Investing in Index Funds With Stash

Stash is a popular app that rounds up expenses and allows users to invest their spare change into the stock market so you can make some money. If you’re somebody who struggles with saving money and you’re looking for an easy way to invest with a low barrier to entry, then investing with the Stash app is a great way to get started in the market.

If you’ve been doing a bit of research, then you’ve probably realized that index funds are a great stock investment option as they help diversify your portfolio with a relatively small investment.

However, can you invest in index funds through Stash? You can invest in Index Funds on Stash. Although many users tend to think of Stash as just another stock investing app, the platform actually provides users with a lot more investment options than just your typical stocks.

Once your account is set up and you have at least $5 “stashed” in your account, you’ll be able to invest not only in stocks but also in index funds and ETFs.

Index Funds

In today’s article, I’m going to discuss how you can get started investing in index funds on Stash, the basics of investing with Stash, what you can and can’t invest in, and some of the top benefits of investing in index funds.

I’ll also answer some of the most commonly asked questions about the difference between index funds and ETFs.

Since these investment options are very similar, many Stash users often get confused about which one they should invest in first. 

Get ready to take some notes, and don’t forget to share this piece with your other friends who are invested in the market! 

Investing In Index Funds On Stash

Index funds present an easy, affordable investment to start diversifying your portfolio. If you’re brand new to investing, then you probably know some of the basics about stock investing. With traditional stock investing, you purchase stocks or “shares” of another company. 

If the company does well, meets its goals, and continues to grow, then the value of your shares will increase. You’ll then have the option to sell your shares for a profit or continue holding on to them in the hopes that they’ll continue to rise in value. 

Many publicly traded companies also award their investors dividends. These are small awards given out to shareholders based on how many stocks they own. For instance, Barrick Gold (GOLD) paid out $.09 cents per share in March 2021 to shareholders. Most of the time, dividends are paid out on a quarterly basis (every 3 months); however, some companies elect to pay dividends semi-annually (every 6 months). As long as the company is doing well and turning a profit, they’ll almost always pay dividends! 

Index funds are a bit different from standard stocks, though. When you invest in an index fund, you’re not just investing in a single company. Instead, you’re investing into a portfolio that tracks multiple companies. For instance, you may invest in an index fund that tracks 100 of the top-performing tech companies on the market. 

The advantage of investing in an index fund on stash is that it diversifies your portfolio far more than if you had invested in one or two separate companies. If one of the companies in the index fund decreases in value or has a bad quarter, it won’t weigh as heavily on your investment since its spread out over multiple companies in the index fund.

Stash Investing: The Basics

So how does Stash investing work?

Once you create your Stash account and link your personal bank account, the app will automatically round up your purchases to the nearest dollar and put the funds into your Stash investment account. For example, if you paid $1.75 for your coffee, Stash would round the purchase up to $2 and put the extra $.25 cents in your investment account. 

The minimum amount of money to purchase stocks or invest into index funds and ETFs is $5. So, once you’ve “stashed” $5, you can start investing. In addition to the round-up feature, you’ll also be able to manually invest money into your Stash account through direct deposit from your personal checking account. 

What You Can Invest In With Your Stash Account

Stash provides its users with a wide variety of investment options that they can choose between. While the most popular option for most beginners is stock investing, you can also invest in index funds and ETFs (exchange-traded funds) through the app.

One of the best features of using Stash is that you can invest in “partial shares.” This means that you don’t need to purchase a whole share in order to invest in a company. Let’s just say that a fictional share costs $100, but you only have $10 to invest. You could purchase a 1/10th share with your $10 and still reap the benefits and rewards if the stock increases in value! 

What You Can’t Invest In With Your Stash Account

Stash allows you to invest in several different options. However, the app currently does not support investing in mutual funds or cryptocurrency. If you want to invest in mutual funds, then you’ll have to do so through a larger brokerage such as Fidelity. If you want to invest in cryptocurrency, then you’ll have to do so through a crypto exchange like Coinbase or use trading platforms like Robinhood or Webull that offer a crypto trading platform. 

How To Invest In Index Funds With Stash

Investing in index funds on Stash is no different than if you were to purchase a traditional stock or ETF through the app’s trading platform. Once your account is created and you have the required minimum of $5 to invest, search for the index fund you want to invest in. Currently, Stash lists all of the major index funds and ETFs that you can purchase on any other trading platform, so you shouldn’t have any problems finding the one that you’re looking for! 

How Many Index Funds Are There? 

