profit orders (Bracket orders)
One-Triggers-the-Other order (OTO)
One-Cancels-the-Other order (OCO)
One-Triggers-a-One-Cancels-the-Other order (OTOCO).
Margin Trading
Webull offers margin trading for both long- and short positions. You must maintain a minimum account balance of $2,000 in your margin account to qualify for margin trading. The account will provide up to 4X buying power per day trades and 2X for overnight trades.
Webull Paper Trading
Webull offers their Paper Trading feature to help you learn how to trade or to become a better trader without risking real money. And unlike some paper trading accounts offered by other brokers, Webull Paper Trading comes with unlimited virtual cash.
You can take advantage of real-time quotes, explore integrated charts with indicators, and set up price alerts, the same as you would with live trading. The feature offers more than 50 technical indicators and 12 charting tools. Paper trading can be used for options trading practice.
Initial Public Offerings (IPOs)
IPOs are when a private corporation offers stock to the public for the first time. The stocks are in registration and awaiting listing on the secondary market. The registration phase allows the issuing company to raise capital from public investors, who will be the first to receive the stock as of the listing date. In theory, it’s an opportunity for investors to get in on a newly listed company as it is going public.
Webull makes IPOs available to investors. You can locate IPOs by going to the Market page, then to the IPO Center for a list of available offerings. You can even subscribe to notifications of upcoming IPOs as they become available.
Cryptocurrency
You can trade cryptocurrency on Webull commission-free. As is the case with most cryptocurrency exchanges, Webull charges a spread of 100 basis points on both the purchase and sale of crypto. You will need a minimum of $1 to begin trading crypto.
Crypto trading requires either a cash or margin account for crypto trading (no IRAs). You can trade 44 cryptos, including Bitcoin, Ethereum, Litecoin, Dogecoin, Stella Lumens, Ethereum Classic, Cardano, Tazos, USD Coin, and many more.
Crypto trading hours are from 5:30 p.m. to 6:30 PM, Eastern time, seven days per week (23 hours per day).
Crypto Wallet. Webull offers a crypto wallet so you can buy, sell, store, and transfer crypto to and from the wallet.
Stock Lending Income Program
This program allows you to earn extra income on fully paid stocks in your account. If you allow Webull to borrow certain stocks, you’ll be paid interest while those stocks are loaned out.
Apex Clearing, Webull’s clearing agency, will identify fully paid stock in your account, which is considered “in demand” based on the market. You will be paid 15% of the interest earned by Apex Clearing on the loaned stock.
For example, if Apex earns 10% per year, you’ll earn 1.5%. Interest earned through the program is credited daily and paid monthly.
Webull Community
Webull adds a social component to its investment platform. You can participate with millions of other Webull investors to discuss market and exchange strategies, and swap ideas with other investors.
How Does Webull Make Money if they Don’t Charge Fees?
Webull charges very few fees, but they do charge some. After all, they can’t stay in business without any revenue. Here is a list of Webull revenue sources:
Payment for Order Flow (PFOF). This is a common practice among commission-free retail brokers. When Webull sends trades to market makers, they receive rebates for the practice. This income flow is part of the reason why brokers can allow commission-free trading.
Securities lending. This is another common practice in the brokerage industry. Webull uses the services of Apex Clearing as their clearing agent. Through the Stock Lending Income Program, Apex can loan out investors’ shares to other investors and institutions, usually for short sales. Those borrowers will pay interest to Apex, a portion of which is rebated to Webull.
Interest on cash balances. Since Webull doesn’t pay interest on uninvested cash held by investors, the company retains any interest earned on those funds from outside sources.
Interest on margin trades. When you use margin to purchase securities, Webull charges interest which represents income to the company.
Deposit and withdrawal fees. Webull charges fees of between $8 and $45 per transfer for both deposits and withdrawals made by wire.
The basis point spread on crypto trades. Webull earns a 100-basis point spread on the purchase and sale of cryptocurrencies.
Other Features
Income Tax Reporting
Webull provides a consolidated Form 1099, which includes reporting information from 1099-B (transactions), 1099-DIV (dividend income), 1099-INT (interest), and 1099-MISC (other income and information). The form can be downloaded from the Webull app.
Account Protection
Webull is a fully regulated broker-dealer, and your account is protected by SIPC insurance for up to $500,000 in cash and securities, including $250,000 in cash. For additional protection, Webull offers two-factor authentication for an added step on accessing your account and to prevent unintended parties from entering your account.
