Places To Put Money in 2019

If it’s not already part of your New Year’s resolution, reevaluating your financial picture should be.

Last year, we learned that a whopping 80% of Americans live paycheck to paycheck, 40% wouldn’t be able to cover a $400 emergency expense, less than 57% have at least $1,000 in their savings accounts, and 31% have nothing saved for retirement.

80% of Americans live paycheck to paycheck, 40% wouldn’t be able to cover a $400 emergency expense, less than 57% have at least $1,000 in their savings accounts, and 31% have nothing saved for retirement.

Even if, like many Americans, you think you don’t have enough to save, it’s still essential to make the most of what little money you do have (which, thanks to compounding interest, can snowball into bigger and bigger accounts).

So whether you’re young, broke, or just don’t know where to begin, here are the four places I recommend putting your money this year.

1. Marcus Savings Account

First and foremost, you should have a savings account, and experts generally recommend having between 3-6 months of living expenses tucked away (my ever-cautious father recommends two years, though that’s probably impractical for most people).

Unfortunately, the average interest rate on a savings account (interest, in this case, meaning the amount the bank pays you) is a measly 0.09%, which is why I recommend Marcus by Goldman Sachs. With an annual percentage yield (APY) of 2.05%, you’ll make more than 20 times as much on your rainy-day fund as you would by keeping it in a standard savings account.

With an annual percentage yield (APY) of 2.05%, you’ll make more than 20 times as much on your rainy-day fund as you would by keeping it in a standard savings account.

My favorite part about Marcus is that anyone with an account over $1 earns that top-tier interest rate. I used to use Capital One for my savings, which had a top-tier interest rate of just 1.6% that was only available to accounts with more than $10,000. Needless to say, as soon as I heard about Marcus, Capital One lost my business.

As a quick example, in my case, three months of living expenses would be about $7,500. With Marcus, I would earn around $154/year, compared to $6.75 with a standard account.

And remember, even if you don’t have $7,500, even if all you can save right now is $100, you might as well put that money to use by earning one of the highest interest rates on a savings account currently offered nationwide.

2. Acorns

If you already have a 401(k), congratulations are most definitely in order because nearly two-thirds of American workers don’t have one, and for millennials, their prospects of one day having a generous, employer-matched 401(k) are even worse.

So for those of us without access to the most standard method of retirement saving, I recommend Acorns, an app specifically designed for people who don’t have much to get started. It also offers numerous ways to save and earn money (other than just investment returns) — features you won’t get with a traditional broker.

I’m certainly not the first to write about Acorns, and likely won’t be the last, but in my opinion, most personal finance bloggers have over-emphasized the $5 sign-up bonus and the “round-up” feature (which I’ll explain in a minute) without actually describing how Acorns invests your money and why you should use it.

As an investor, it’s important to be as diversified as possible (this protects you against heavy losses if the only sector of the economy you’re invested in happens to do poorly compared to everything else). Also, investors who try to “beat the market” by investing in stocks some blogger promised “would be like buying Amazon in 1999” almost never do.

And this is why I love Acorns. Their platform is simple. You select from one of five portfolios based on your risk tolerance, which range from conservative to moderate to aggressive. The most aggressive portfolios are weighted heavily in stocks, while the most conservative are more invested in bonds (where you’re unlikely to lose money).

With Acorns, you can invest any amount, even just $5, and that money will be divided among stocks from large and small domestic companies, large international companies, emerging markets, and real estate, as well as government and corporate bonds. No matter how much (or how little) you invest, you are completely diversified at all times.

No matter how much (or how little) you invest, you are completely diversified at all times.

So what’s the drawback?

If you’re a student, Acorns is completely free (you have no excuse not to sign up and claim your free money), but for everyone else, it’s $1/month — bear with me before you rule it out.

There are three ways Acorns allows you to compensate for the $12 annual fee.

The first is their “round-ups” feature, which, as the name suggests, rounds up every purchase you make on an eligible credit or debit card and deposits the spare change into your Acorns account.

Now this doesn’t compensate for their fee, per se, but for some, it’s the only way they’ll save. You may never feel that you can afford that first big transfer of money from your checking account to your Acorns account, but if you do it mere pennies at a time, you’ll never notice the difference, and you’ll likely make much more on your investment returns over time than the $12/year Acorns charges.

The second is dividends (a dividend, by the way, is the amount of money a company pays you for owning a share of their stock, usually paid monthly or quarterly). One blogger discovered that if you save at least $358 in the most aggressive portfolio, you’ll make as much in dividends as you’ll pay in fees.

While it would be disappointing to not be able to reinvest every dividend, it’s nice to know that the Acorns fee would never eat into your initial investment or any capital gains accrued by an increase in the value of your portfolio. Plus, you’ll ideally invest much more than $358, which means the Acorns fee would only use some of your dividends, and you’d get to keep the rest!

The third and final method is “found money.” Over 200 companies have partnered with Acorns to offer what is essentially cashback for purchasing their products and services.

As an Acorns user, I get 2.5% cashback deposited into my account when I buy clothes from ASOS (which I do religiously), 5% from Brandless, 1.8% from Airbnb, and 2% from Raise (which I use to buy discounted gift cards). There are plenty of other companies on the list, including hotel chains, rental car companies, clothing stores, and Wal-Mart and Sam’s Club.

