Many folks buy and sell stocks using full-service brokers. Using a brokerage firm typically means you don’t have to do much, but it also means you’ll pay fees.
I used to think that buying stocks with a broker was the best way. However, I’ve recently changed my mind and want to invest myself, without paying brokerage fees.
I discovered that buying stocks without a broker is easy when I use automated investing platforms like Betterment, M1 Finance, and Robinhood. These brokerage platform apps give me an opportunity to open a brokerage account even if I have only a few dollars to invest. Most of the investments are self-directed, however, the apps allow me to buy stocks in curated portfolios if I choose.
All of them provide commission-free trading and all of them are easy to use. All three also allow me to buy fractional shares, so I don’t need a lot of money upfront. And all three are good for new investors because they provide options to choose curated portfolios.
I’ve checked out all three of the apps and will provide a step-by-step tutorial for each. All of them are easy to use. If you want to invest using the apps, you should do your own research to find the best one for you.
In general, I find Betterment a better choice if I don’t want to make too many decisions myself. I find M1 to be a better choice if I want all my finances, including savings, checking, borrowing, and investing in one app. Both Betterment and M1 are good choices for new investors because they offer the option of curated portfolios based on my answers to questions.
I find Robinhood a better and easier choice for buying and selling shares of individual stocks or EFGs if I already know what I want. It provides very little investment advice or information on the free site.
I can pay an additional modest monthly fee to access research information. Personal circumstances will dictate which app is the best fit for your needs.
Before I begin to describe how to invest in each app, I’d like to give you some basic definitions of investment terms that I’ve learned.
- ETF– ETF stands for exchange-traded fund. An exchange-traded fund is a well-diversified portfolio similar to a mutual fund but is not professionally managed.
- Stock’s ticker symbol. A stock’s ticker symbol is a unique set of letters assigned to identify the stock on its stock exchange. It can have one, two, three, or four letters.
- Taxable accounts. All accounts are taxable immediately unless you specifically set them up as tax-deferred retirement accounts. Tax-deferred retirement accounts are still taxable but only when you take the money out later. Consulting a tax expert will help me understand the tax consequences of my trades.
- Margin account. A margin account allows investors to borrow on the investments they already own to make additional investments or for other purchases. Margin borrowing is convenient, but it is risky because stock prices fluctuate constantly. If they decrease while borrowed against, I could end up having to sell my stocks.
- Portfolio. An investment portfolio is a collection of assets I own, such as bonds, cryptocurrency, and exchange-traded stocks. Diversifying a portfolio tends to lower its risk.
Now that we have some basic definitions in mind, let’s go through the steps of setting up an online brokerage account for each app and preparing to invest.
How to Buy Stocks Without a Broker
Buy Stocks on Betterment
Betterment provides opportunities for automated investing and for socially responsible investing. It suggests a portfolio based on my risk tolerance but provides the opportunity for me to change it if you want.
Betterment also provides the opportunity to choose from curated portfolios such as innovative technology, broad impact, social impact, and climate impact. Betterment allows me to do general inventing or to set aside money in tax-advantaged accounts for retirement. It also allows me to set up recurring deposits to keep me on track.
Betterment: Step by Step
Here are the steps for investing on Betterment.
- Go to the home page and click Get Started. The screens will take you through a series of questions to sign up, including email, password, legal name, and phone number. You’ll also have to read and agree to certain conditions.
- After you’ve finished setting up your account, you’ll go to an introductory page that gives you the option to set a goal for your savings, invest for retirement, or answer a few questions to get a recommendation. I chose to answer the questions for recommendations.
- When I click on the option to answer questions, I got a new screen to enter my address. (You must be a U.S resident.)
- The next page asked for my Social Security number and birthdate. The following page asked me to choose security questions.
- Once I had done that, the app directed me to a series of screens that asked about my financial situation. It asked about where I worked, how many hours I worked, whether I was married or single, what my income was, and how much experience I have with investing. These questions complete my profile.
- Next, I answer questions about my motivations, such as retirement planning, saving for emergencies, or becoming a homeowner. Then, the app makes recommendations based on my choices and gives me an opportunity to set goals.
- The next page depends on what I choose. I chose that I wanted general investing. I received a page that asked me whether I wanted them to pick a portfolio for me. (That choice would give me a low-cost core ETF with a mixture of stocks and bonds. Another alternative is to choose one of the curated portfolios. The third option is to build my own portfolio.
I chose a curated socially responsible portfolio. When I did that, I received another list of choices.
I was asked to choose among a broad impact portfolio (which focuses on environmental, corporate governance, and socially responsible goals), a climate impact portfolio (environmentally friendly), or a socially responsible portfolio (diversity). I chose the broad portfolio.