Free Stock Bonus and Referral Bonus
Webull is currently offering a free stock bonus to include free fractional shares in two stocks. The stock will be worth between $3 and $3,000, which could make the bonus as high as $6,000 in total. You must be new to Webull and meet other eligibility requirements.
You can also receive fractional shares in four, eight, or 10 free stocks by depositing any amount into your new account within ten days. Each fractional share will be valued between $3 and $300. That means you can earn up to 12 fractional shares with a total value of as much as $9,000. Stock rewards must be claimed within 30 days, or the offer will expire.
Under the Webull Referral Bonus, refer family and friends to Webull, and you’ll receive three free shares of stock. Refer three friends, and you’ll receive nine shares. Once you’ve received nine shares, each successful referral will provide you with two free stocks. Each share of stock will be worth between $12 and $1,400.
Your referral must use your unique referral link, and the free stock will be issued when the new user opens a brokerage account with an initial deposit of at least $100.
How to Sign Up for a Webull Account
You can sign up for Webull from either the website or the mobile app by clicking “SIGN UP” at the top of the page. You’ll need to enter your phone number and a referral code if you have one.
Webull will require you to supply your name, US residential address, date of birth, taxpayer identification (Social Security number or individual taxpayer ID number), telephone number, and citizenship.
To verify your identity, Webull may ask for copies of your driver’s license, passport, or other information as necessary.
Due to Webull’s review process, it will take a minimum of 24 hours to open your account. More time may be needed if manual verification of information is required. Webull will perform a soft credit check, which will not negatively impact your credit score.
Funding Your Account
You’ll need to connect a bank account to fund your Webull account. Webull will make two micro-deposits to your account to confirm a valid account connection. Once verified, you’ll be able to begin transferring funds to and from Webull.
The easiest way to fund your account is through ACH transfers, which are free to complete. (Note that Webull charges domestic and international wire transfer fees.)
ACH deposits initiated before 4:00 PM Eastern time will give you instant buying power, enabling you to begin trading immediately. However, the instant buying power feature is a provisional credit representing a portion of the deposit. Full ACH deposits are generally available on the fourth or fifth business day after the ACH is initiated.
Alternatively, you can transfer securities from another broker into your Webull account. The transfer securities must match those available through Webull.
Webull Pros and Cons
There’s plenty to like about Webull, but the platform also has limitations. Here’s my list of Webull pros and cons.
Webull Pros:
No minimum initial investment
Commission-free trading
Get free stock when you open an account and make a deposit
Available crypto wallet where you can manage your cryptocurrency holdings
Connect with millions of investors in the Webull Community
24/7 online support
Webull Cons:
No joint taxable accounts, custodial or trust accounts
You can’t invest in mutual funds, penny stocks, or bonds
Must have a taxable account to open an IRA
No dividend reinvesting option
No interest on uninvested cash
Fees for domestic and international wire deposits and withdrawals.
Webull Alternatives
Before signing up with Webull, I recommend checking out these alternatives, which offer many of the same features as Webull.
Robinhood
Robinhood is a popular online brokerage that offers zero-commission trades of stocks, options, ETFs, and cryptocurrency. No minimum deposit requirement exists, but like Webull, Robinhood doesn’t allow bond or mutual fund trades. One very interesting feature: Effective December 2022, Robinhood now offers IRA accounts with a 1% match, the first online brokerage to do so.
According to Robinhood, “the IRA Match is an extra 1% that Robinhood adds to eligible contributions to your IRA. It’s not counted toward your annual contribution limits and is typically available to invest immediately.” For more information, check out our full Robinhood Review.
Public
Public is an easy-to-use trading app that is geared toward new investors. Like Webull and Robinhood, Public doesn’t charge any trading fees. You can also buy fractional shares and connect with other users in the Public social community. That said, intermediate traders will want to steer clear of Public due to their lack of advanced trading options – they don’t offer IRA accounts and have little in the way of market research tools.
Learn more in our Public Review.
Interactive Brokers
Interactive Brokers (IBKR) is a truly global trading platform offering investors access to 150 markets in 33 countries. You can also trade in more than 24 currencies. Like Webull, there are no commission fees on stock and ETF trades. Interactive Brokers is hands down the more powerful platform for sophisticated traders looking for access to global markets, but it may be overwhelming for new and intermediate investors.
Webull FAQs
Is Webull good for beginners?
Webull is a safe trading platform for new investors. Accounts are protected by SIPC insurance for up to $500,000, and the platform uses numerous security features, including two-factor authentication.
We also like that Webull has no minimum initial investment requirement, though you will need to deposit funds to begin trading. And as a beginning investor, you can certainly benefit from the paper trading account with unlimited virtual cash.
