Welcome to the first edition of our new series of articles: ‘Sites That Change Your Life.’
Of course, because we’re us, these are going to be sites that function as the Ubers and Airbnb’s of the finance world. Apps, sites, and services that help you save more, earn more, and get on track to have a successful financial life. These are the kinds of programs that love to mention in ads that they are ‘disrupting multi-billion dollar industries.’ And they are, for our benefit!
So, let’s go. Our Stash investing review.
Don’t have much time? Scroll to the bottom for the bullet points.
What is it? An app that allows you to start investing with just $5. Investors that use Stash are meant to be everyday folks: school teachers, musicians, even students. Stash allows users to build their own portfolios, meaning they choose the funds or sectors in which they wish to invest. Those categories include ‘American Innovators,’ ‘Clean and Green,’ and ‘Small and Mighty.’
What does it cost? Stash charges $1/month. That’s it. Accounts of more than $5,000 are charged 0.25%/year. That’s $12.50 a year for a $5,000 portfolio.
It’s pretty simple to understand. The people behind Stash are driven by frustration with daunting, expensive, complicated investment options. They created Stash as a tool that allows people to learn the basics quickly and begin investing with less money than many firms require. That’s pretty in-line with the origin story behind the website you’re reading right now!
A little more detail, please.
Once you’ve downloaded the app (screenshots below), you select conservative, moderate, or aggressive style investing (risk tolerance). The app also asks for your age, income, and time horizon. Once it knows all of that, it displays investment options that are appropriate for your situation. As they say on their site, ‘Stash only shows you investments that would make sense for your financial situation, so that you can make smarter investment decisions.’
Some are pretty straightforward, funds that have been given new, more attractive (and descriptive) names. Some are no more than a simple index fund. Others are more typical, active funds that focus on a single type of company or sector of the economy. Ultimately, you’re just investing in mutual funds, which are baskets of hundreds of individual stocks. You explore a maximum of just over thirty funds, which you can ‘bookmark’ and add to your portfolio.
What We Like About It
Stash is a smart, modern, easy-to-use, inexpensive, accessible app. Plenty of adjectives, plenty of strengths. Someone can start investing with just $5. That’s a big deal. In a society in which we learn little or nothing about money in school, an app that makes smart, long-term investing accessible is a great one. The sign-up process is smooth and the interface is great.
Stash publishes articles in the ‘Learn’ section of its site (sound familiar?) that are dedicated to relating stories of and strategies for smart financial lives. They encourage passive, long-term investing through regular investments in a diversified portfolio. It’s solid, lifelong advice. On the eve of the 2016 presidential election, the CEO of Stash sent out a letter to all ‘Stashers.’ An admirable decision- and he gave great advice. You can read the letter here.
What’s Not Perfect
Something worrisome here may actually be one of Stash’s more desirable features- the $5 minimum. As we’ve written here on the site and as many financial advisors across the spectrum believe, investment is for the long-term. So, if an individual only has $5 to spare, should she be investing? Meaning, that money shouldn’t be needed anytime soon. Wealthfront maintains a $100 minimum deposit, and that seem reasonable: not only does it cut costs, but, on a more philosophical level, it keeps investors out until they have a sufficient amount of extra cash.
Stash accounts are also taxable accounts. No Roth IRA, no Traditional IRA. No automated tax-loss harvesting. Real, taxable gains are to be had here in traditional brokerage accounts. That’s dangerous. Total fees can approach 1%/year, and taxes take far more than that off of your earnings, between 0% and 40%, depending on your situation. As NerdWallet puts it, ‘once you’ve gotten your feet wet… it may be worth shedding the training wheels to avoid paying the app’s pricey ongoing subscription fee.’
Its annual fee is not inclusive of the expense ratios of the underlying funds, which can often be overpriced. Remember, too, that Stash has no website for its users to check their accounts- only an app.
Stash offers choice and a lot of individuality. They’ve got a set of funds with cool, hip names, such as ‘Clean and Green,’ ‘Data Defenders,’ and ‘Robots Rising.’ That being said, we tend to bristle a little when it seems that finance is being taken too lightly or referenced too flippantly. Let’s take a case study here: a fund called ‘Equality Works.’
