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Online investing… do you know what it is? I feel your pain! Getting started with investing can seem like an insurmountable task. Especially for 20-year-olds that have far better things to be doing. Regardless of your age, getting started with online investing is crucial for your future.
Feeling overwhelmed and don’t know where to start? Have no fear, I’ve been there! I’ve been in your spot where I have tried to search for easy to understand resources about beginner investing and my research was a flop.
It’s difficult to know where to start and what companies to trust. That’s exactly why I created this detailed list containing three of our favorite trading platforms and how they work Swell, Betterment, and Vanguard.
This article is part of our larger series on, The Complete Guide to Early Retirement
What Is An Online Trading Platform?
You may be wondering what is a trading platform anyway? An online trading platform is a software program that gives anyone who has computer access the ability to invest in the market. This can be in the form of a
- Open and manage an account through power trading platforms
- Choose which funds to invest in
- Buy Funds
- Monitor funds performance
- Sell Funds
There is no single best online investing platform because everyone’s situation is a bit different and each investing platform offers different fees and charges based on the size of your portfolio and your investment strategy.
What is a Robo-advisor?
A robo-advisor is a good choice for those that prefer a hands-off approach to investing. I prefer them over a human managing my investment for several reasons.
- A human managing your account can be a real gamble. You just don’t know if they give a crap. Sure they all sound great on the phone but are they really putting in the hours to maximize your investment. Some are great, others are not. Robo-advisors take that human variability out of the picture. I’m not saying the robots are better but at least less variable.
- Robo-advisors cost significantly less. Computers can process a lot of data in the fraction of time it takes a person to. A lot of the data a person would analyze is exactly what a robo-advisor looks at but in a split second.
- Automatic portfolio rebalancing. A smart practice where your original stock/bond ratio is maintained automatically.
- Tax-loss harvesting, an effective tax management strategy.
- These tactics take time and because they can be done automatically through a robo-advisor you win with better results.
A Robo-advisor is a trading platform, that offers an online service that is specifically designed to automate and manage your investment portfolio. They’re online services that use computer algorithms with a definable set of rules that make appropriate investment decisions based on your specific needs. With the recent proliferation of robo-advisors, it’s almost ‘old school’ to have a human manage your investment.
Robo-Advisor Vs Traditional Personal Advisor Investing
Robo-Advisors are quickly growing in popularity. They are appealing mainly to new and younger investors. If you are a person who is ok with not having much direct contact with your personal financial advisor a Robo-Advisor may be just what you are looking for.
Robo Advisor Vs Online Brokerage
Robo-Advisors are a trading platform that manages your investment portfolio for you. They act like an advisor picking investments for your portfolio based on set computer algorithms. Online brokerages are the opposite where they highlight investor autonomy- the investor is in charge of picking their portfolio assets (stocks, bonds,
Robo-advisors are not for people with complex investments or those that prefer to have a lot of control. Learning how to invest in stocks on your own can be really rewarding and fun. I encourage people to do both and find what works best for you.
How Do Robo-Advisors compare to online investment brokerages?
The most obvious difference between a robo-advisor and an online trading platform such as Vanguard is that Robo advisors offer you an automated investement plan.
Below are our 3 favorite trading platforms. Swell and Betterment offer
Swell Investing aspires to give enhanced investment options to people who care about where their money goes.
At Swell, we practice Impact Investing. We invest your money in companies solving the world’s biggest problems-Swell Investing
How Swell chooses companies
Thousands of companies are evaluated and diversified and solution-focused portfolios are created. Below summarizes their philosophy of company selection.
- Top Down – Big problems equal big opportunities – identifying these problems and the firms addressing these high impact themes can make for strong investments.
- Assess impact – Companies included derive revenue from environmental or social impact as a part of their business.
- Bottom Up – Each companies financial health, valuation, and liquidity are analyzed. Combining this data, each company is assessed as an individual, and as a constituent, in each portfolio.
In addition, every company Swell chooses must have revenues in alignment with at least 1 of the 17 United Nations Sustainable Development Goals. These goals are designed to help governments and stakeholders from around the globe tackle climate change, poverty, and inequalities.
- Green Tech
- Clean Water
- Zero Waste
- Renewable Energy
- Disease Eradication
- Healthy Living
Here are some portfolio details as well as results from Swell.
Swell has a 0.75% annual fee and a $50 minimum account value. This makes for a great starter investment account if you don’t have a lot of money to throw at it.
A $500 investment will run you about $3.75 per year. While this fee is a touch more expensive than other options we just can’t get over how cool of a company Swell is. It just feels good putting your money towards making this world a better place. A great user interface that works well even on mobile devices. Even just putting a portion of your money in Swell will leave you feeling good about your investment.
Betterment is a clear leader in the robo-advisor race with over 300,000 clients and $11 billion in assets under management. It also has low minimum account balances and has one of the lowest annual fees. Truly a great option. Their new account setup is intuitive and easy. Through a series of questions Betterment will build you a portfolio based on your timeline and needs.
You are allowed to fine tune your stocks vs bonds allocation but any further specifics, for the most part, you are not in control of. This is a perfect option for those just starting out and who are new to investing. A mix of 30% Swell and 70% Betterment would be a great place to start.
All of these options I have listed thus far are more of the “set and forget” method of investing. If you want to have complete control over individual stocks/bonds then there are other options. And to be honest I would look elsewhere as that is not our expertise. While we do a little portfolio management ourselves the bulk of our investments are professionally managed.
Without a doubt one of the most powerful and popular investment trading platforms available. For those that want complete control or the set and forget types, Vanguard has something for everyone. While Vanguard has the most options as well as competitive rates, its minimums can be rather high if you are just starting out. There are, however, some great ways to get started with Vanguard without the worry of high minimums.Beginner investing HOW TOClick To Tweet
ETFs are exchange-traded funds. They are a collection of stock and bonds in a single fund. They may be made up of tens, hundreds, or even thousands of different stocks or bonds.
When compared to stocks and bonds, ETFs are less risky and typically more stable because of their large diversification.
ETFs, when compared to mutual funds, have lower investment minimums and costs, making them a better beginner option.
ETFs are a great place to start and once your account balance grows you can then branch into other areas of investment.
Vanguard would be my first choice for IRAs or 401(k)s. I would then look at Vanguard ETF’s or Betterment/Swell for the remainder of your investment.
Investing is complicated and this is by no means giving you everything you need to know. Again educate yourself. But with these options, you can get your investment started right now and feel good about your choice. As your portfolio develops and your education increase you can always take more control and practice different investment strategies.
I wish someone had told me to do this in my 20’s. Even just $50 bucks a month towards one of these would have taken years off my retirement.
Jump-start your early retirement, financial independence, FIRE…whatever you wanna call it, Life-Changing Steps to Retire Early | Without a Lot of Money
Another slick way to sneak money away for investing is the Acorns app. It rounds up your purchases and puts them toward an investment plan of your choice. They even offer IRAs now as well. You can read my full review of the Acorns app here. While I do use this app and enjoy it, I don’t think it should be your primary retirement source. It does make saving seem effortless and fun.
- Roth and Traditional IRAs and the early retirement trick
- Health Savings account (HSA) and why they may be the ultimate early retirement account
- Our complete guide to early retirement
Do you have a favorite trading platform that you would like to recommend? Are you a beginner investor who has found a great online broker that you think others would find beneficial? Please leave us a comment below.