However, other investment brokers may be a better choice for new investors. Webull is designed primarily for active traders and those with at least an intermediate level of experience. Larger brokerage firms will be able to provide higher levels of customer service and a greater variety of account tools and educational services.
What is the minimum deposit for Webull?
There is no minimum deposit requirement for a Webull account, but a $2000 minimum balance is required for all margin accounts.
What is the downside to Webull?
The main drawbacks to Webull include the lack of a dividend reinvestment program and the inability to buy fixed-income and mutual fund investments.
Does Webull work in Canada?
Webull is a US-based online broker. Because it’s not registered in Canada, it’s not available to Canadian citizens.
Final Thoughts on Webull
Webull is an intuitive trading app where you can trade more than 40 cryptocurrencies on the same platform where you hold more traditional investments. They offer plenty of investment tools, including margin trading, day trading, and short sales.
And if you’re new to Webull or have friends to refer, you can take advantage of free stock bonuses.
While Webull is geared more toward intermediate and advanced traders, its intuitive trading platform shouldn’t overwhelm new traders. That said, beginner investors may want to give Robinhood and Public a long look before signing up with Webull.
A cash management account (CMA) combines many of the best aspects of checking and savings accounts. It lets you earn strong interest rates while keeping it easy to access and spend your cash. While CMAs can’t do everything a dedicated checking or savings account can do, many people find CMAs sufficient for their financial needs.
Financial companies target CMAs at consumers who have large cash balances they need to insure. People who want the easy access a checking account provides – without sacrificing the interest rate savings accounts offer – also use them.
But so many companies offer CMAs it can be hard to choose the best one. Which one is right for you depends on how much money you plan to deposit and whether your primary goal is earning interest or easy access to your money.
Best Cash Management Accounts
There are plenty of top options for CMAs to choose from, no matter your financial goals. Many are associated with investment brokerages or robo-advisor platforms, which automatically allocate and manage your funds based on your personal risk tolerance and objectives.
Betterment
Our Rating
Earn up to 4.35% APY and pay no monthly fees on your cash. Plus, get access to Betterment’s low-cost robo-advisor platform with instant transfers between accounts.
Monthly Fee
$0, but Betterment may charge investing fees
Deposit Insurance
Up to $4 million
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Betterment is an automated investing platform with a built-in cash management account (Cash Reserve) that has one of the best yields and highest deposit insurance limits in the space.
Betterment’s yield is comparable to the top high-yield savings accounts, and its FDIC insurance limit is at least eight times the industry standard. Open a joint account with your spouse or domestic partner to double your FDIC insurance coverage.
And if you’re looking for a day-to-day spending account, open a Betterment Checking account. It has a debit card, no monthly maintenance fees or minimum balance requirements, and a direct link to your other Betterment accounts.
Annual percentage yield (variable) is as of 05/08/2023. Cash Reserve is only available to clients of Betterment LLC, which is not a bank, and cash transfers to program banks are conducted through the clients’ brokerage accounts at Betterment Securities.
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Wealthfront
Our Rating
Earn 4.55% APY on all balances with no minimums or fees. Plus, enjoy category-leading FDIC deposit insurance coverage up to $5 million.
Monthly Fee
$0, but Wealthfront may charge investment fees
Deposit Insurance
Up to $5 million
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Wealthfront is an automated investing platform that charges a low asset-based fee on all balances (0.25% AUM). Its cash management account, the aptly named Wealthfront Cash Account, charges no fees at all.
The Wealthfront Cash Account has more in common with a checking account than a savings account. Notable features include unlimited withdrawals, a debit card that works at nearly 20,000 ATMs, direct deposit, and integrations with popular peer-to-peer transfer apps like Venmo and PayPal.
The Wealthfront Cash Account’s Self-Driving Money™, feature is even more useful than a standard checking account. It’s a money management automation tool that automatically allocates incoming deposits to cover near-term bills and expenses, add to your emergency savings, fund other savings goals as per your personalized savings plan, and divide the remainder between your investment accounts — all with minimal input from you.
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Empower
Our Rating
Earn 4.25% Interest; No Minimum Balance; No Monthly Fees; Up to $1.5 Million in FDIC Insurance
Monthly Fee
Deposit Insurance
Up to $2 million
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Formerly known as Personal Capital, Empower is a digital financial advisor and wealth manager geared toward affluent younger folks. You don’t need a ton of money to use its Empower Cash cash management solution though — it’s totally free and doesn’t require a separate minimum balance.
