Make Investing Simple Whether you’re putting away your first $1,000 or have been saving for the future for years, you’re going to want to consider investing your funds at some point. Doing so will allow you to maximize returns and exponentially grow your savings. Unfortunately, the investment process can be pretty intimidating, especially if you are starting out on your own. It’s hard to know how to begin, where to invest, how to balance your portfolio and even what sort of fees you should expect to pay along the way. That’s where the convenience and ease of today’s best investment apps can come into play. What Are Investment Apps? Once upon a time, your only choice for investing was to pick up the phone and call your stock broker to initiate a trade. You were charged for the service, either based on commission or as a flat fee per transaction. While stock brokers are still an option, you can take investing into your own hands these days, without ever needing to talk to another human. And it’s all thanks to investment apps and platforms. Today’s apps offer a range of services and features. With them, users can: Research funds and individual stocks View fees and expenses related to investment choices Invest funds on-the-go, and even automate regular contributions Automatically reinvest earnings on current investments Adjust portfolio for personal risk tolerance View performance projections Choose funds or individual stocks that align with personal beliefs, through portfolios based on socially-responsible missions The best part? Investing through trusted apps is usually cheaper, faster and you’ll have instant access to your portfolio/reports at any time of day. Not only that, but you’ll also be able to set your investment risk tolerance, rebalance your portfolio and even reinvest earnings automatically. Who Are Investment Apps Designed For? Whether you’ve been playing the market for ages or are ready to invest your first $100, the right investment app is worth considering. For those new to the stock market, apps will simplify the process and put the power of investing at your fingertips… literally. From your phone or computer, you can easily see portfolio recommendations based on your own goals, savings plans and even risk tolerances. The right app will tell you up front how much you can expect to spend in fees throughout the year, and can even allow you to automate many of the more confusing aspects, such as picking well-performing stocks or even rebalancing. While investment apps are ideal for beginners, newbies aren’t the only ones who will see the benefits. Even seasoned investors will find the process easy to use, and may even learn that these platforms can maximize returns (and save them money in fees) along the way. Not to mention, many investment apps offer additional insight into specific funds, so you can choose to invest in companies that align with your own passions and beliefs. Now that you know why you should consider using an investment app for your own savings, let’s take a look at some of the best ones available today. Best Investment Apps Great for Beginners: Acorns Fees and Expenses: For investors with less than $1 million invested, fees are between $1-3 per month depending on the account option you choose. Acorns is also free for college students. Beginning Investment Requirement: At least $5 to start Types of Investments Available: ETFs (exchange-traded funds) Portfolio Options: Conservative, Moderately Conservative, Moderate, Moderately Aggressive, Aggressive Automatic Investing?: Yes Automatic Reinvesting?: Yes Automatic Rebalancing?: Yes If you want an easy, hands-off approach to investing that won’t leave your head spinning, Acorns is a great first choice. This app not only simplifies investing for beginners, but allows investors to completely automate the process from start to finish. After connecting the app to your debit card, the app will “round up” each of your daily purchases, putting the savings into an investment holding account. Once you reach the minimum required, Acorns will invest this money on your behalf, based on your account preferences. The app will also reinvest your earnings, as well as rebalance your portfolio when necessary. [youmaylike] Great for Truly Free Investing: Robinhood Fees and Expenses: Robinhood is a free investment platform in every sense of the word, pledging to never charge company fees or commissions to customers. Beginning Investment Requirement: You’ll need $2,000 to get started Types of Investments Available: ETFs, stocks, cryptocurrency and options Portfolio Options: Interest-based options such as Fashion ETF, Tech ETF and Energy ETF, as well as a standard S&P 500 ETF, all with personal risk tolerance settings. You’ll also find “collections,” which are individual stocks grouped according to specific interests — such as companies with female CEOs or that are in the social media sector. Automatic Investing?: No Automatic Reinvesting?: No Automatic Rebalancing?: Yes A great option for beginners and experienced investors alike, Robinhood makes the process both easy and affordable. How affordable? Well, it’s entirely free. By offering a truly free experience, Robinhood saves investors some serious cash over time. Additionally, the platform makes it easy to choose individual stocks or ETFs based on personal interests. If you want to invest in cryptocurrency or options, you can also do so through Robinhood. One of the biggest