According to Kiplinger, there are currently just over 1,700 index funds listed on the market. This number is over quadruple the number of index portfolios that were available a decade ago (when there were only around 400 index funds listed). In addition to the growth of the number of portfolios, the assets invested in index funds have grown by nearly 70%, resulting in a number close to $2 trillion!

The Benefits Of Investing In Index Funds On Stash

As you can see, investing in index funds is more popular than ever! The only things that traditionally held investors back were:

  • Lack of knowledge
  • High barrier to entry

However, with today’s easy-to-use stock investing apps like Stash, Robinhood, and Webull, anybody can start investing in the market in their spare time. You don’t have to go through an expensive brokerage firm, invest thousands of dollars, or spend hours waiting on the phone or at the bank for an appointment to discuss your stock options. 

All you need is a smartphone, an online banking account, and to have an extra $5 sitting around to throw into the market. At the end of the year, the platform will mail you all of the tax forms that you need to file and stay on the right side of the law. 

Still looking for more reasons to invest in index funds on Stash? Here are some of the main benefits of index funds compared to traditional stock investing. 

Diversification

One of the best reasons to invest in index funds is that they provide greater diversity to your profile. Unlike traditional stock investing, where you’ll purchase shares in individual companies, you’ll be investing in multiple companies when you invest in an index fund. For example, Schwab S&P 500 Index Fund (SWPPX) tracks over a hundred of the top-performing companies on the S&P 500 index. 

If you were to invest in this index fund, you would be investing in fractional shares of all of those companies! This means that the value of your portfolio reflects the value of a larger market, not just individual companies. 

Low Initial Investment

One of the best reasons to invest in index funds is that you don’t have to invest a bunch of money. Unlike mutual funds, which often require investors to make larger deposits, you can invest as much or little as you’d like into the fund! If you’re using Stash, then the minimum required investment is just $5, meaning that almost anybody can get started investing in their choice of index funds. 

Solid Long-Term Returns

Unlike individual stocks that often fluctuate heavily throughout the year, index funds tend to be more stable. Most index funds are sponsored by large brokerage firms such as Charles Schwab, Fidelity, Invesco, and others. This means that index funds were created using a substantial amount of research. These giant brokerages don’t usually make bad calls when it comes to adding a company to their funds. 

As a result, this means that you’re practically guaranteed a return. While index funds might not provide you with a quick “turn and burn” profit for day trading, they usually tend to be solid long-term investments. 

Suppose you’re looking for a solid investment that won’t require you to constantly watch the market every day and stress out about finding the latest investment opportunities. In that case, index funds and ETFs are excellent. All you have to do is invest your money, check on the asset every once and a while, and bask in your profits at the end of each quarter. 

Larger Dividend Payouts Than Stocks

Last but not least, index funds can also provide you with a better dividend payout than individual stocks. Since most of the companies listed within the index fund give out quarterly or semi-annual dividend payouts, you’ll be rewarded with dividend payouts from most or all of the indexed companies. While your payouts will be slightly smaller per company, your net dividend payout will typically be higher. 

What’s The Difference Between Index Funds and ETFs? 

If you’ve done any research on how ETFs work, then you’ve probably already begun seeing the parallels between what we’ve discussed so far regarding index funds and ETFs. While the two are similar, there are several differences between the two options. To further the confusion, index funds are often referred to as “index ETFs” by some brokerage firms. 

Allow me to dispel some of the confusion! 

Buying and Selling

The biggest difference between index funds and ETFs is how they are bought and sold. ETFs tend to be a little bit more popular with day traders since they can be bought and sold throughout the day. For example, you could invest $100 into an ETF on a Monday morning and then sell the same ETF for $110 later on the afternoon and replicate the process with other ETFs. This can lead to some decent day-trading profits. 

However, you cannot do this while trading index funds. While you can sell an index fund whenever you want, you cannot benefit from instant market value. Instead, you’ll have to wait until the final posted value at the end of the trading day.

Investment Required

Traditionally, index funds often require a higher initial investment if you’re going through a brokerage firm. However, if you’re using Stash, you won’t have to worry about this since they only require a $5 minimum investment on all assets. 

Paying Taxes

Paying taxes on ETFs is different from paying taxes on index funds. When you sell an ETF for a profit, you’ll be required to pay capital gains tax (the same as if you had sold a regular stock). However, with an index fund, your capital gains taxes may be spread out across other users who are also invested in the fund. Although it can be trivial, sometimes you’ll end up paying slightly higher taxes on an index fund at the end of the year.