Empower Cash stands out for the same reasons many other great cash management accounts do: a high yield, generous FDIC coverage, and no minimums. It adds some more unique benefits too, including direct access to human wealth managers and a sophisticated budgeting tool that securely syncs with your external financial accounts and provides a comprehensive all-in-one view of your finances.
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Aspiration
Our Rating
Earn up to 3.00% APY on the first $10,000 in your Save account. Plus, your deposits never fund fossil fuels.
Up to 3.00% APY
Monthly Fee
$0 to $7.99
Deposit Insurance
Up to $2.25 million
Our Rating
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Aspiration is a socially conscious financial firm that offers retirement, investing, and charitable giving services. Aspiration doesn’t invest customer funds in businesses that pollute the environment. It has a growing lineup of Conscience Coalition partners where purchases earn up to 10% cash back. And it helps you gauge your own social responsibility, giving you a spending-habits report card showing how much you’ve supported green companies.
Aspiration’s cash management solution isn’t as generous as some others, with a lower yield that applies only to the first $10,000 in the account and requires a monthly fee to attain. But if you’re drawn to Aspiration’s mission, you can probably live with the financial drawbacks.
Fidelity
Our Rating
Earn 2.47% APY on all balances with no minimums, no fees, and variable deposit insurance up to multiples of the statutory limit.
Monthly Fee
Deposit Insurance
Variable, but at least $250,000
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Fidelity is a full-service financial firm that offers banking, financial advising, and investment services. It’s fully capable of being your only financial institution, and the Fidelity Cash Management Account is a big reason why.
The Fidelity Cash Management Account is a checking-like platform (complete with a debit card and unlimited ATM fee reimbursements) that offers savings-like yields. It offers a nice blend of old and new too, with free paper checks alongside mobile check deposit and fast person-to-person transfers. And if you’re not ready to branch out into stocks and bonds and all the rest, you don’t have to use Fidelity’s investing platform just because you have a Fidelity Cash Management Account.
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Methodology: How We Select the Best Cash Management Accounts
Our most important considerations when evaluating cash management accounts are:
How much they earn (interest rate)
How much they protect (deposit insurance coverage)
How easy they make it to access your money (linked accounts, debit cards, and so on)
How much they cost (fees and expenses)
How they fit into a larger financial ecosystem (connection to other accounts offered by the same company)
Interest on Balances
“What’s the interest rate?” is the first question most people ask when shopping for cash management accounts. The best accounts pay interest on par with the top high-yield savings accounts, which as of mid-2023 typically yield between 4% and 5% APY.
Deposit Insurance Coverage & Limits
Generous deposit insurance coverage is a defining feature of cash management accounts. The best accounts protect multiples of the standard FDIC deposit insurance limit of $250,000, which is what you get with most ordinary checking, savings, and money market accounts.
Some go up to $5 million or even higher. The higher, the better.
Access to Balances
Cash management accounts are sort of like checking-savings hybrids, but in terms of access to your cash, many are more like savings accounts. They don’t have debit cards, peer-to-peer transfer capabilities, or instant transfers to external accounts.
Good cash management accounts tend to be more liberal on this front. Some even have debit cards that you can use at any merchants that accept Visa or Mastercard.
Fees
The best cash management accounts have no monthly maintenance fees and low (or no) fees otherwise. However, most are associated with investment accounts that do charge management or trading fees. We look for accounts with reasonable fee schedules in any case.
Connection to Investment & Other Account Types
Cash management accounts usually don’t exist by themselves. They’re often associated with investment or wealth management accounts that offer a much broader range of services than standard deposit accounts can. We prefer these types of accounts because they’re more suitable as one-stop shops for banking and investments.
Cash Management Account FAQs
If you understand how checking and savings accounts work, you have a basic understanding of cash management accounts too. But they have a few differences and oddities worth drilling down into.
What Is a Cash Management Account?
A cash management account is a deposit account that blends features of checking and savings accounts.
Like a checking account, a cash management account usually has no limit on withdrawals. Some come with debit cards and other checking-like features, such as instant person-to-person transfers.
Like a savings account, a cash management account typically has a high interest rate on balances. It often has a higher deposit insurance limit as well, a feature it shares with some certificates of deposit.
Is a Cash Management Account a Brokerage Account?
A cash management account is not a brokerage account, but many cash management accounts are associated with brokerage accounts. Either the account is housed within the brokerage account itself and receives proceeds from securities sales through a process known as cash sweeping, or it’s a separate account linked to the brokerage account for speedy transfers.
Are Cash Management Accounts Better Than Savings Accounts?