A Case Study
When you log into your Stash app (using touch ID), you are prompted to ‘discover investments.’ Under a tab called ‘I Believe,’ you see a set of funds in which you can invest based on your beliefs. You could also invest under the tab ‘I Want’ and see things that are somewhat more typical, such as ‘Park my Cash’ and ‘Moderate Mix.’ The final tab of the three is called ‘I Like’ and it prompts you to ‘back a few of your favorite things- invest in your interests.’
Under ‘I Believe,’ you find a fund called ‘Equality Works.’ The description: ‘These companies support their LGBT employees with equal rights, inclusive policies, and respect.’ That’s great, right? (At WLI, we’re far more interested in your financial life than your sex life.) But for all its admirable qualities, is ‘Equality Works‘ really a good option for you? The fund includes Marriott, Time Warner, American Airlines, and Avon, among many others. Fairly standard companies who do the right thing in one area.
The fund itself is not called Equality Works but rather ‘Workplace Equality Portfolio (EQLT).’ Its expense ratio is 0.75%- in our opinion, that’s way too high. If you want to help out the LGBT community, start by acting like a decent human being day-to-day and then turn to non-profits that need your support. But this is your financial life here- your security, your future, your freedom. This is not the place to throw away 0.75%/year on returns that will likely leave you worse off than if you’d followed our advice.
You may say, ‘I want my investments to mean something, I want to support decent companies and I don’t want to give money to oil companies or anything affiliated with Donald Trump.’ We don’t disagree with the sentiment but direct your efforts where they’ll count. If American Airlines is solid on LGBT rights, fly with them. If Marriott is, stay at their hotels. More of your money will go to them if you do. If you buy a $100 flight or hotel room, you give $100 to that company. If you invest $100 in this fund, Marriott would get just $0.77.
Furthermore, these companies do not need your money. The total market value of all of Marriott’s outstanding shares is almost $30B. Even if you invested your entire Stash balance of, say, $10,000 into this one fund, Marriott would get about $77 from you, disregarding all fees. That’s nothing. And your balance is less than $10K and you’ve invested in far more than one little group of stocks. You’d make up a measly 0.000000256% of all money invested in Marriott. You’d neither help a good company nor hurt a malicious one.
To bring this whole thing back to the subject of Stash, choice is not always best. While you may feel warm and fuzzy knowing you’ve invested in a socially responsible way, you will be worse off in the long-run. The best long-term investment strategy is not an active one but rather one in which you hold a diverse set of cheap index funds for a long time. Offering excessive options to users who are likely not completely educated about investing opens the door to poor financial decisions.
The Bullet Points
- Start investing with just $5
- Pay only $1/month in fees to Stash, or 0.25%/year for accounts worth more than $5,000. There are no annual, inactivity or outgoing transfer fees, nor commissions.
- Invest in things you like or care about- pro-LGBT companies, startups, treasury bonds, Warren Buffett’s company, and plenty else.
- Enjoy a fast, clean app that’s easy to use and links seamlessly to your touch ID and bank account.
- The first three months are free.
- Choice can be dangerous. While you may feel that you’re investing with your heart, remember that you’re really investing with your wallet. Socially responsible or ‘that-seems-interesting’ style investing isn’t usually what’s best for your money, your security, or your future.
- If you’re investing just $5 at a time, you may not have enough money to responsibly weather the volatility inherent in the stock market.
- The underlying funds in which you’ll be investing can carry unreasonably high fees, bringing your total to almost 1%/year. That’s inexcusable, and most easily avoided by going to Vanguard, Wealthfront, or Betterment.
- In Stash’s defense, they are very transparent about fees: expense ratios are prominently displayed.
Above: the initial download/signup screens.
Stash wants to know some pretty basic stuff. Answer honestly, and consider doing some research before choosing an ‘investment style.’
Not shown above: choose your bank from a long list, log in to your account through an integrated window, and that’s it. Very smooth!
(1/3) Stash has a very nice future-designer. Take care when selecting ‘growth potential’. (2/3) Utilize Stash’s ‘learn’ section to know more about what you’re doing. (3/3) Well-named funds with short, snappy blurbs are displayed under three tabs: I Believe, Want, Like.
Adding money is a simple as clicking the big yellow ‘+.’ Deposit one-time or make a recurring deposit. Choose a fund, and you’re good to go.
What do you think? Let us know in the comments.