How Does Ally Invest Make Money

You’ve probably heard of Ally Bank, headquartered in Philadelphia, if you’re at all familiar with the world of internet banking. Ally Bank, a division of Ally Financial, is highly recognized as a top online-only bank. It is well-known for its superior returns, minimal costs, and almost nonexistent bank account opening minimums, in addition to its widespread use of a no-annual-fee cash-back credit card.

Ally Invest is Ally Bank’s considerably more recent online brokerage, therefore you probably know less about it. Along with Fidelity, Charles Schwab, and E*TRADE, it is one of our favorite online stock brokers. After acquiring TradeKing in 2016, Ally Bank renamed it Ally Invest, a bargain brokerage that has been around since the 1990s.

Ally Invest is worth a second look if you are in the market for a new broker or if you are not satisfied with your existing investing experience.

Important Characteristics

In this article, we will go through the key functions of Ally Invest.

Bonuses for Opening Investment Accounts

You may be eligible for an Ally Invest account opening incentive if you deposit at least $10,000 into your new account. Cash bonuses vary in magnitude based on the total amount of the qualifying deposit:

• $10,000 to $24,900: $100
• $25,000 to $99,900: $250
• $100,000 to $249,900: $300
• $250,000 to $499,900: $600
• $500,000 to $999,900: $1,200
• $1M to $1.99M: $2,000
• $2M+: $3,000

You have 60 days from the time your account is opened to make a qualifying deposit. Ally Invest typically deposits bonuses within 10 business days after the 60-day evaluation period has ended.

You won’t be able to withdraw your bonus or first deposit (less any losses incurred while trading) from your account for 300 days after it’s been opened. If your deposit doesn’t meet the requirements, you can access any money you’ve put in at any time.

If the bonus or qualifying deposit is withdrawn before the 300-day period is over, Ally Invest will cancel the bonus.

Credits for Account Opening

In addition to the sign-up bonuses, new Ally Invest customers can receive up to $150 in transfer fee credits when they move their current accounts (including cash and assets) from another brokerage firm. In order to receive a fee reduction, a $2,500 minimum balance is required in the account.

Investment Opportunities

When it comes to investing options, the self-directed trading platform at Ally Invest has quite a few to choose from. With the exception of a few minor regulatory fees and levies, all trades are commission free:

• Stocks. Ally Invest is a brokerage platform that allows you to buy and sell equities listed on exchanges as well as select OTC stocks. It’s free to buy and sell stocks valued at $2 or more, but you might have to pay a fee if you buy or sell stocks priced at $2 or less.
• Bonds. Ally Invest lets you purchase and sell bonds from a wide variety of issuers, including corporations and governments, for a flat fee of $1 per bond and a minimum of $10 per trade. It’s important to check the small print before making a buy order for bonds, since there may be purchase minimums that are higher than this.
• Investing in a pooled fund with other people. Investment mutual funds are specialized portfolios of securities. Although all mutual funds have expenses, passive investment vehicles (such as index funds) often have far lower cost ratios than other types of funds. The number of mutual funds available at Ally Invest, both load and no-load, exceeds 12,000. Note that load funds charge front- or back-end fees in addition to platform commissions and recurring expenditures; the usual no-load fund commission is $9.95.
• Exchange-traded funds, or ETFs, are similar in appearance to mutual funds but trade on exchanges like stocks. Similar to mutual funds, ETFs are diversified portfolios of stocks and other financial instruments that aim to accomplish a predetermined goal, such as tracking the performance of an index. Similar to mutual funds, ETFs also have an expense ratio that reflects the total cost of owning the fund. The annual cost ratios of most index ETFs are rather modest, coming in at about 0.05% to 0.10% on average.
• Options. The ability to purchase or sell an asset at a predetermined price at a certain future date is reflected in options, which are a type of derivative instrument (expiration). If you’re unfamiliar with options, you should check out Ally Invest’s support materials to learn about the various varieties, as well as the restrictions and benefits associated with each. Ally Invest offers commission-free options trading, however each contract costs $0.50.
• Forex. Ally Invest’s forex trading platform caters to advanced traders, allowing them to trade more than 80 different currency pairings. Costs are reasonable, yet margins are limited (down to 1 to 2 pips).

Traditional Brokerage Accounts

Any of Ally Invest’s flagship products are available for purchase and sale in a standard, self-directed, taxable brokerage account. Stocks, bonds, mutual funds, ETFs, and options are all items that qualify.

For those who want to trade frequently, a standard brokerage account is the best option because it requires no minimum deposit and has low costs. Traditional brokerage accounts with Ally Invest can be owned by a single person, a married couple, or a legal guardian on behalf of a minor kid (custodial account). Traditional brokerage accounts are not tax-advantaged in the way that Ally’s IRAs are.

Tax-Advantaged Accounts

Traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, and Coverdell Education Savings Accounts (ESAs) are all tax-advantaged accounts in which you may purchase and sell any mainstream investment product and, in certain circumstances, make deposits in Ally-backed savings products with competitive interest rates.

In addition to traditional IRAs, rollover IRAs can be funded using funds from qualified employer-sponsored retirement plans, such as 401(k)s. There are no maintenance charges for these accounts at Ally Invest.

Read up on the distinctions between regular and Roth IRAs, as well as the eligibility, appropriateness, and constraints of tax-advantaged accounts, from the Internal Revenue Service or a qualified financial advisor, before committing to creating an account.

Cash-Enhanced Managed Portfolios

There is a robo-advisor service offered by Ally Invest called Cash-Enhanced Managed Portfolios. Hands-off investors who aren’t sold on the do-it-yourself method and aren’t sure they need to pay extra for guidance from human financial advisers may find Cash-Enhanced Managed Portfolios to be a good fit.

