I was budgeting like everyone told me to and packing my money away into a savings account. My savings grew really fast. Once I had cracked the code of being financially responsible it was easy. I went to work every day and after two years of working and saving smartly I had a nice war chest built up. It wasn’t like I was rich or anything but it was a lot of money for me at the time. I wanted to make my money earn more money so my savings could multiply. I wanted to learn how to invest like an expert!
I read everything I could get my hands on about investing. I bought the book Warren Buffet used to base his life investment strategy off of (The Intelligent Investor) and it became my mantra. The problem was I didn’t have enough time to be competitive with all of the other stock traders. I needed to do a ton of research, keep my finger on the pulse of the macro economy and have the time to crunch a ton of numbers until I found a security I liked. I had a full time job, a social life and a budding romantic life. There had to be a better way.
After a lot of research, I’ve landed on two tools specifically that I like for equities. Betterment (which I’ve already mentioned here and here) and eToro. You may be looking for a more hands on approach (which I’m still working on writing up), however you may find them helpful in your quest to have your savings earn money for you. Let me explain how I’ve used these tools to grow my war chest.
Betterment – The Money Market Account of the FutureThe beauty of a savings account is that you earn more interest with it than you do with your checking account and you still have instant access to your money when you need it. This is the core idea behind Betterment and that’s why I like it so much. These days the best you’re going to get with a savings account is sub 1% interest which I find pathetic and insulting. I don’t know about you but my money is worth more; I sweat for it daily.
Enter Betterment, a glorified savings account where magic happens behind the scenes to get you a respectable return on your investment (otherwise known as your savings). You have these wiz investors who take your money and put it into things that they think will make them good returns (for free). Your risk levels are their guidelines. Interestingly, this is EXACTLY what banks do with your money only they are so bold as to take 99.9% of the profit and give you next to nothing. It’s time to take back your gains and Betterment is the best attempt I’ve seen to do just that (and I’ve tried a LOT).
You have a risk slider (picture on the right) which you basically adjust according to how risky you feel. You can move this slider as much as you want every day and the change is immediate. I don’t think you need to go that crazy, but you definitely can if you want.
Sure you can make more money investing it yourself in penny stocks but really, how reckless can you be with your hard earned cash? With Betterment, your money is SIPC insured so should some wacky stuff happen, your money is guaranteed by the federal government. Haven’t heard of SIPC? It’s basically FDIC insurance only it’s twice as good because you are covered up to $500,000 instead of $250,000.
eToro – Track and Mirror the Investments of ProfessionalsUnlike Betterment, with eToro you have to get your hands dirty. Just not too dirty ;)
Betterment and eToro live in the land of investing account hybrids where eToro is the one that is closer to an actual investment account. With eToro you can’t just withdraw your money, you will need to choose which equities you would like to sell when you want to withdraw cash.
The idea behind eToro is that you aren’t the all knowing all seeing Oracle of Omaha. Since you know this you also know that there are people out there who will invest better than you. That’s fine because with eToro you get visibility into what trades other people are making. It’s kinda like social network meets brokerage account.
You get to search people, sort them and drill down into every investment decision they’ve made since they joined eToro. If you like what you see, you can mirror their actions. This way, when they invest in Apple at a low market point and sell at a high, you see the same gains they do. You will also see the same losses they do so you’ve got to be careful. There are a lot of very successful people on the site and you can tell by the amount of money they are investing that they are pretty serious about doing well so I don’t think you need to worry about people throwing their investments away.
That said, diversity is the name of the game. With that in mind, eToro lets you mirror as many people as you would like. You can choose to follow me with 20% of your holdings, your investment banker brother-in-law with 15% of your earnings and so on so that no one person can be responsible for what happens to your hard earned savings.
Is this option riskier than Betterment? Yes. Is it fool proof? No. You need to be vigilant and keep an eye on your money. The benefit here is you get to experience potentially higher returns than Betterment with knowledge that the people who you are mirroring your investments on are much more experienced than you, likely better informed and usually risking more money than you are. It’s also important to note that eToro requires you deposit a minimum of $500 into your account so you can’t play with next to nothing like you can with Betterment.
Invest like an Expert Without Being OneThe important takeaway here is that just because you haven’t dedicated your life to following the stock market, you can still earn more than “nothing percent” on your hard earned savings. Honestly, you would be crazy not to try and earn on your savings.
The picture on the right is an example of what you would be turning down if you chose to stay with your no-growth savings account. As per Betterments analysis a $10,000 deposit now is extremely likely to be worth $200,000 in 30 years. It’s even more likely that it will be worth more than that as opposed to less.
Every day you wait is another day of lost growth. If you’re not ready or interested in investing directly in the market by yourself, these two products let you stay simple and still earn impressive gains. I encourage you to do something with your money instead of leaving it idle. I hope that if direct investing is not your thing you at least consider letting other people provide you with gains for free.
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