Looking through the complete list, it seems the average cashback rate is about 2%, which means you’d have to spend $600 over an entire year to earn back the $12 Acorns fee (and while that might seem high, if you find somewhere you shop regularly, like Macy’s or Sephora, it won’t take long to spend that much in 12 months).

From my perspective, Acorns is the complete savings and investment package. It offers features to help you save, diversifies and protects your investments (your money is insured up to $500,000), and allows for many ways to earn enough money to cover their affordable $1/month fee.

Acorns offers features to help you save, diversifies and protects your investments, and allows for many ways to earn enough money to cover their affordable $1/month fee.

And again, if you’re a student, it’s all just free money, but even if you’re not, you can still get $5 to start — and if you’re really nervous about it, you can just use Acorns to get cashback so you can start investing without using any of your earned income at first.

Photo by Michael Longmire on Unsplash

3. An S&P 500 High Dividend ETF

Unless you’re a savvy investor, I’d recommend letting Acorns do the heavy lifting, but if you want to get your investment feet wet without making too much of a commitment, I’d also recommend using Robinhood.

Their app (and website) are extremely functional and easy to use. Plus, it’s all free. Unlike most brokerages, Robinhood doesn’t charge a trading fee (TD Ameritrade, for instance, charges me $6.95 each time I buy or sell a stock). And in case you’re immediately suspicious (surely a free broker isn’t a legitimate broker?), Robinhood is registered with the U.S. Securities and Exchange Commission (SEC) and a member of both the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC) — just like all the big brokerages.

As I mentioned with Acorns, diversification is important, and it’s essential not to put too much stock (pun intended) into one investment. So with Robinhood, I look for ways to invest safely while maximizing my earnings, which is why I like SPHD, a high-dividend, low-volatility S&P 500 stock.

With Robinhood, I look for ways to invest safely while maximizing my earnings, which is why I like SPHD, a high-dividend, low-volatility S&P 500 stock.

The S&P 500 (one of the three major stock market indexes) is a collection of some of our nation’s largest companies, like Apple, Exxon Mobil, Chase, etc. Together, these 500 companies make up more than 80% of the total U.S. market capitalization, so investing in the entire S&P 500 covers almost all of your bases in terms of economic sectors like tech, energy, and financials.

SPHD takes things one step further by selecting the 75 highest dividend-paying companies of the S&P 500, and from there, selects the 50 least volatile stocks, which means their prices don’t fluctuate too dramatically. They then put the stocks of these 50 companies into an exchange traded fund (ETF), allowing us to invest in a small portion of each company for only $38/share (as of the end of 2018).

The dividend of this stock on Robinhood is a pretty sizable 4.33%, which means you’d make about $1.65 per share annually. Buy enough shares, and you could be looking at some decent dividend income, in addition to however much the stock increases in value from the time you buy it.

The dividend of this stock on Robinhood is a pretty sizable 4.33%, which means you’d make about $1.65 per share annually.

If the idea makes you nervous, you can always use this link to sign up with Robinhood and get a free stock to test things out. There’s no minimum account balance required, so you can get completely accustomed to its functionality without investing any of your own money.

Lastly, any money you do decide to invest in Robinhood is SPIC insured up to $500,000.

4. A Roth IRA

Finally, I’m also using an individual retirement account (IRA) with a more traditional broker, TD Ameritrade. An IRA is much different than the types of accounts offered by services like Acorns and Robinhood, so I’ll briefly explain the pros and cons of each.

Unlike with Acorns and Robinhood, there’s a 10% penalty for withdrawing money from your IRA before age 59½ (certain exceptions apply). What I like about services like Acorns and Robinhood is that they allow you to save and grow your money while still having access to it. An IRA, on the other hand, is a firm commitment to saving for retirement. Now this shouldn’t scare you away from it, and you should absolutely have one, but you should also be aware that you won’t have access to this money unless you’re willing to pay for it.

The biggest advantage of an IRA is taxes. And, for me, it’s the same reason I use a Roth IRA instead of a Traditional IRA. There are several differences between these two options, and you should always do your own research before investing, but for me, it’s all about lowering my tax obligation in the long run.

With Acorns and Robinhood, you pay taxes on everything — the money you put in, the money you make, and the money you withdraw. With a Traditional IRA, you can deduct your contributions (so you don’t pay taxes on what you put in), but you pay taxes on everything else throughout your retirement. With a Roth IRA, the opposite occurs. You pay taxes on what you put in but not on what you take out. Therefore, a Roth IRA is most advantageous when your tax bracket in retirement will be higher than the one you’re in now.

As this article explains, over a 30-year period, the most prolific savers will get to keep several thousand dollars more by investing in a Roth rather than a Traditional IRA.

And the only way the benefits of a Traditional IRA compete with those of a Roth is if you make sure to invest the money you save on your taxes (by deducting your contributions) in a separate investment account. Savers with a Traditional IRA who don’t reinvest their tax savings lose out to Roth IRA savers by at least $23,000.

Savers with a Traditional IRA who don’t reinvest their tax savings lose out to Roth IRA savers by at least $23,000.

So if you have enough money in your Marcus Savings Account to cover an emergency expense, you’ve gotten started investing with Acorns, and you’re raking in the dividends on Robinhood, saving money in a Roth IRA can be a great deal.

And the more you save now, the more you benefit later.

You can get a Roth IRA through almost any brokerage firm. I use TD Ameritrade, but firms like Charles Schwab, E-Trade, or Fidelity work just as well.