It depends on your financial situation and what you hope to get out of the account.
If your personal cash reserve is well under the standard FDIC deposit insurance limit, your best bet is to look for the highest possible yield, which you may or may not find in a cash management account. If you have more cash, it might be worth it to use a cash management account with a higher deposit insurance limit, even if its yield isn’t quite on par with the top savings accounts.
If you plan to use your cash (or some of it) to buy stocks or other securities, keeping it in a cash management account is more convenient than a standard savings account not associated with a brokerage account.
What’s the Difference Between a Cash Management Account and a Money Market Account?
Cash management accounts have a lot in common with money market accounts, which are also often described as checking-savings hybrids.
The biggest differences: a money market account is more likely to come with core checking features like a debit card and paper checks, and less likely to be directly associated with a brokerage account. Also, money market accounts often (but not always) have lower yields than savings accounts and cash management accounts.
Do You Have to Buy Stocks If You Have a Cash Management Account?
No, you can keep all your money as cash in a cash management account even if the cash management account is directly associated with a brokerage account. If you worry you’ll be tempted to purchase risky securities out of a brokerage-linked cash management account, consider holding your funds in a separate external bank account.
Final Word
Cash management accounts provide a useful mix of savings and checking accounts with the extra perk of huge FDIC insurance limits. If you’re in the market for a CMA, look for the account that offers the level of accessibility you need and the best interest rate possible.
If you don’t need debit card access to your money, you can choose an account with other features that benefit you, like high interest rates or additional FDIC insurance.
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TJ is a Boston-based writer who focuses on credit cards, credit, and bank accounts. When he’s not writing about all things personal finance, he enjoys cooking, esports, soccer, hockey, and games of the video and board varieties.
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Retiring at 40 may sound like a pipe dream. But it’s entirely within reach if you save $1 million while working. The key elements for achieving this feat are sticking to a budget and implementing a comprehensive retirement strategy. But with rising expenses, is $1 million enough? To answer this question, you must identify your expenses, including taxes and monthly debt obligations and compare them to your sources of income. Here’s how investing and budgeting can set you on the path to early retirement.
A financial advisor can also work with you to get a realistic estimate of when you may be prepared to retire.
Can I Retire at 40 With $1 Million?
Retiring a quarter-century before the standard retirement age requires careful planning. However, one rule persists for retirement no matter what age it begins: Your savings must generate enough income to cover your living expenses for the rest of your life.
With this principle in mind, retiring at 40 means you can’t rely on traditional retirement vehicles such as individual retirement accounts (IRAs) or 401(k) accounts.
These accounts are not accessible until you reach the age of 59.5. Therefore, you must research alternative retirement savings instruments to create the income you can use once you stop working.
Smartasset’s retirement calculator helps you assess how your financial situation matches your retirement objectives. You’ll enter information such as your rate of return, Social Security benefit and location to evaluate your ability to retire at 40.
How to Determine How Much You Need to Retire
Retirement always requires evaluating how taxes, expenses and income work together for you. Retiring young means having all your ducks in a row to avoid surprises or financial hardships later on. Here’s how to assess how much you need to retire:
Calculate Your Costs in Retirement
Your expenses are an essential piece of information in a retirement plan. In other words, your cost of living provides the necessary context for how you’ll retire. For example, a yacht club membership can significantly alter your budget.
Likewise, your state of residence impacts how far your dollars go each year. For example, a recent study from the U.S. Department of Commerce shows that in Nevada, a popular retirement state, the overall cost of living is 95.5% of the national average.
As a result, retirees will get a discount on living expenses (plus zero state income taxes!) for living in the state. On the other hand, Hawaii’s costs are 113.2% of the national average, meaning that retirement there will cost more.
Determine Your Income
Your tax rate decides how much income stays in your pocket. Retirees often prefer living in a tax-friendly state like Georgia or Florida because of the absence of state income taxes.
That said, your forms of income will also influence your tax status. For example, rental income from real estate incurs regular income taxes, while selling stocks for a profit incurs capital gains taxes.
In addition, healthcare expenses are a growing cost for retirees. Specifically, HealthView Services data reporting shows that a couple retiring at 65 in good health will spend about $662,00 on healthcare throughout their lives.
As a result, it’s best to plan for several hundred thousand dollars of medical expenses during retirement. Furthermore, retiring at 40 means addressing an additional 25 years of medical costs.
To do so, experts advise designating 15% of your annual income for healthcare costs. However, this amount may be higher if you have a chronic health condition.
