Question: I have most of my money in mutual funds and some stocks that I have a financial adviser help me with, but I am intrigued by Robinhood and wondering if I should open an account that I can operate myself. Is it worth it to put a small amount, say $100, in an account to play with — or do you have to play big to win big? And if not Robinhood, is there another place you recommend I have some fun with a smaller amount of money where I can run trades myself? Also what should I watch for if I do this — and do I need to tell my adviser I’m doing this? (Looking for a new adviser? This tool can help match you with an adviser who might meet your needs.)
Have a question about hiring a financial adviser or looking for a new one? Email picks@marketwatch.com.
Answer: Like most things in life, you’re going to learn best by doing, even if it includes making some mistakes along the way. If you have $100 that is not being taken away from a fixed or necessary expense, certified financial planner Maggie Klokkenga says it can be a good idea to open an investment account and buy something that interests you. She notes that Robinhood is just one of the options that offers commission-free trading; others include Etrade, Fidelity, Ameritrade, Charles Schwab and more. Look at the benefits, downsides and fees and other aspects of each to compare them.
Just don’t get carried away. “I would limit the amount you put into the account to an amount you would be comfortable losing if it all went to zero,” says certified financial planner Matthew A Ramos.
Financial planner Matt Hylland at Arnold and Mote Wealth Management says there’s nothing wrong with play accounts outside of your regular retirement accounts, but expecting a big return from a small investment means taking very substantial risks. “If a small investment has the potential to make you a lot of money, that means it also has an increased chance of losing a significant portion of its value. There are no low risk investments that will turn $100 into $1,000 quickly,” says Hylland.
And broadly speaking, if you choose to speculate with your hard-earned money, it’s best to proceed with caution and risk only an amount you can afford and you’re willing to lose. “If you’re truly serious about taking a more active role in managing your money, I’d urge you to start with John C. Bogle’s book, The Little Book of Common Sense Investing. That in fact, may be the best investment you ever make,” says Weil.
Do you need to tell your adviser you’re investing on your own too?
Hylland says it’s important to be upfront with your adviser about what you’re doing. “Your adviser may be tax-loss harvesting for you and any unknown gains or losses in your play account could undermine their efforts to help reduce your tax liability. Or they may be advising you to save in a specific pre-tax or post-tax account based on your income and any additional gains or losses your adviser doesn’t know about could impact the effectiveness of their advice,” says Hylland. Basically, you don’t want to ruin the work you’re paying your adviser to do by leaving them in the dark about your play account. (Looking for a new adviser? This tool can help match you with an adviser who might meet your needs.)
If your adviser is not supportive of having fun with this kind of account, it may be because you have other savings goals that are more pressing, like having an emergency fund. Or it may be an ego thing: “An adviser might be concerned that you will perform better than the account they are managing for you or that you will want to move more assets to your self-managed account, which might reduce his assets under management and ultimately their fee,” says certified financial planner Matthew A Ramos.
Read More: I have a financial adviser, but I want to have fun with my money — even if it’s just