On the next page, I saw the automatic recommended allocation. Betterment had determined that I should have 73 percent stocks and 27 percent bonds because I had indicated my investment horizon to be over the next 10 years. The mix of investments and weights includes:
- U.S. Socially Responsible Stocks – Large Cap ESGU -28.9%
- U.S. Socially Responsible Stocks – Small Cap ESML- 2.5%
- U.S. Engagement Stocks – VOTE-3.5%
- International Developed Market Stocks – ESGD- 31.2%
- International Emerging Market Socially Responsible Stocks – ESGE6.9%
- U.S. Municipal Bonds – MUB -15.4%
- U.S. Investment-Grade Corporate Bonds – SUSC – 1.6%
- International Developed Market Bonds – BNDX – 6.2%
- International Emerging Market Bonds – EMB -3.8%
Betterment provided me with a short explanation of the risks involved in the recommended portfolio and gave me the opportunity to confirm this risk level. When I do so, I then have the opportunity to set up this account. Once I do that, I return to a screen that shows my choices.
- Now, I need to fund my account. I click on deposit at the top left of the screen, which will take me to a page to enter my bank account information and a deposit.
As I continue to deposit money, the system will allocate it to the broad impact socially responsible fund I have chosen.
So that’s how I created my account and prepared to buy and sell stock and other investments in Betterment.
See Related: Best Betterment Alternatives | Apps Like Betterment
Buy Stocks on M1
M1 is a finance super app. It offers a variety of brokerage account options. The brokerage accounts operate around a pie concept.
My pie is made up of slices. A slice can be an individual slice or a curated portfolio, for example.
I can build multiple pies built around different themes. M1 executes trades automatically during a single daily trade window.
M1 also has a checking account and margin borrowing. A credit card offers up to 10 percent in cash rewards. The rewards are automatically used to fund my portfolio.
M1 Step by Step
- The first step is to sign up through M1, using your email and a password. You also provide your social security number, date of birth, and other identification information.
- Next, the application asked me about my investment style, including how long I wanted to hold my investments, how much I earned, and how much investment experience I have.
- The next screen asks me to connect with my financial institution to set up a deposit to fund the account.
- The app then sent me to an overview page that asked me to scan and send a copy of my driver’s license as an additional security measure. The overview page also tells me that once I deposit at least $100 I can trade cryptocurrency.
- To start investing, I need to build my portfolio. I receive a screen to build my portfolio and click on choose securities. The app directs me to a screen with tabs on the left for stocks, bonds, my pies, and expert (or curated) pies.
If I want to buy stocks, I am taken to a list of stocks of publicly traded companies with some basic investment information about each one, such as market cap, dividend yield, price history, and price-to-earnings ratio.
A table at the left-hand side of the page allows me to narrow it by sector. I click on the box to the left of the stock I wish to buy and then click add. I do that until I have chosen all the stocks I wish to buy. After each purchase, I am taken to a page that allows me to adjust how much of my pie, I’d like each stock to fill. I can do the same thing with bonds or expert pies.
For example, if I choose the expert pies, I will go to a screen that allows me to choose from general investing, retirement, hedge funds, responsible investing, income earners, just stocks and bonds, or other strategies. The system provides instructions for about who each pie might be most suitable for.
If I choose, for example, Responsible Investing, I will then be referred to a screen that gives me domestic and international options, with the risk factors and past performance shown for each. If I click the box on the left-hand side, the pie will be added to my pie. I can choose to make that pie all of my pie or have it be only a part of my pie by changing the target allocation on the screen.
Each time I make a deposit into my account, the system automatically buys stocks, bonds, or ETF shares based on the allocation percentages I’ve created in my pie. The system uses a technique called dynamic rebalancing, which means that with each deposit or withdrawal, the system will automatically seek to balance my portfolio according to my selected allocations.
So, I’ve set up my online account with M1.
See Related: M1 Finance Review: Is It Legit?
Robinhood allows me to invest in stocks, options, crypto, and ETFs. Options are pretty much what they sound like. They are the option to invest in something at a point in the future, but they don’t require me to make the purchase at that future time if I choose not to do so.
Robinhood offers commission-free trading, even for cryptocurrency, and has a variety of currencies to choose from. It also offers a cash account (uninvested funds) and an accompanying debit card that provides rewards to help me build an investment habit. All the Robinhood accounts are immediately taxable because it offers no option for retirement accounts.
See Related: Best Lithium Stocks to Invest in Today
Robinhood Step by Step
- To invest using Robinhood, I first must set up my account. I do that by clicking on sign up on the home page. That takes me to a screen where I enter my email and a password. I then answer a series of questions about my address, employment, tax status, social security number, and other information to identify me.
