By Myles Leva
Last Updated: March 29, 2022
Stock investing was once thought of as an activity for the wealthy. In many ways, it was a much more exclusive activity than it is today. However, leveraging technology, many businesses have been able to democratize the investment space.
The old saying “it takes money to make money” does still have a lot of truth to it. However, recent developments have demonstrated how you can make a surprising amount of money by starting off with very little.
With consistent, small deposits, you can buy into the market through such things as ETFs and fractional shares. Even if you start small, such a process can make you thousands of dollars over the years.
This logic points towards the new trend of micro investing. In this article, we will cover:
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Overall, it is meant for people who want to invest some of their savings even when they have very little saved.
It is tied closely to the tech framework that enables it, and there are a few crucial aspects. These are the things micro investing platforms enable you to do.
Micro investing platforms are applications that help their users save small sums of money every day. In this way, they serve the same purpose as a change jar.
The idea is that you save the change you make on your important regular purchases, like groceries. You save the change from such transactions by rounding up to the dollar, for example.
What this looks like in practice is that you sign up for a micro investing app, connect your debit card, and have what would normally be your change put into investing.
If you use your debit for groceries, you’re unlikely to notice $0.67 extra from a $19.33 transaction. However, as each transaction adds up, you build a small investment fund. You can view it as a tax that is paid to your future self, in theory.
At some point, normally faster than you’d expect, you’ll have a sum of money that you can use to start seeing returns. Your “full jar of change” is then used to directly invest.
This idea was originally engineered by robo-advisor-based investment platforms. Unsurprisingly, the money collected is normally put towards investments like ETFs, which provide stable, comfortable returns with minimal risk.
Fractional shares are another investment that can be bought with a small investment account balance.
Often, the investing is done automatically, with the funds you automatically saved with your micro investing app. However, automatic investing isn’t necessary, and you can choose to maintain more control of your account with many platforms.
Micro investing’s popularity can be viewed in the context of financial apps more broadly. Technology has made it easier for us to:
In a way, micro investing is a logical extension of this trend. When you combine the power of automation, it makes sense that people would find it:
With financial products and services traditionally being harder to reach and benefit from, these kinds of services were bound to quickly grow in popularity.
This is a matter of personal finances. If you have enough money to invest, you have many options, some of which may be far better than this option. However, you can start by comparing the pros and cons.
Acorns is the pioneer of micro investing. As a robo-advisor (robo investing) platform, the company is no stranger to automation.
As a platform, Acorns charges reasonably low fees for the results they produce. It’s a talented company currently managing over $3 billion for over 8 million clients.
As the name suggests, Stash helps you build a stash of money. Their fees are also small, ranging from $3 to $9 per month, depending on your needs. They don’t charge fees for normal transfers, but charge a fee for instant transfers.
Micro investing is a young financial phenomenon defined by its accessibility. It simply makes it easier to save and invest. If you feel like you need to force yourself to start saving and investing, you may find micro investing apps very useful.
As the name suggests, it isn’t something that will solve your financial issues. If you are aiming for a better macro-financial future, you will need to take actions far beyond what micro investing enables.
Photo by Mathieu Stern on Unsplash