The bottom line? Technically yes, but you will need at least $20/month to get started properly.
And I would roll the funds to a Roth IRA and/or 529 once the amount builds to $1,000 or so.
If you’re in debt except for your house, don’t even start saving for retirement.
Get out of debt FIRST! Then, save 6 months of expenses as an emergency fund, ONLY THEN start investing 15% of your pretax $.
Stash (and other brokerage places like Vanguard and Fidelity) offers post-tax brokerage investing. What differentiates Stash is the sleek app interface and less stodgy approach. The premise from my perspective is a good habit. If you get into the habit of investing, it seems fun and you’re learning, you’ll probably continue to do it in pre-tax ways like a 401k or 403b.
As with other post-tax investment houses, the money going into a post-tax account has already been socked by the federal government with income tax rates (15-40%) instead of capital gains rates (15%). Also, I saw no way to transfer the $ into a Traditional or Roth IRA or 529 College Account inside Stash.
FOMO (Fear of Missing Out)
It’s new! It has an app! It’s sounds like “mustache” , so it must be cool and hipster. It only requires $5!
Micro investing via Robots has begun and the Stash app is attempting to get you to do it. The interface is simple to use and very slick and would appeal to Techy Boomers, Xers and Millenials with its bubble-and-tab layout. I really do love the app.
A+ for app design and ease of use. It IS actually quite fun to play with.
I gave it a test run so that you don’t have to wonder.
” Thank the Lord, because I was wondering about the laundry and meal-cooking and repairs that have to happen after work, really and if I had some wine…”
I didn’t want to give Stash access to our main checking account, so I opened an Ally bank account with $100 mad money I had saved for the experiment.
By the way, if you’re looking for a bank without all the fees and direct deposit requirements, Ally could be a great one for you.
The 2 biggest hurdles for most people is lack of the big chunk of money to get started with investing outside of a 401k or 403b and too many choices.
FOMO – new isn’t always best but can be a fun place to learn
Don’t feel bad if you are NOT investing beyond before-tax savings vehicles like the 401k and 403b. 78% of Americans are not even doing this.
The 401k and 403b are before you pay taxes accounts. Stash investments are brokerage after taxes, so the $5 has LESS buying power than the $6.25 you earned and put into your 401k to save for your future self.
It’s a problem not unique to Stash, but needed to be pointed out to clarify.
Better to keep that $6.25 in your 401k and pay 15-20% later, than 25-40% now.
“Oh, God, Smalls, you’re killing me here…”
Let’s recap so far:
1. Get out of debt
2. Save 15% of your pretax household income by putting it in a 401k or 403b
3. Pay off your mortgage
4. Start a 529 account for kid’s college if applicable
5. Invest in post-tax if 1-4 is done. (For a working couple, I figured they would have to be making at least $304,000 gross per year to really afford doing this seriously if pretax is maxed at $18,000 each and Yraditionsl ITAs are used as Roth rollover vehicles to put away $5,500 each per year.
*Play with Stash with just a small amount of $ to learn about investing-$20-25 will get you started to have a diverse mix of choices.
So that you can wow (or bore) your friends at your next cocktail party, you can explain how Stash works but don’t expect to be Warren Buffet overnight.
* sign up & verify your US citizenship status
* connect a bank account and set up the amount and frequency of transfer from your bank to Stash. You can turn off the auto transfers once you get going.
* Choose from one of the 3 funds you will initially see (I picked Blue Chip, the other 2 funds are kind of poo).
Stash allows a person to open an account with just $5.
How do they do this?
Enter nanno-investing & fractional stock funds.
Let’s say you want to invest in Apple but a single share of Apple costs $117.
Stash is the front end to several Vanguard mutual funds. Vanguard buys the single share at $117 and then splits or “fractionates” them into 24 pieces or more and combines them with similar stock fractions of other companies to make a mutual fund (a group of stocks & a group of investors).
Stash uses fractions of stocks changes the stodgy high-faluting fund names like “Rockefeller Stag P&Q 3000 Fund” into friendly names like
Slow and Steady
Aren’t these adorable?
With $5-$25 you’re investing in select mutual or bond funds with hundreds of other people just like you, not single stocks. That’s a great investing strategy. Single stock-picking will lose you money.
Once you fund Stash with the initial $5, you get to see more choices but you really have to stay on top of things to get a decent mix.
By month 2, I thought that I could direct the next $5-that it would just go into a holding “bin”. Not so. Stash put it automatically into what I already had: Blue Chips. Argg
Once you are set up, click the orange + button and “Set Auto Stash” or you can turn it off.
It seems that the only way to diversify well is to go ahead and fund each fund you want with $5. Start with $25.
Turn off Auto Stash and bring in $15-20 more. This puts it into a bin so that you can choose funds
Push $5 to start and pick Blue Chips
Then push another $15 and choose
*DeliciousDividends or Slow & Steady
What do I think so far?
Well, if you think you’ll be a millionaire at the end of a 35 year typical savings horizon with just $5/month, think again.
$5 compounded with adding $5/month for 35 years at an average of 12% return will only be about $26,000. Most of these funds are only 5 years old and only one had an 11% return over 5 years.
You can’t retire on that.
Even if you do $20/month for 35 years at 12% return, it’s only $117,000. That might last a year or two in retirement in 20-35 years.
I like that after the first $5, the app lets you choose what interests you, what you think is worth your money to invest.
I follow the Dave Ramsey mix categories and here’s what I chose for $25:
1. Growth and Income 25% (Delicious Dividends)
2. Aggressive Growth 25% (Young Money)
3. Growth 25% (Blue Chips, Slow & Steady)
4. International 25% (Global Citizen)
Bottom line: a superb app design for learning about investing. The other investing houses need to catch up on mobile technology.
This would be such a fabulous front-end to your 401k or other pretax retirement vehicle. And, I would LOVE if Roth, Traditional and 529s could be in tabs called “I switched jobs” and “Save for College”.
Bottom line: you don’t really need it but to play and learn with $25 is really super.