- I will go to an overview page where I enter information to connect to my bank account. The system uses plaid so that I can connect automatically by entering my online banking password. I can also have my paycheck directly deposited into my Robinhood account. The money would go into my cash account to stay until I spend it or invest it. The amount of money in the account is known as my available buying power.
- Once my account has been established, I go to a list of stocks from which to can choose or I can search for particular stocks if I already know the investments I’d like to make. For example, suppose I want to buy stock in Corning (NYSE: GLW). I enter Corning in the search field and receive a page that shows today’s stock price, the historic performance, and key statistics. A window will be on the right-hand side of the page for me to choose how much of my available buying power I want to use to buy the stock.
- You can also search for ETFs by typing the term “ETF” in the search field or by choosing them from lists. For example, the 20 Most Popular ETFs or growth and value ETFs. Once you choose an ETF, you’ll see its historical performance numbers, a list of what sectors or companies comprise the fund, and also a window on the right-hand side to spend some of my available buying power on the ETF.
For example, the CWS ETF includes
- Technology stocks: 18.91 percent
- Healthcare: 18.74 percent
- Consumer cyclical, 16.43 percent
- Financial services, 15.76 percent
- Industrials, 14.07 percent
- Consumer Defensive, 9.25 percent
- Basic Materials, 6.84 percent
So, trading is also easy using the Robinhood app.
See Related: Best Investments for Young Adults
Frequently Asked Questions
I had some general questions about investing through these platforms. If you’ve never bought stocks without a broker before, you might still have some questions, too. Here are answers to some of the questions I had. I imagine they are the most common questions.
What is the difference between online brokerages and an automated investing platform?
An online brokerage account, such as with Charles Schwab, offers discounts over using a broker. You place a market order, and your trades are made through a broker.
With an automated investing platform, your trades automatically execute through the appropriate exchange without an intermediary. The account and the trades are generally free, although some platforms charge for cryptocurrency trades.
What is the difference between an automated investing platform such as M1, Betterment, and Robinhood and a Direct Stock Purchase Plan?
A direct stock purchase plan is similar to an automated investing platform in that it allows individuals to buy and sell stock without a broker. However, they are different because the direct purchase plan is with one company only, for example, AT&T.
So, the investor only buys more of the one stock. With automated investing platforms, the investor chooses a portfolio or a particular selection of stocks to buy. The stocks are bought from an exchange and not directly from the particular company.
How long after I open an investing platform account must I wait before I can begin trading?
You can begin trading as soon as you fund your account.
Are these platforms legit?
Yes, Betterment, M1, and Robinhood are all legitimate businesses.
Is investing on these platforms safe?
Investing on these platforms is as safe as investing through an online or in-person broker. All the platforms have security measures to protect the integrity of your account.
However, investing in stocks and bonds is not the same as opening a savings account. You’ll typically receive much higher returns, however, returns are not guaranteed. Sometimes stocks and bonds decrease in value, so investors can lose their investment.
Generally speaking, you can lower the risk by investing in a diversified portfolio and by investing over the long term. Certainly, you want to hold my investments for more than a year, but holding them even longer is preferable.
How do I choose the best investing platform for my needs?
Consider the features of each platform and how they relate to your investment knowledge and goals. For example, if you want to make your investing easy, you can choose an ETF along a certain theme.
If you find this appealing, you want to consider Betterment and M1. Robinhood doesn’t offer that option. On the other hand, if you truly want self-directed investment and are interested in stocks or crypto only, Robinhood is the better choice because it is set up for self-directed investment and offers the widest range of stocks.
Betterment also offers a premium plan, which provides access to investment advice at a fraction of the cost of a traditional advisor. Robinhood and M1 offer premium plans that provide access to more investment information, but not to individual advisors.
If socially responsible investing is important to you, M1 and Betterment make choosing stocks easier for you because they offer curated ETFs around these themes. Betterment is particularly advanced in this respect because it allows an investor to choose whether they are interested in broad impact, climate impact, or diversity and social impact only. You could choose socially responsible stocks through Robinhood, but you’d have to do your own research and select the stocks yourself.
Also, consider whether you want all of your money in one place. M1 offers the most comprehensive services from this perspective.
It offers a credit card, margin loans, and a checking account, as well as several different types of investment accounts. Both Betterment and Robinhood have cash reserve accounts and some type of debit card.
Which investment platform is the easiest to use?
I found all three platforms — Betterment, M1 Financial, and Robinhood to be very easy and intuitive to use. You can set up an account, look around, and try out the sites without funding your account, however. Doing this will give your an opportunity to see which of the platforms seems the easiest for you.