November 01st - 5 minutes to read

Are Investment Apps Safe?

Investment apps have grown in popularity in recent years. Read more to learn about the potential risks that come along with these apps.

Man Using Phone and Laptop to Invest
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Over the last few years, the ability to invest money into different types of securities has changed drastically. Investment apps have become prominent in the news, with some such as Robinhood, receiving scrutiny for a variety of reasons. This has led many potential investors to wonder whether or not these investment apps are truly safe places to keep their money.

What is an Investment App?

Investment apps have often been praised for opening up investing to the masses, but what exactly are these brokerage account types? In short, investment apps are mobile applications that allow you to deal in stock market securities or other types of assets at the tip of your fingers. One primary difference between investment apps and investment strategies of the past is that many investment apps remove a certified investment professional.

Rather than having a managed account where that certified professional makes your investment decisions, investment apps are mainly self-directed accounts where the account owner makes all investing decisions. In some cases, this can be dangerous for new investors, especially with options trading, who may not have the necessary financial background to be cautious or successful with their investments.

Different Types of Investment Apps

In the world of investment accounts, there are a number of different types available to users:

· Standard brokerage investment account: A standard investment account gives users access to general financial investments such as stocks, mutual funds, bonds, and exchange-traded funds (ETFs). Beginners often start with a basic brokerage account when entering the stock market. These types of accounts may or may not require an account minimum to open the account.

· Automated investment accounts: An automated investment account is a more hands-off investment strategy. It utilizes a combination of technology and human planning to provide your account with a robo-advisor that manages the account and the investments. There is typically a monthly fee, but lower minimum balances.

· Fractional trading investment accounts: Certain investment apps offer specialized fractional trading. Fractional shares allow an investor to partially buy ownership into a company. There are especially beneficial for those companies that have extremely expensive one-share prices. Some standard brokerage investment accounts may offer fractional investing, whereas others may not.

· Cryptocurrency investment accounts: Crypto investment accounts are a relatively new type of account that have emerged due to the increased prominence of cryptocurrency. They are investment accounts specifically geared towards trading in cryptocurrency.

· Options trading investment accounts: Some investment accounts, such as Robinhood, e*trade, and TD Ameritrade offer options trading. As opposed to actively buying a security, options trading is the trading of instruments that give you the right to buy or sell a specific security at a specific date and price.

Signs That an Investment App is Safe

With the increased number of investment apps emerging and more entering the news, it’s important to look for the signs that an app is safe before downloading it and putting money in. Here are some signs that a mobile app is legitimate:

1. The investment company is a member of SIPC: The Securities Investor Protection Corporation is an organization that exists to help investors in the event a brokerage fails. Assuming an app goes out of business and your money disappears, the SIPC insures your investments up to $500,000 per account type. Crypto investments are not protected.

2. They are registered with the SEC and FINRA: The Securities and Exchange Commission and FINRA are regulatory bodies that ensure brokers are transparent, tested, and qualified to sell securities.

3. Educational resources are offered on the app: Investment apps that educate traders to ensure they make informed buying or selling decisions are the safer types of apps. Investors should never make uninformed trading decisions.

4. Impressive security measures are in place: Look to see if the app you are considering offers security such as encryption, two-factor authentication, and a PIN or other type of security measure to access the account(s).

5. A plethora of good reviews and strong history: Read some of the reviews on the app store from which you are considering downloading the app. You should hope to see high ratings that come from reviews over a lengthy history of time.

Choosing an investment app can be an arduous process, and the frustration that can sometimes come with managing investments by oneself is taxing, even on the best investment apps. That’s why we believe certified financial professionals are still an excellent choice, even over an investment app.

Protect your money today

At Royal Oak Financial Group, our certified advisors can create a customized investment plan based on your financial goals, whether that be to build wealth, create retirement accounts, or build a general investment portfolio. Our financial advisors are experts who can help you keep a healthy portfolio, along with other financial matters such as bookkeeping and accounting. We provide top-notch customer service you can trust, meaning you can rely on us to help you achieve your financial goals. Read to start planning for your financial future? Reach out to our team today to see how our financial planners can help!