And having children at home is expensive, whether you’re retired or not. For instance, The Washington Post states the average annual cost of child-rearing is about $17,000 per child. Therefore, it’s crucial to add this item to your budget for an accurate idea of your finances.
Identify Retirement Income Streams
With expenses accurately laid out, you can turn to your income streams. For retirement to be feasible, the $1 million nest egg must return enough income to cover your expenses. So, if you invest $1 million for a 5% return, your annual income is $50,000.
Remember, stocks are riskier than other assets, such as certificates of deposits (CDs), so diversifying your investments is critical. Otherwise, a stock portfolio that is successful this year might tank the next year, leaving you without income. In addition, you have little margin for error with $1 million; every dollar needs to provide a return.
Next, Social Security is a form of income that you’ll encounter a few decades into retirement. Because you won’t collect Social Security benefits until 62 or older, retiring at 40 means waiting 22 years to receive your first check.
So, while Social Security will be a boon in the second half of your retirement, you’ll have to get yourself there with the income you create independently.
Look at the Numbers
So, let’s look at an example combining costs and income streams. Let’s say you want to retire at 40 with one child in the house. Your life expectancy is 80, so you plan a 40-year retirement. In addition, you’ll retire in Nevada, which has no state income taxes. Here are your annual expenses:
$22,000 for housing
$15,000 for healthcare
$5,000 for utilities and property taxes
$7,000 for food
$6,000 for entertainment, phone and internet
$3,000 for auto upkeep and insurance
Your total annual expenses are $58,000, or $4,833 monthly.
To meet these expenses, you collect income from multiple sources: First, you purchase two rental properties for $500,000 total, which generate $4,000 of monthly income ($48,000 per year).
You also have a $250,000 savings account with a 4% interest rate ($10,000 per year) and a $500,000 brokerage account with an average return of 5% ($25,000 per year). So, your investments provide $83,000 of annual income.
Next, your income and single filing status place you in the 12% tax bracket, leaving you with about $51,040 of your real estate and savings account income after taxes. In addition, you’ll pay 15% for long-term capital gains taxes on your brokerage account.
So, your total monthly income after taxes is $72,290 annually. Fortunately, this figure is about $14,300 above your expenses, leaving a margin for when investments underperform or surprise expenses crop up.
That said, your income and expenses won’t remain static throughout retirement. Instead, inflation will drive up your cost of living each year at an average rate of 3%.
The expenses of $58,000 this year will grow by thousands of dollars after five years because of economic trends. Overall, it’s best to sock away surplus income to prepare for higher expenses in the future.
Remember, you’ll age into Social Security at 62 and receive an income bump at that time. For example, the Social Security Administration’s 2022 Statistical Supplement estimates the average 62-year-old’s monthly check to be $2,364.
Depending on your circumstances, you can decide when you reach 62 whether to start collecting this benefit or delay it for higher future income.
How to Boost Your Retirement Income
The example above demonstrates a path for retirement at 40 with $1 million. However, you must adhere to a tight budget to do so. On the other hand, you can give yourself more financial flexibility by increasing your income with these tactics:
Delay Social Security Benefits
Social Security isn’t automatic. Instead, you apply for it when you want to start collecting it. As a result, you can choose any age starting at 62 to begin collecting this benefit.
Increase Your Interest Rate
The interest rates of savings accounts and certificates of deposit (CDs) are constantly shifting to attract customers. For example, the typical high-yield savings account has an interest rate of between 0.5% to 4.15%.
So, moving money out of a conventional savings or checking account can provide more annual income. Plus, your deposits have FDIC insurance up to $250,000, meaning they have shelter from market downturns.
Understand Your Income Tax Implications
Your tax situation is unique to you, and failing to grasp the details can incur additional fees. For instance, say you want to sell some stock through your brokerage account after holding it for 364 days.
Doing so will incur short-term capital gains taxes, which are identical to regular income taxes. On the other hand, waiting a few days will put you in the long-term capital gains timeframe, increasing your taxes by 3%. So, staying on top of these transactions can help lower your tax burden.
How to Make Your Savings Go Further in Retirement
Likewise, you can maximize your savings potential to make early retirement easier. Here’s how to make your savings work for you:
Use a Budget
Although the word ‘budget’ might make your stomach churn, it’s one of your most powerful financial tools. Budgeting helps you gain control of your finances by providing a clear overview of your income and expenses.
Budgeting lets you track where your money is coming from and where it is going, enabling you to make informed decisions about your spending and saving habits.
Additionally, a budget also helps you set financial goals and work towards them. In this case, it’s your roadmap to retiring at 40. So, you can allocate resources wisely and prioritize what matters most.