Unlike competing platforms, Cash-Enhanced Managed Portfolios don’t charge advisory fees and use a cash buffer earning a variable rate of return to protect investments from market fluctuations. “Professionally built, individualized portfolios matched to your financial requirements, risk tolerance, goals, and investment horizons” is how Ally Invest describes its Cash-Enhanced Managed Portfolios.

They are constructed mostly with low-cost index ETFs after an initial consultation with a human financial adviser who evaluates your objectives and risk tolerance. The frequency with which they are rebalanced depends on factors such as your portfolio’s make-up, your risk tolerance, the overall portfolio’s balance, and your time horizon.

Ally Invest provides a socially responsible investing alternative for account holders who are motivated by their morals, and trades conducted through the Cash-Enhanced Managed Portfolios automated investment adviser are always fee free.

Platform Resources and Instruments

The self-directed section of Ally Invest provides an impressive array of tools and information for independent traders and investors, including:

• Streaming (In-Real-Time) Graphs. There are six distinct layouts to choose from, including the ubiquitous candlestick and mountain styles. More than 90 different charting and sketching tools are at your disposal for plotting the growth of your favorite indices, equities, and ETFs.
• Make or Lose It Calculator. This calculator automates the legwork of determining the prospective gain or loss of an options trade before it is ever performed. It’s not a perfect predictor, but it can give you an idea of how vulnerable you are.
• Watchlist. Your preferred stocks and funds may be gathered using this reliable brokerage instrument. You may casually keep an eye on their progress and then act when the time is appropriate.
• Analysis and Statistics for the Market. The market and business snapshots provided by Ally Invest are in-depth (without being overwhelming) profiles meant to improve your familiarity with the financial markets. You may examine firms, ETFs, and indexes in further detail, including their past performance and essential financial data, with the help of the market data tool.
• Mathematical Tool for Estimating the Likelihood of Events. Ally Invest’s probability calculator is similarly non-predictive to the profit-loss calculator. However, you’ll need to adopt a methodical approach to risk assessment by calculating the probability of success for your strategy based on factors like implied volatility.

Customer Service

Live chat and a toll-free number makeup Alley Invest’s comprehensive customer service infrastructure. Ally Invest’s customer service department is available whenever a customer needs it. If you want to schedule your calls in advance, you may check the system for the current wait times.

Pros

The cheap or nonexistent fees and lack of a minimum investment are just two of the many benefits of using Ally Invest.

1. Self-Directed Investment Accounts Require No Minimum Investment. Self-directed accounts at Ally Invest have no deposit minimums, much like those at Ally Bank’s checking and savings accounts. That’s excellent news for those with modest savings and a compelling reason to consider Ally Invest if you’re a novice investor.
2. Managed Portfolios that include Cash Additions are Free of Charge. The Cash-Enhanced Managed Portfolios from Ally Invest are available with zero advisory fees and a variable return on the cash buffer (about 30% of invested assets). This is a significant benefit compared to both other automated portfolio management tools and human advisers. In fact, the median fee for a human financial adviser is between 0.75% and 1.50% of assets under management (AUM), while the fee for a hybrid advisor, who provides a combination of human and computer-based financial planning and investment management, is between 0.50% and 1.00% AUM.
3. Invest without paying any commissions on stocks or ETFs. Self-directed investors will appreciate that stock and ETF trades with Ally Invest are commission-free.
4. Respectable Sign-Up Bonus Provided to New Customers. The bonuses offered by Ally Invest for opening an account are competitive with the best offers from other banks and brokerages. You can get a bonus of up to $3,000 depending on how much you invest.
5. There is a Plethora of Account Options to Choose From. Ally Invest offers a wide variety of investment accounts, from standard IRAs to Roth IRAs to Cash-Enhanced Managed Portfolios. Strong Customer Service Means You Can Easily Find an Account That Meets Your Needs No Matter What Your Strategy Is Or How Long You Plan To Use It Support for Ally Invest may be reached through phone or live chat anytime of the day or night. This is just another way in which Ally Bank stands out. Most rival banks only offer phone service during work hours, and many of them even close for the night.
6. Full-Service Associated Financial Institution Makes for Full-Spectrum Financial Management. Ally Bank and Ally Invest are clearly connected, despite their distinct functions. Ally Bank promotes Ally Invest with zeal, as it is a great option for new investors just starting out. It’s easy to imagine Ally Invest clients using high-yielding Ally Bank deposit accounts into their portfolio hedging and cash management strategies. Though many discount brokers have banking partnerships, few are as extensive or well-managed as Ally Bank.

Cons

The lack of commission-free mutual fund transactions and brick-and-mortar locations manned by human advisors are two of Ally Invest’s major drawbacks.

1. There are no mutual fund trades available that are commission free. Currently, mutual fund trades made via Ally Invest do not incur any fees. The low-cost mutual funds that are central to passive and index investing are not available to Ally Invest clients, which is a downside for those investors. There are a plethora of no-transaction-fee mutual funds available at competing full-service brokers like TD Ameritrade and Schwab.
2. There is nothing there to even walk on. Even if you’re a client of Ally Invest’s Cash-Enhanced Managed Portfolios, you won’t be able to meet with Ally Invest employees in person because the company doesn’t have any brick-and-mortar locations. Traditional financial advisors are a good option if you’d rather have a close, personal contact with the people who are handling your money.

Bottom Line

When it comes to online brokerages, Ally Invest is in the upper tier, but it’s not the only option worth considering. There is a plethora of alternatives available, and you (perhaps in conjunction with a financial counselor) must choose which one is ideal for your situation.