You’re already familiar with Square’s Cash App, which, Venmo-style, allows you to send and receive money with just a few taps on your mobile phone. But recently, Square expanded the app to allow users to dabble in the stock market, too. Square’s Cash App Investing promises fee-free ease of use and the ability to “own a slice of your favorite company for as little as $1.” (Something known as fractional investing.) But whether you’re new to the stock market or a seasoned pro, is an app like this a solid investment tool…or too good to be true? We asked Priya Malani, founder and CEO of Stash Wealth, a financial planning and investment management firm.
The pros. Cash App Investing is free to use and free of fees. (Stock trades are commission-free and the app doesn’t offer trading in mutual funds or bonds, so you don’t have to worry about surcharges there.) It’s also simple to set up. Simply open up the Cash app, decide how much you want to invest in a single stock and click ‘purchase.’ (Typically, you’d need to set up an investment account, but since the Cash app is already linked to your checking account, all you need to do is plug in a few required legal details like your social security number and you’re good to go.) The ability to purchase fractional shares for specific dollar amounts—increments of $1, $5, $10, etc.—is a big plus, says Malani. (You also can spread resources around and invest in a variety of companies vs. just one.)
The cons. As of right now, investing via Square’s Cash app is limited to stocks or ETFs. In other words, there’s no availability to invest in “safer” options like mutual funds and bonds, which are typically more suitable for older investors, Malani says. Additionally, she warns that the DIY nature of the app could lead users down a riskier financial path. “Like most apps, Cash App Investing wants you to be regularly engaged so they offer push notifications. Unfortunately, with investing, the more engaged you are, the worse your investment performance is, historically,” Malani explains.
The final take. It’s not that you shouldn’t use apps like Cash App Investing, it’s more that you should be aware of what your investing goals are before you start buying random stocks, says Malani. “Buying single stocks as an investment strategy is actually a very old-school approach because it used to be the only option. But proper investing requires diversification and patience—otherwise, you’re just gambling,” she says. Instead, you want to have a fully baked game plan for your finances—investing including—then use a platform that supports your goal. Think of it this way: Wealth doesn’t happen overnight, which means the concept of instant gratification doesn’t check out. “If the key to building wealth is patience, why are investment applications encouraging us to check in constantly?” asks Malani. Financial food for thought.