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Micro investing apps: Are they worth it?

Updated: Sep 13

With a micro investing app, you can get started on your investment journey for as little as $5. But what exactly is "micro investing"? Micro investing allows users to save & invest small amounts of money, without the usual barriers of investing, like brokerage minimums, and encourages the behavior of investing even with a limited income.


The most popular method of micro investing used by some of the big players like Raiz (formerly Acorns), Spaceship Voyager, and now Moka (formerly Mylo) rounds up your purchases to the nearest dollar and invests those tiny amounts for you into the stock market via the app.


With some of these investing apps you can even set up automatic deposits or transfer small amounts into your investment account without the need for a traditional broker.


These apps aren't designed to give you full access to the stock market or teach you the background of investment theory but they do make getting started pretty easy, and it's all bundled into an aesthetic design that's very user friendly.


WHY PEOPLE LIKE THEM

Anything that comes with an app is sure to be a hit with today's generation, particularly millennials and younger. The apps are designed to be enticing to use and kind of feel like a "game". Managing an investment account from your smartphone is an appealing function to those that are quite savvy with technology.


Also, setting up an account with the popular platforms usually only takes a few minutes and you don't even have to speak with anyone to do it! Perfect for all those introverts out there who like to avoid human interaction wherever possible. Once you're set up you only need a small amount of money to get started.


WHAT DO THEY INVEST IN?

When you sign up for an app like Acorns (now Raiz), you answer a questionnaire that will assess your risk tolerance and financial goals.


From there, typically your money gets invested into "Exchange Traded Funds", or ETFs, rather than individual stocks and bonds. These funds are usually comprised of portions of dozens or even hundreds of different companies, which helps spread out your risk as you're not just buying into just one particular business.


Don't worry if you have no idea how the stock market works, it's not a prerequisite for this type of investing. You don't all of a sudden have to start following the financial news or sign up to the Wall Street journal to get the inside scoop on what the markets are doing, you can happily just keep binging the next big thing on Netflix and not think twice about the world economies.


ARE THERE ANY DOWNSIDES?

Don't expect to get rich


By now you've probably realized that "micro" investing means investing small amounts of money. You're not going to get rich through this method alone. However, the hardest part of investing is just getting started and that's exactly what these apps are designed to do for you.


Typically you will most likely have a few hundred dollars built up after about a year, which isn't really that much money. But if you've been living paycheck to paycheck, a few hundred dollars is a huge win, especially since the amounts rounded up from each purchase will be barely noticeable to you.


Keep an eye on the fees


Some of these apps will charge a monthly fee, which if you're not investing a whole lot can eat into your profits pretty quick.


Another fee to watch out for is a "broker fee", which is what you pay in order to make a transaction. CommSec Pocket allows you to invest $50 at a time but it'll cost you a $2 broker fee to do it, so if you're only making a few small deposits the fees can really add up.


There are no guarantees


Like with any investment, there is always a risk. There is no guarantee that you will earn a certain amount of money each and every year. It's likely that you will generate much more than you typically could in a savings account with the same amount deposited, but there can and will be times when your investment value goes down in the short term, and this is all driven by market conditions that no one can predict.


THE BOTTOM LINE


Micro investing apps offer a simple solution to get your started on your investment journey, even if you have a low or limited income. They're a great tool to help you save a few extra dollars each year, without you really noticing the difference in your bank account.


Always be mindful of the fees that each product can charge to ensure your gains aren't eaten away by the cost of using the service.


As a final note, to reach savings goals like education funding, a major purchase, or financial independence, you're going to need significantly more money. So in other words, micro investing shouldn't be your primary method of saving.


If you want to learn more about the ins and outs of micro investing, I encourage you to check out an article by another fellow FIRE blogger, Captain FI. He breaks down everything you need to know in one easy to read blog post, "Micro Investing in Australia".


Feel free to reach out with any questions or comments you may have. I'm always up for a chat!



Blake - FIRE with a family

Disclaimer

The information and links in this website are for general information only and does not take into consideration your personal financial situation. Everything in this website is not intended as financial or investment advice and should not be construed or relied on as such. Please seek the services of professional advisers to address your individual needs.

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