In a recent survey by GoBankingRates, almost half of everyone surveyed said they “can’t afford to invest”. The truth is you don’t need a lot of money to start investing, thanks to microinvesting. Microinvesting investing makes saving a few dollars here and there pretty easy.
What is Microinvesting? Microinvesting rounds up your purchases and diverts the leftover change to your investing goals using micro-investing apps. It creates micro-results, but if this is what gets you actively saving and actively investing, then I recommend you go for it.
Second, if you haven’t followed the new 7 steps for investing in the 2020’s, then read our steps here. To recap:
- Put a $1,000 in an emergency savings account.
- Get control of your debt.
- 3 to 6 months in same emergency savings account.
- Start a business or a side hustle.
- Start your retirement setup.
- Create passive income.
- Grow your portfolio.
You can use microinvesting for your emergency savings account and your retirement setup. Let’s get into it.
The Basics of Microinvesting
Microinvesting platforms is today’s equivalent to putting your spare change in a jar, and now you benefit from the robo-investing app that auto invests your funds and rebalances your portfolio with one-click.
I love this concept because you’re unlikely to notice the extra 50 cents here and there when you’re shopping. But over time, you’ll see the sum growing. Keep in mind, this is a nice solution to get started, but you can’t count on it for long-term investments unless you’re able to divert much more to the investments than your change.
Micro-investing for Young Investors and Savers
When I was in college, I used the envelope method to save money and budget different categories every month. My neighbors actually had a binder with tabs and money under each tab for their bills. Now, can you imagine for every purchase that you have made the past 5 years if the change was auto-sent to a stock or an ETF? You’d not only be multiplying your spare change, you’d be setting yourself up for your own emergency savings account or a down payment on a house or even a vacation.
You could do it like this, or you can start with a micro-investing app below:
Related: Best Budget Methods
These apps eliminate the conventional roadblocks to investing in addition to offering you more investment options that include index funds, stocks, and ETFs.
Below is a breakdown of some of the best micro-investing apps.
Acorns Investing and Acorns App
Acorns is one of the best micro-investing apps. It allows a prospective investor to invest without missing the money committed to the investment plan. So, how does Acorns achieve this?
The app rounds up your credit card or debit card purchases to the nearest dollar figure and invests the digital change on your behalf. You can set the app to automatically round up all purchases, and there is also the option of manually rounding up the transactions you choose.
What is Acorns and how does it work?
Acorns offers three different subscription tiers for your life’s financial needs. Once you choose a tier, your Acorns account is considered a “Limited Trading Authority”. That means you get to choose between 5 investment portfolios, and then, Acorns decides which ETF’s make up those portfolios. Click here for our full review on Acorns.
Remember, I said that micro-investing will lead to micro-results. Acorns now has a new feature called “Boost Your Round-Ups”. You can increase your spare change ten times. If you’re giving 50 cents, you can invest $5 for that single transaction. That’s the better way to increase your savings.
I included Acorns first because they also provide custodial accounts for kids.
Acorns Lite – $1/month
Getting started? Invest spare change, set Recurring Investments, and more with an easy, automated investment account.
Acorns Personal – $3/month
Your personal financial wellness system, with all-in-one investment, retirement, and checking, a metal debit card, bonus investments, money advice, and more!
Acorns Family – $5/month
Investment accounts for unlimited kids per family! Plus personal investment, retirement, and checking accounts, bonus investments, money advice, and more!
Stash allows a prospective investor to invest a minimum amount of $5. The app can be set to make recurring transfers from your bank account periodically, say weekly to monthly.
Very similar to Acorns, Stash asks you to respond to a few questions to develop a risk profile that ranges from conservative and aggressive. Stash then invests the savings in a range of portfolios that reflect your beliefs, goals, and interests. You have the option to choose from over 150 stocks and ETFs.
Pricing for 2021
- Stock-Back® Card1
- Saving tools
- Personalized advice
- $1k life insurance offered by Avibra‡
Stash Growth $3/month
- Everything in Stash Beginner
- Retirement (Roth or Traditional IRA)4
- Tax benefits for retirement investing
- Personalized retirement advice
- Everything in Stash Growth
- Investing for children5
- Exclusive Stock-Back® Card bonuses
- 2x stock with the Stock-Back® Card1
- Premium research and advice
Betterment is a robo advisor that allows you to create a savings goal and then, set everything up on auto-pilot until you achieve that goal. I love this gameplan because it really is about conquering your goals using robo-advisors.
Their goal is to maximize your returns while minimizing risks by investing in a diverse pool of assets. They have one of the easiest setups and optimized for mobile devices. All you have to do is enter your age, your income and set a goal. Then, they present you with an asset allocation and the risks involved. Then, you adjust the percentage of equity versus fixed income held in that portfolio.
You can also setup your Roth and traditional IRA accounts, and your trust accounts with Betterment.