limitations of the platform, though, is its automation. While you can set up automatic deposits into your account, you will need to manually invest those funds and then reinvest (or withdraw) your dividends. Stash Fees and Expenses: $1 per month fee for those with less than $5,000 invested, or $2 per month for retirement accounts with less than $5,000. For users under 25, fees on retirement accounts are waived. If you have more than $5,000 invested, your fee will be 0.25% annually. Beginning Investment Requirement: You’ll need at least $5 to begin investing (fractional shares are available) Types of Investments Available: ETFs (exchange-traded funds) and fractional stock shares Portfolio Options: Too many to name, ranging from things you Want (portfolios that are conservative to aggressive mixes), things you Believe (such as groups of companies that believe in clean energy, LGBT rights, etc.), and things you Like (tech, retail and social media companies). Automatic Investing?: Yes Automatic Reinvesting?: No Automatic Rebalancing?: No The closest competitor to Acorns, Stash seeks to make investing easy for everyone, regardless of your goals and passions. They have three account options to choose from, allowing you to manage your investment and retirement accounts, or even a child’s education savings through custodial accounts. With Auto-Stash, you can set any number of automatic investment options and transfers. However, Stash will not rebalance your portfolio for you, nor will they reinvest dividends on your behalf. Wealthfront Fees and Expenses: 0.25% annually Beginning Investment Requirement: $500 minimum initial investment Types of Investments Available: ETFs (exchange-traded funds), individual stocks, retirement accounts (401k, IRA), 529 savings plans, trusts Portfolio Options: 11 asset classes to choose from, including natural resources and real estate Automatic Investing?: Yes Automatic Reinvesting?: Yes Automatic Rebalancing?: Yes Wealthfront’s investment platform is designed to be friendly for users of all experience levels. If you’re a seasoned investor, you’ll enjoy all of the options available to you, including the ability to manage your retirement accounts, education savings, and even non-profits or trusts. If you’re a newbie, their free financial expertise center is the perfect place to learn all about investing and your future. TD Ameritrade Fees and Expenses: The managed, automatic portfolio investment option (called Essential Portfolios) is available with a 0.30% advisory fee Beginning Investment Requirement: $5,000 minimum for managed portfolios (no minimum requirement for traditional trading) Types of Investments Available: Stocks, ETFs, options, mutual funds, futures, bonds/CDs, Forex, cryptocurrency Portfolio Options: Essential Portfolios (EP) offer investors a range of options from Conservative to Aggressive, based on your individual passions, preferences and tolerances Automatic Investing?: Yes, with EP Automatic Reinvesting?: Yes Automatic Rebalancing?: Yes A more traditional brokerage app, TD Ameritrade is one of the most recognizable names in the industry. You can easily educate yourself on all things financial, thanks to their free videos and posts. If you want a traditional experience, you can choose your trades and pay per transaction. Prefer a more streamlined, automated approach? Opt for their Essential Portfolios, a hands-off investment option (robo-advisor) that charges a flat monthly fee and requires little-to-no oversight from you. Plus, their app makes the investing process easier than ever with a user-friendly interface, price alerts and no minimum to get started. If you prefer a desktop experience, this is also available to you through TD Ameritrade. Bottom Line Getting started with investing can be intimidating. With all of the terminology and account options out there, it’s easy to want to run and hide. Thanks to some of today’s best investment apps, though, you can not only get started with your first portfolio but also watch your money quickly grow… no matter how much of a beginner you may be! It’s important to choose an app that offers you the portfolio options and features you want most, with fees and deposit minimums that match your financial needs. The five apps above are our favorites for beginners, making that first foray into investing easier than ever before. The hardest part will be choosing the one you love most!
What Are Tax Brackets?
A tax bracket is an income range and its associated tax rate. They tell you how much tax you must pay on your taxable income, i.e., your net income after deductions, exemptions and credits.
Each bracket specifies your marginal tax rate, which is the tax you pay on your last dollar of net taxable income. The more you make, the higher the bracket you occupy. That’s because the U.S. tax system is progressive, taxing those with high income more than those with low income. At least, that’s the way it works in theory. In practice, there are plenty of tax breaks and loopholes that the wealthiest can exploit to lower their taxes, if not their bracket.
Now, let’s take a deeper look at tax brackets, and how exactly they work.
Determining Your Tax Bracket
For 2019, there are seven U.S. tax brackets. Each bracket specifies a minimum and maximum threshold of net taxable income. Those bracket thresholds depend on your filing status: single, married filing separately, married filing jointly, or head of household.
