Micro-investing

What is micro-investing?

Investing is often thought as a rich and educated person’s exercise and the lay person often neglects to enter the market by convincing themselves they can’t afford to invest. In a recent survey, 48% of people who don’t invest said that they believed they didn’t have enough money to start investing.

The truth is. Individuals really don’t need a lot of money to start investing—and they should start doing it as soon as possible. Investing is a key money move for future financial security that helps people ensure they achieve all their financial goals. With micro investing, anyone can get started even if they only have a few dollars to invest.

It’s called micro investing and it means you invest in very small increments by buying fractions of shares. Micro investing has been gaining in popularity in recent years with apps that allow people to start investing with as little as five dollars. If Micro-investing is the act of investing tiny amounts at a time, much like putting spare change in the stock market, is it a universally good thing, enough for long-term financial goals?

Platforms built for micro-investing have been praised for allowing people to safely and responsibly start investing, no matter how little they know about the stock market. For people without much money to invest, micro-investing is a good strategy because it can help them learn more about savings, long-term returns and compounding growth. Small amounts accumulated over time can make a difference because of compounding interest, in which investors earn a return on their initial investment, but also on the growth.

Through compound returns, the longer the individual stays invested, the more time the money has to compound. Starting that compounding effect before you have much income can be an incentive to continue investing as your income starts to grow.

How does micro-investing help the community?

Microloans equip small businesses with capital and this enables them to grow and become profitable. Income generated by these micro-investing ventures not only empowers the entrepreneur to begin to move out of poverty, the investing creates opportunities for other community members to get involved.

How do I get involved in micro-investing?

Micro-investing platforms may be best for investors without much money to put into a 401(k) or individual retirement account, anyone could benefit from using them. Micro-investing

Is really creative and a great way to get investors dipping their toes into the world of investing. Basically instead of spending that spare change on a Starbucks coffee, you’re throwing it into an investment account where it can actually grow and work for you.

Many people get initially involved in micro-investing by using apps because they typically provide a lot of flexibility, and don’t require extensive knowledge about the financial world because they are so intuitive.

Making small investments in a diverse set of stocks and funds, you can build a portfolio started with a relatively small amount of money.

Some investing apps have some fees associated with them, but they’re usually very low. Some micro-investing apps charge users $1 per month to use its platform, up to $5,000. The general rule of thumb is the more money you have invested, the more fees you can expect to pay. Investing apps often become almost a “gateway drug” to learning more about the financial markets.

Experts indicate that millennials can be more hesitant than older generations when it comes to investing in the stock markets, but getting started with an app can be a good way to alleviate investing fears. Micro-investing has many advantages but there are some downsides too.

Investing small amounts over the long-term is a good way to get started, but probably isn’t enough to earn a significant return. If your financial plan is to see a larger return in the long run, investors will likely need to make bigger contributions.

Auto-Stash is one way to set aside money for investing on a regular basis. With Auto-Stash, you can schedule regular money transfers to investments without having to think about it.

Micro-investing platforms often charge fees that investors should also be wary of. If the investor is only stashing a little bit of money away here and there, fees can eat up a significant portion of your portfolio.

Making regular investment contributions over time is known as dollar-cost averaging. This technique can help investors stick to their financial investment plan and avoid trying to utilize techniques like timing the market. Any financial services app that encourages healthy saving and investment habits should be celebrated.

What are the different methods of micro-investing?

Apps are good for the novice investor to establish good habits of consistent savings patterns and create a discipline around investing. Once an investor has more income or savings capacity it is advised to move to a robust investment platform that can provide more direction, education, financial planning and guidance.

Apps like Robinhood and Stash can help young investors turn to micro-investing. These apps give a lot of room for young investors to learn, and explore finance and markets.

Because micro-investing involves investing such a small amount of money compounds over time, anyone can start investing with as little as cents on the dollar. This investment method may not open the entire market to a user, many assets can be explored at a low cost.

The cost is low to invest in fractional shares of companies like Microsoft. These companies enjoy low volatility, can lead to building a more stable investment portfolio.

Contributing to your employer’s 401(k), is a great next step beyond micro-investing apps if it offers one. If an employer offers a match, it’s always wise to contribute at least enough to earn that match if you can afford to.

Employees whose companies don’t have a 401(k), a good next step to consider is opening an IRA. Either of these accounts is a great place to start saving more for retirement alongside a micro-investing app.

How can I make money micro-investing?

Step 1: Research Apps for Micro Investment

As with embarking on any financial decision, do research before committing to a micro-investing app. One app may better align with your financial goals than others. In the following paragraphs we will be reviewing our recommendations for micro-investing apps.

Step 2: Choose a Micro Investment App Account and Sign up

After you do your research on the best micro-investment app and have chosen your favorite it is always a great idea to talk to others similarly looking into starting a financial investment. Be sure and download the app on your mobile phone or sign up directly on their website. Often a micro-investment signup process will usually request your personal and bank information, including your address, email address, legal name, and social security number.

Step 3: Link Your Financial Services Bank Account

After you sign up, with an app you will need to provide your bank information. Most likely you can find your personal bank from the drop-down list they’ll provide. After selecting your bank, follow a series of prompts that will request you provide your routing number and account number or a valid debit card.

Some apps, like Stash, will perform a micro deposit to verify a user’s bank account and then they will link it to a user’s investment account. The app will send small deposits into a user’s account, often less than $0.50. The user will need to enter the exact dollar amount to complete the linking process to the bank account and online platform.

Step 4: Funding Your Account

As always, micro investment apps will break down the often costly financial barriers often associated with traditional financial advisors and brokers. With Stash, you can get started with as little as five dollars. With Betterment, you can sign up with a $10 minimum account balance. After the account is linked, users can transfer the appropriate amount into your investment account and start investing immediately.

Step 5: Start Your Micro-Investing

As you explore the different apps and their unique features, you’ll learn that most of them focus on investing in exchange-traded funds. Exchange-traded funds are groups of individual stocks, usually bundled by your risk tolerance or certain industries.

When choosing which stocks to invest in, return to your previously agreed-upon preferred risk level. Are you conservative, moderate, or more aggressive? The answer will affect the strategy of exchange-traded funds aligning with investment goals and risk tolerance.

Step 6: Review Your Investment Goals

As you gain more experience investing, your goals will change over time. If you’re younger, you have more time to pursue an aggressive strategy. However, as you get older, you might find comfort in a more conservative approach. Perhaps, you’ll outgrow micro-investing altogether and might want to work directly with a financial advisor. As an investor, you’re not locked into a particular strategy for life. With age and experience, your priorities will shift, and so should your investment strategy.

What are the five best micro-investing apps?

Micro investing apps solve the hurdle of entering the financial markets. These companies want to get a younger generation enter into the investment world, even if they can only afford to put away leftover change from a bagel run. According to the financial website Benzinga, the micro-investment apps are

Best Overall: Acorns.

Best for ETFs: Stash.

Best for IRAs: WiseBanyan.

Best for Fractional Shares: Stock Pile.

Best for Daily Saving: Clink.