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What is Micro-investing, and How Do You Do it?

October 03, 2018

What is this? An investment for ants?

3 min read

“Micro-investing” is a term used to describe the process of saving, depositing, and investing small sums of money into an investment account. These small sums may have a greater chance of growing while in an investment account than in a traditional savings account.

Micro-investing platforms generally aim to remove barriers to traditional investing, such as trading fees and minimum balance requirements. There are numerous mobile apps available for potential investors looking to try micro-investing.

These micro-investing companies and their platforms can vary in a number of ways, including the investment strategies and products they offer users.

What is micro-investing?

Micro-investing platforms allow users to contribute small amounts of money—often as little as $5—to an investment, or brokerage account. That money can then be invested in various ways, and hopefully, generate a return for the investor.

The way micro-investing platforms operate varies. Some require a small initial deposit, while others link to your bank and start investing with little sums of money rounded off of various transactions, such as when you are grocery shopping or buying a coffee.

The benefits of micro-investing

Micro-investing via mobile apps can make it easy to start investing.

Some apps even allow users to make fractional investments in larger managed assets, such as ETFs and make investment decisions based on causes they believe in, such as environmental conservation and LGBT rights. There are funds that are focused on specific companies and industries, such as green technology or defense.

With relative simplicity, some investing apps can also teach new investors about general personal finance issues, too, including the importance of saving and setting aside money in your budget for investing. Some apps also let you get started investing with small amounts across various investments, to allow new investors to test the waters of the market. This helps the investor diversify by choosing investments in numerous economic sectors—not just the hot industry of the moment—as well as in different geographies around the globe.

How do people micro-invest?

Many people use micro-investing apps because they typically provide a lot of flexibility, and don’t require extensive knowledge about the financial world.

To recap, micro-investing involves making investments with small amounts of money, and there are many ways to get started. One popular way people do it is by buying fractional shares of stocks and ETFs. Some brokers will allow you to invest $100 in Microsoft—which is less than the price of a single share.

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

What fees are associated with micro-investing?

Most investing apps have some fees associated with them, but they’re typically pretty low. For example, Stash charges users $1 per month to use its platform, up to $5,000.

Generally speaking, the more money you have invested, the more fees you can expect to pay.

Micro-investing can help beginners

Investing apps can be a “gateway drug” to learning more about the stock market.

Millennials can be more hesitant than other generations when it comes to investing on the stock market, but getting started with a micro-investing app can be a good way to alleviate their fears related to investing.

Downsides?

Micro-investing does have its downsides, too.

Investing small amounts over the long-term probably isn’t enough to earn you a significant return. It’s a good way to get started, of course, but if you hope to see a hefty return, years down the road, you’ll likely need to increase your contributions.

Investors should also be wary of the fees associated with micro-investing platforms. If you’re only stashing a little bit of money away here and there, fees can eat up a significant portion of your portfolio.

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By Stash Team

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