Doing the math, that’s seven brackets times four filing statuses, which means there are 28 separate tax brackets. To determine yours, follow these steps:
- Complete your tax return. This will tell you your net taxable income.
- Pick a filing status.
- Find the tax bracket for your filing status in which your net taxable income falls.
For most folks, you accomplish all of this using IRS Form 1040 and its schedules. The instructions for the form show the year’s tax brackets. You must use the correct year’s instructions because the brackets are indexed for inflation. That is, they creep higher over time to compensate for the effects of inflation.
Example Tax Brackets
For 2019, the tax brackets for married couples filing jointly are:
Suppose you are married and your joint net taxable income in 2019 is $50,000, which falls into the 12% bracket. To figure your tax (dollar-rounded):
- Subtract the lower bracket threshold from your income. In this case, that’s ($50,000 - $19,051), or $30,949.
- Multiply the difference by 12%: (0.12 x $30,949), or $3,714.
- Add the product to the minimum tax for the bracket: ($1,905 + $3,714), or $5,619. That’s your federal income tax bill for the year.
The amount on the check you submit with your tax return depends on how much tax you’ve already paid in for the year due to withholding and estimated tax payments.
Some simple math will tell you your actual average tax rate. In this case, its ($5,619 / $50,000), or 11.2%, slightly below the nominal 12% rate for the bracket.
This bracket applies to ordinary income, such as salaries, wages, tips, commissions, and interest. Certain income, known as long-term capital gains, is subject to lower tax rates.
Long-Term Capital Gains Tax Brackets
Income is taxed at a lower rate if it is considered a long-term capital gain. This type of income tax applies to gains on the sale of investments you held for more than one year. It also applies to qualified dividends, which are most dividends from American corporations (as well as some foreign corporations).
Some dividends, such as those from real estate investment trusts, master limited partnerships, and unqualified corporations are treated as ordinary income. For a dividend to qualify, you must have owned the dividend-paying stock within a specified time window centered on the ex-dividend date of the dividend. That time window is 121 days for common stock and 181 days for preferred stock. The ex-dividend date is the first date on which the stock trades net of the current dividend.
The three long-term capital gains tax brackets are 0%, 15% and 20%.
For example, if you had earned $100,000 in long-term capital gains, you would owe 15%, or $15,000 in capital gains tax. Note that for gains on property held for a year or less, and for un-qualified dividends, the income is subject to the ordinary tax brackets.
How Tax Brackets Affect You
There are a few different ways that tax brackets can affect you. Let’s take a look:
- Tax brackets affect you in that they specify how much of your money you’ll be sending Uncle Sam for income taxes.
- Many states and municipalities charge income tax using their own tax brackets. Once again, these affect you by reducing your post-tax income.
- Tax brackets affect your behavior if they motivate you to act on lowering your bracket (which we’ll talk about next).
How to Change Your Tax Bracket
Let’s assume you want to lower your tax bill. If you can reduce your net taxable income enough, you might even be able to lower your tax bracket, which will reduce your marginal taxation rate. Here are some things you can do to lower your taxes and perhaps your tax bracket:
- Shelter your income from taxes. You do this by diverting part of your income into tax-deferred retirement accounts, such as IRAs and 401(k)s.
- Increase investments in tax-free municipal bonds, dividend-paying stocks, and long-term holdings (greater than one year).
- Work less. If you reduce your income, you reduce your taxes. If you are one of the fortunate few who doesn’t depend on every dollar earned, you may find it worthwhile to cut back on your work and enjoy more time for yourself.
- Be bracket savvy. Know how far you are from your next bracket. If you are close, consider turning down that next raise if it will throw you into the next bracket, because you might otherwise end up with less money after taxes.
- Review your filing status. Some people get married or divorced to reduce their taxes. Married folks should always check to see whether it’s cheaper to file jointly or separately.
- Increase your deductions. There are fewer deductions than before, but you can still deduct certain amounts of charitable contributions, property taxes, and some state taxes. Self-employed individuals and business owners qualify for many more deductions.
- Hire a clever CPA. If you are wealthy, you can afford the kind of advice that an experienced advisor can give you. This should involve legal advice, such as trust accounts, foundations, family offices, offshore accounts, tax shelters, and so forth.
Once you have a better understanding of what tax brackets are and how they work, you should be able to determine yours, and how to make decisions that will influence it in a positive way.