Choose Low-Fee Investments
Management fees can be the death of otherwise successful portfolios. This characteristic applies to brokerage accounts, which can invest in mutual funds, exchange-traded funds, real estate investment trusts (REITs) and other funds that can have exorbitant administrative fees.
Evaluating an account’s fee structure before investing money is crucial to keeping more of your money.
Care for Your Health
Healthcare is paramount for retirement planning. It’s undeniable that every retiree will require healthcare services at some point in their journey. However, by taking proactive measures, you can determine the timing and way you receive such care.
In particular, regular check-ups and engaging in physical exercise serve as preventive measures that can substantially diminish the frequency of hospital visits, fostering physical well-being and financial stability.
Work Part-Time
Additionally, embracing part-time employment can bolster your finances upon early retirement. Pursuing this option can augment your income and counteract rising inflation. Moreover, this approach possesses the added advantage of enabling a prolonged deferral of Social Security, which ultimately translates into higher benefits later on.
Pay Off Debt
Lastly, it’s critical to recognize the dangerous grip that debt can exert upon your financial liberty. For instance, the burdensome nature of credit card balances and personal loans comes from their exponential interest rates. This predicament imposes sizable obstacles on the path toward retiring at 40.
Remember, the gains from investments seldom surpass the annual percentage yield (APY) that debts impose. Therefore, prioritizing the repayment of high-interest debts promotes financial health, whether during the prime of your career or your golden years.
Bottom Line
Retiring at 40 with $1 million requires a strategic investment approach. Specifically, you must create a well-thought-out plan that includes various types of assets, such as brokerage accounts, savings accounts and real estate.
In addition, calculating your expenses meticulously and ensuring that your income covers them effectively is crucial. In this scenario, $1 million must last for several decades until you become eligible for Social Security. So, thinking creatively about generating income during that time is essential.
Tips for Retiring at 40 with $1 Million
Investing $1 million for retirement means maximizing the return of every dollar during your career. Working for two decades or less means you can’t afford a mistake when investing. Fortunately, a financial advisor can help you find assets with low fees and substantial returns. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Ideally, retiring at 40 means starting off your golden years while you’re relatively young and healthy. However, your future health is unknown, especially after you become a senior citizen. So, you can prepare for this possibility by budgeting for the cost of independent living.
Ashley Kilroy
Ashley Chorpenning is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.
Cost of carry refers to any and all ongoing costs that you need to pay in conjunction with holding a given investment. Transaction costs, which are incurred upon the purchase or sale of the asset, are typically not considered a carrying cost.
Cost of carry can come in a variety of different forms — here are a few types of carrying costs that you’ll want to be aware of:
• Storage costs, if you are investing in the futures market for physical goods
• Interest paid on loans used for an investment
• Interest in margin accounts when borrowing to invest in stocks or options
• Costs to insure or transport physical goods
• The opportunity cost of investments
Most if not all investments have carrying costs, and savvy investors will take them into account when deciding whether an investment is worth it. Even if a particular investment doesn’t have obvious carrying costs, there is always the opportunity cost of making one investment over the other.
How Cost of Carry Works
The way that cost of carry works depends on the type of investment that you are considering. If you are investing in the futures markets for tangible goods like coffee, oil, gold, or wheat, you may have carrying costs associated with these physical goods. For example, if you buy a commodity like crude oil, you must pay the costs for transporting, insuring and storing that oil until you sell it.
To accurately calculate your trading profits you must include those carrying costs.
In a purely financial transaction like buying stock or trading options, there can still be carrying costs involved. You may have to pay interest if you are borrowing money with a margin account. You may also incur what are called opportunity costs. Opportunity costs refer to the money you could have made if you had invested your money in other areas.
If you are holding $10,000 in your stock account waiting for an option assignment, you can’t use that $10,000 for other investments.
Which Markets Are Impacted by Cost of Carry?
Cost of carry is a factor in a variety of different types of investments. Options trading has carrying costs from interest costs if you trade in a margin account to holding costs.
Investing in commodities may require a cost of storing, insuring, or transporting your goods. You should be aware that most types of investments also have opportunity costs.
Cost-of-Carry Calculation
The simplest cost-of-carry calculation just includes all of your carrying costs as a factor when you analyze the profitability of a particular investment. So, if
• P = Purchase price of an investment
• S = Sale price of the same investment
• C = carrying costs while holding the investment
The profit of this investment could be expressed as Profit = S – P – C.
