4 Steps to Get Started in Micro-Investing, 5 Advantages & 2 Disadvantages

By Chika


Last Updated: February 11, 2022


A lot of people believe that investing is an activity for the rich. However, you will be pleasantly surprised to know that your spare change you can start investing with just a few dollars a week.

You can put your widow's mite and spare change to work and guarantee yourself long-term financial security. The adage “Little drops make an ocean” reinforces this notion. 

If you want to invest but don't have a lump sum, micro-investing is a viable option. It enables you to invest tiny sums of money that can grow into hundreds or even tens of thousands of dollars over time.


What is Micro-Investing?

Micro-investing allows you to put your money to work even if you don't have much. However, with a micro-investing app, you can round up your purchases to the nearest dollar and invest the change in a diverse portfolio.

You can get started by skipping little purchases that have become a habit of rounding up to the nearest dollar when shopping. For example, if you purchase groceries for $8.54, the micro-investing app would automatically round up your purchase to the nearest dollar and add $0.46 to your portfolio. 

Micro-investing applications differ, but most of them allow you to set up recurring transfers from your bank account to your investment account. This is unlike traditional investing platforms, which have large investment requirements and significant fees.

Most micro-investing apps charge a monthly flat fee or a percentage of your account balance, and they provide a variety of personal finance instructional tools.

Acorns and Stash are personal finance apps that provide debit cards that automatically round up your transactions and invest the difference in ETFs or fractional shares of stock.

You may start investing using a micro-investment app and save money until you have more spare income. It can also be used as a savings account for a specific financial goal, such as a new car or a trip.


4 Steps to Start Micro-Investing

1. Do your research

Though they may offer the same service, all micro-investing apps are not the same.

Conduct your research to find out which of them would suit your investment goals. Make sure you read the fine print thoroughly to understand the terms and conditions.

Carry out a comparative analysis of the different features and prices so you can determine the best one for your unique situation. If you have questions that are not addressed in the FAQ section, don’t hesitate to reach out to the company directly for more information and read reviews before you make your decision.


2. Create an account

After you have decided which app to use, download it to your smartphone or other mobile device and set up an account.

You'll almost certainly be asked to provide some basic information, such as your name and email address. You may also be asked to fill out a brief survey about your financial condition and micro-investing objectives.


3. Link your debit card or bank account

The app will next prompt you to link your micro-investing account to a legitimate debit card or bank account.

This way, it'll know which purchases to make and put into your investment account automatically. It's worth noting that some programs employ a fractional investment method, allowing you to acquire fractional shares of stock at a lower cost.


4. Hands off and let the app do the work

Most micro-investing apps act like Robo-advisors or online brokers and invest your money in a predetermined portfolio. If you don’t like the portfolio structure, you can tweak it to suit your preferred investment options. However, keep in mind that you might not be able to choose individual stocks or other assets.


5 Advantages of Micro-Investing

1. Low minimum investments

Micro-investing enables you to begin investing even if you do not have a large sum of money to invest.

You may start investing in ETFs and fractional shares of stock with as little as a few dollars, which isn't possible with more traditional investments like mutual funds, which often demand a minimum commitment of a few thousand dollars.


2. Diversification

Micro investing also presents opportunities for diversification, which can be used to hedge risk and potential losses.

It also exposes you to more markets, thereby increasing opportunities for return to your portfolio. If you choose to invest in low-cost ETFs tied to broad market indexes such as the S&P 500, you’ll be able to build a portfolio that’s diversified for just a few dollars each month.


3. Small amounts add up

Contributing little amounts of money to an investment account regularly can pile up over time, potentially turning your spare change into tens of thousands of dollars. This strategy of putting money into the stock market regularly has proven to be lucrative in the long run.


4. Automated investing

Micro-investing helps to automate the investing process, which makes it easier for people to stick with their plan through good times and bad.

The money that customers save is automatically invested in diversified stock portfolios that offer a strong rate of return because the entire process of saving and investing is automated. No prior knowledge of financial markets or investment techniques is required.


5. Makes saving a habit

Micro-investing apps help inculcate a habit of savings which is a prerequisite to attaining financial independence.

This allows you to manage your expenses and avoid unnecessary expenses or buying things on impulse.  


2 Disadvantages of Micro-Investing

1. Inadequate in achieving retirement goals

Micro-investment is a terrific way to get started investing, especially if you're young, but it's unlikely to result in the kind of savings that will allow you to retire comfortably. 

Most experts recommend saving between 10% and 20% of your salary for retirement and an emergency fund. If you can only save a few dollars per month, you may need to rethink your budget and increase your contributions.

To reach that objective, you'll need to save more money through employer-sponsored retirement plans and contributions to tax-advantaged accounts like regular and Roth IRAs.

2. Fees

Micro-investing platforms do charge monthly fees which vary across different plans.

The amount charged may not be much, but if you are contributing spare change, it may have a significant hit on your equity. 


Bottom line

When you don't have much in the way of savings, micro-investing might be a terrific way to get started with investing.

Small, regular contributions can add up over time if properly invested, but you'll need to contribute significantly more to insure your future retirement.

Photo by Tiger Lily from Pexels


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