Betterment Pricing for 2021
- No-fee‡ Checking account and Visa® debit card
- ATM fees reimbursed worldwide
- FDIC-insured up to $250k
- High-yield cash account earning a variable 0.40%*
- Bucket money for individual goals and plans
- FDIC-insured up to $1M† with our program banks
You could use this no-fee plan to create your emergency savings account as well.
0.25% Annual Fee – Digital Investing
- Low-cost investing portfolios built and managed based on your priorities
- Socially responsible investing options
- Account choices, including joint accounts, IRAs, and trusts
- Automatic features like portfolio rebalancing, dividend reinvestment, and auto-adjust
- Advanced tax-saving strategies like tax loss harvesting and asset location
- Add Checking and Cash Reserve with no additional fees
0.40 Annual Fee – Premium Investing
- All the features of Digital investing
- Unlimited calls and emails with our team of CFP® professionals
- In-depth advice on investments held outside of Betterment through our team of CFP© professionals
- Add Checking and Cash Reserve with no additional fees
Part of Public.com’s goal is to make stock market investing more accessible to people while offering a social network feed that allows you to follow traders. Traders can exchange ideas freely and picks and professional advice on the platform.
Most free platforms make money using a “payment for order flow” where brokers receive compensation to route orders to execute trades. Public is one of the first platforms that allow tipping for trades. The idea is that if you’re winning, you’ll leave a tip and the bigger win, the bigger tip. This concept eliminates the conflicts of interest that Robinhood ran into last week.
Public allows you to connect your checking account and setup recurring deposits, but you have to pick the stocks and ETF’s that you want to invest in. Luckily, their social media stream is pretty spot on with their picks. The experts on there tell you WHY they recommend certain stocks and sectors along with their stock choices. If you like to be in control of your investing and trading decisions, then Public.com is a great choice.
Rize is a microinvesting app that allows you to setup auto-deposits while auto-investing your money into ETF’s. Plus, you can use this for your emergency savings account because they pay 1.43% on your money just sitting there.
Rize works similar to Betterment in that you can setup a savings goal. You simply choose which type of goal you want to save for:
- Emergency Savings
- Custom Goal
Rize will then suggest how much you’ll need to save each money and create a timeline for that goal. Then, you can choose to speed up the savings using their “power ups”.
First, you can power up with an accelerate feature that auto increases by 1% each month. If you’re putting away $100, then the next month, Rize will save $101 and keep increasing until you turn it off.
Second, you can power up with the boost feature. Rize will monitor your account to find extra money to save. This feature will find money and auto-transfer it up to $5.
Benefits of Microinvesting
There are numerous advantages of micro-investing.
First, you can usually get started with $1. Second, microinvesting apps charge either a flat fee or a lower investment amount and a percentage-fee for investment portfolios that exceed $5,000. Some of the popular apps such as Acorns and Stash charge a flat rate of $1 for investment management.
Thirdly, micro-investing gives the investor the option to choose between multiple investment options. It is possible to invest in stocks or ETFs through these apps. The fact that these apps do not compromise the investment options is a huge advantage for young investors.
- Little to No Money to Get Started
- Variety of Investment Options
- Retirement and Savings Options
- Goal Setting Solution
- Set and Forget It Robo-Advising
- Automatic Portfolio Rebalancing
- Fractional Share Capability
- Custodial Account for Kids
- Cheaper as Your Money Grows
Micro-investing apps help with automatic portfolio rebalancing. Good financial planning requires a clear understanding of how different investments work along with their lockup period, distribution methods, and risk profile. Micro-investing apps help manage risk by having the investor pick a risk level. The micro-investing apps also have interfaces that are simple to use.
Limitations of Micro-investing Apps
In as much as these micro-investing apps come with various benefits, they also have numerous limitations. First, it is likely that you will fall short of the long-term investment goals. These apps can cultivate good savings and investing habits, but the users who micro-invest get micro-results. You must use the boost options and contribute more than just the change to get better returns.
- Micro-Investing, Micro-Results
- Limited Choices
- No Single Stock Option on Robo-Advising
- High Percentage Fee for Smaller Accounts
- No Human Component on Most Robo-Advisors
Keep in mind, most of the robo-advisors will not allow you to pick your own stocks, and there is no human component if you’re looking for advice.
Arguably, investing and letting capital investments grow is the ideal approach to building long-lasting wealth. Micro-investing is a good approach, especially for young people who do not have significant capital to make major investments in stocks and ETFs.
Micro-investing apps can help to cultivate good investment and saving habits. Investors have to increase their contribution relative to income increase to ensure reasonable and sustained growth.
Do you have experience with these microinvesting apps? I’d love to hear your experience. Would you mind leaving a comment below? Also, if you know anyone looking for this info, please share this article with them. We rely on word of mouth marketing to compete with the big dogs.