Blog Roundup: Savings apps, active funds

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Photo credit: Hello Digit, Inc

Get Rich Slow: breaking down the new wave of savings apps

The fintech industry is aimed at helping you save, invest and spend in a cheaper and wiser way through apps. Some of the most popular ones focus on personal savings.

Digit moves small amounts of money from your checking account to your digit account. Helps you hit predetermined savings goals and how long before you need the money.

Catch: cash in your digit account doesn’t pay interest.

Good if: you are bad at budgeting for upcoming expenses. Short term savings

Acorns rounds up your purchases to the closest dollar amount and puts the difference in your acorns account. Then Acorns invests that spare change for you. Savings/investing hybrid app. Once you hit $5, the app invests it in an exchange traded fund. The cost: $1 per month.

Catch: this is a less sophisticated robo advisor.

Good if: you want to dip your toe in investing water. Afraid of investing large sums into stock market.

With Stash you open an account for $5 and choose from a pre picked list of funds or individual stocks to invest in. can setup auto payments. Cost: $1 per month

Catch:

  • you pick the investments yourself. If you are comfortable doing that.
  • Investing in a fund that invests in other funds. These additional layers of fees come out your initial investment meaning less money that you are actually investing.

Good as at introducing you to different types of investment funds.

None of these will or should replace a long term savings or investing plan.

Check out the article to see additional features and things to look out for.

 

Active vs. Passive Funds: The Mutual Fund Shell Game

Are you getting what you pay for with your “actively” managed mutual funds?

This has been a big debate in the US mutual fund industry.

Passive funds are index funds and exchange traded funds that cost less to invest in because they are not being actively managed by a fund manager and instead track a benchmark. Active funds cost more because they are being professionally managed by a portfolio manager.

A recent study examined active vs passive management on a global scale. The goal was to identify “closet index funds”, which is a fund labeled active but has less than 60% of the stocks it holds in active funds.

The issue is that ‘many investors are not getting what they pay for and many managers are not doing the jobs they’re paid to do. This is the same problem as mis-selling or mislabeling a product. The customer needs to know what’s really in the product’.

Closet indexers fly under the radar when the information is not made available to investors. A potential solution is to increase disclosure requirements so that the percent of active share is listed alongside fees in the prospectus or marketing materials. This way it’s clearer what you are in investing in.

‘Index funds are like generic drugs. If there’s good evidence that they perform as well as brand drug – active funds – in certain case, investors should strongly consider switching to the generic’.

 

 

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