Futures Cost of Carry
The futures market has two different prices for each type of commodity. The spot price refers to the price for immediate delivery (i.e. on the spot). A futures price is the price for goods at some specified time in the future. Because most futures contracts of commodities come with non-zero carrying costs, the futures price is usually (but not always) higher than the spot price.
Options Cost of Carry
When trading options the costs of carry fall into a few categories:
• Interest costs – Some investors borrow money to purchase options, i.e. a loan from a friend, a bank loan, or a brokerage margin account.
Whatever the source of the money, the interest paid to service the borrowing is a carrying cost.
• Opportunity costs – You’ve chosen to invest in options. But where else could you have invested that money? Because most alternative investments carry risk, as does investing in options, it’s difficult to make an apples-to-apples comparison.
In finance, we look at risk-free investing rates to assess the opportunity cost. “Risk-free” is defined as the return available by investing in U.S. Treasuries. In the past, 30-year bonds were the standard, but 10-year returns and even the return on short-term Treasury notes may also be used.
• Forgoing Dividends – One of the disadvantages of owning options compared to owning stock, is that you are not eligible for dividends as an option holder. The market makes an effort to price dividends into the option premium, but just as interest rates can fluctuate, so can dividend rates.
Examples of Cost of Carry
Here is a simple example of cost of carry and how it might affect an investment in purchasing Brent Crude Oil.
Say you buy a contract for 1,000 barrels of Brent Crude at $80/barrel. Six months later, the price of oil has gone up to $90/barrel, and you sell. You might think that you have earned a $10,000 profit, but that is not accounting for the cost of carrying the oil.
If it cost you $3,000 to store and insure those barrels of oil for the six months that you owned them, those carrying costs must be subtracted from your profit. You also are liable for delivering the oil, which might cost another $1,000. Considering the cost to carry, your actual profit was only $6,000. While these costs are easiest to understand with physical goods like commodities, most types of investments have carrying costs.
Cash and Carry Arbitrage
Like crypto arbitrage, there sometimes exists a type of arbitrage called cash-and-carry arbitrage. In cash-and-carry arbitrage, an investor will purchase a position in a stock or commodity and simultaneously sell a futures contract for the same stock or commodity.
If the futures price is higher than the combined amount of the stock price plus carrying costs, you can secure a relatively risk-free profit via cash and carry arbitrage.
Cost of Carry and Net Return
As we’ve discussed already, the cost of carry can have an impact on the net return of any investment. When determining your total profit and the return on investment (ROI), you need to account for any and all costs that you incur as part of the investment.
These might include transaction costs like commissions as well as carrying costs. Subtract all such costs from your gross profit to calculate the net return of your investment.
Can You Do Anything About Cost of Carry?
Since the cost of carry directly and negatively affects your total profit, you may be wondering if you can do anything about it. While there are carrying costs with almost every type of investment, one way to minimize the cost of carry is to avoid investments that have significant carrying costs.
On the other hand, if your specific situation allows you to have below market carrying costs, you may be able to earn a profit with cash and carry arbitrage.
The Takeaway
The cost of carry is a term used in options and futures trading that refers to the ongoing costs incurred in an investment while you are holding it.
With physical commodities, the cost of carry refers to storage, insurance, delivery and other costs specific to the fulfillment of your contract.
When applied to options trading the carrying costs are financial in nature, such as, interest costs, opportunity costs, and forgoing dividends.
If you’re ready to try your hand at options trading, you can set up an Active Invest brokerage account and trade trade options from the SoFi mobile app or through the web platform.
And if you have any questions, SoFi offers educational resources about options to learn more. SoFi doesn’t charge commissions, and members have access to complimentary financial advice from a professional.
With SoFi, user-friendly options trading is finally here.
FAQ
How can you calculate cost of carry?
The cost of carry refers to any costs that you incur during the course of your investment. In commodities trading, this generally refers to costs like storage, insurance, or delivery of the commodity. In other types of investments, the cost of carry could include interest charges or the opportunity cost of using your money.
Do bonds have a cost of carry?
Yes, nearly all investments, including bonds, have some sort of cost of carry. In the bond market, the cost of carry generally refers to the difference between the face value of the bond plus premiums minus applicable discounts.
How are ordering and carrying costs different?
Ordering costs are the costs that you pay as part of the ordering process. In a stock or option transaction, any broker’s commissions that you pay would be considered ordering costs. While ordering costs are usually incurred only once (at buy and/or sale), carrying costs are the costs that you must pay to hold an investment throughout its duration.
Photo credit: iStock/fizkes
SoFi Invest® The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results. Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below. 1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
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3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes. SOIN0322025