海角大神

New investors need at least two things: money and confidence. But many beginners, especially younger people, lack both.

What they do have are聽investing apps, carefully designed to plug those holes by removing minimum investment requirements and adding a little encouragement. One company, Acorns, will literally invest your small change.

These apps bring what has historically been a rich person鈥檚 game to the masses 鈥� fund companies, brokerages and financial advisory firms have long locked out small-dollar investors. The problem: Many people may not be ready to invest, and if they are, an investing app alone isn鈥檛 the best place to do it.

Ignoring the financial big picture

Advisors frequently compare financial planning to building a house: First, you lay the foundation 鈥� an emergency fund, insurance coverage and a balance sheet free of high-interest debt. An app can upend that, says financial technology expert聽Bill Winterberg.

鈥淔or these apps, the answer to the question of 鈥榳hat should I do with my money,鈥� 100% of the time, is that you should invest. An advisor, on the other hand, says, 鈥楽hould you pay down debt? Do you need more insurance coverage? Do you have enough money in an emergency fund?鈥欌�� Winterberg says. 鈥淭hose might be really good ways to use extra money.鈥�

Acorns, which rounds up dollar amounts from users鈥� everyday purchases and invests that change in a managed portfolio, says its technology reframes this issue. By focusing on extra pennies, investing 鈥渃an happen alongside traditional financial building blocks,鈥� says Heather Gordon, the app鈥檚 brand manager.

The scenario Gordon describes is the best way to use these apps; investing rounded-up change or another small amount is innocuous and even helpful as an educational exercise. But Acorns says over half of its users make recurring investments beyond the rounded-up amounts. Other apps, like聽Robinhood, which offers free stock trading, and Stash, which serves educational content to help users build a portfolio of exchange-traded funds, accept only traditional lump deposits.

Erica Bentley, content manager for聽Stash, says the service isn鈥檛 trying to answer all financial needs. 鈥淚t would be great if [users] started with paying off debt, or having an emergency savings account built up, but for a lot of people Stash is the first entrance into thinking about saving, and with our content, they learn they should also be considering an emergency savings account.鈥� The question is whether a service like Stash is well-suited to being that first entrance.

Shortchanging retirement accounts

Much as in financial planning, there鈥檚 a widely recommended order for how to invest your dollars: Tax-advantaged options, like 401(k)s and individual retirement accounts, come first.

The paradox is that as investing apps target young, beginner investors, many offer only taxable brokerage accounts, directing dollars away from the tax-free or tax-deferred growth of traditional and聽Roth IRAs.

鈥淚f they鈥檙e directing these investors to a traditional brokerage account, it doesn鈥檛 have those tax advantages, and over time, that could compound to tens of thousands of dollars 鈥� potentially hundreds of thousands of dollars if we have a bull market,鈥� says Winterberg.

Acorns and Stash both plan on adding retirement accounts in the next year.

Understanding the risks

Apps typically use a questionnaire to identify an investor鈥檚 goals, time horizon and appetite for risk. But 鈥渆ven the process of asking people about their risk tolerance doesn鈥檛 have much follow-up to verify that the person 鈥� who may be new to investing 鈥� really understood the questions, and the risks involved,鈥� says聽Michael Kitces, director of wealth management at Pinnacle Advisory Group.

Robinhood adds additional risk with 鈥淩obinhood Gold,鈥� a fun name for margin trading, or the ability to buy stocks on borrowed money. Robinhood says the service, which charges a flat fee, is reserved for 鈥渆xperienced investors鈥� 鈥斅爁ederal regulations聽require a $2,000 account minimum 鈥� but the app is bare-bones and provides little education about the risks besides a disclosure and an FAQ. In this kind of trading you can lose more than you鈥檝e deposited.

Margin trading is offered by many brokers, who frequently charge interest rather than Robinhood鈥檚 more user-friendly fee. Robinhood says its app is used by many investors as an 鈥渆ducational experience鈥� 鈥� but engaging in margin trading could quickly make it a costly one.

Fees drag down small portfolios

Finally, there are the fees. Robinhood offers free trading if users avoid the aforementioned margin activity, and Acorns is free for college students. Otherwise, Acorns and Stash have the same fee structure: $1 a month for accounts under $5,000, and 0.25% per year for accounts of $5,000 or more.

Neither service communicates that flat fee to users as a percentage of assets 鈥� which is how most investments are priced 鈥� but when sliced that way, $1 a month is 2.4% a year on $500, much more than a financial advisor would charge.

The argument from these apps is that most financial advisors and even online brokers won鈥檛 handle an investment as small as $500. Even if a broker has no deposit requirement, mutual fund minimums are rarely under $1,000. And that may be by design.

鈥淧eople who don鈥檛 have $1,000 to invest are people who don鈥檛 have $1,000 to invest, and there鈥檚 a reason for that,鈥� says Winterberg. 鈥淭hey may be spending more than they earn, or they may have credit card debt. Perhaps investing isn鈥檛 the right choice for them right now.鈥�

Arielle O鈥橲hea is a staff writer at NerdWallet, a personal finance website. Email:聽aoshea@nerdwallet.com. Twitter:聽@arioshea.

This article was written by NerdWallet and was originally published by USA Today.