What Is a Micro-Investing Platform?
A micro-investing platform is an application that allows users to regularly save small sums of money. Micro-investing platforms aim to remove traditional barriers to investing, such as brokerage account minimums, and encourage people to invest even if they have limited incomes and assets.
Key Takeaways
- By making investing simple and painless, micro-investing platforms can help people who otherwise wouldn’t accumulate savings for future investment.
- These platforms take tiny amounts of money, usually from rounding up transactions, and invest them into ETF-based accounts.
- Small savings can add up over time to yield returns that beat traditional savings vehicles like a savings account of certificates of deposit.
Understanding Micro-Investing Platforms
Micro-investing platforms are the digital-age equivalent of saving in a jar all the spare change from your purchases and then taking the full jar of change to the bank. For example, you could sign up for an account with a platform and register your debit card. Each time you make a purchase, the platform rounds up your purchase to the nearest dollar and deposits the difference into an investment account. Robo-advisors, such as Acorns, helped pioneer this concept.
You are unlikely to notice the extra $0.50 missing from your account when you pay $3.50 for a cappuccino. But over time, you will notice the growing sum in your brokerage account. If you buy that same coffee 20 times a month (basically, every workday), you will have effortlessly invested $10 by the end of the month or $120 by the end of the year. Of course, abetter solution would be for you to make your own cappuccinos at home for $0.50 and invest the $3.00 savings per cup and end up with an extra $60 a month and $720 a year to invest, but for individuals who don’t want to change their behavior, micro-investing offers a superior alternative to investing nothing at all.
Micro-investing makes investing sums as low as a few pennies possible by eliminating per-transaction fees and investment minimums. Consumers don’t need to save up $100 for one share of a stock or mutual fund, and they don’t need to pay a brokerage fee to purchase that share. Instead, they pay the micro-investing platform a nominal fee, perhaps $1 per month, and it invests their money in fractional shares.
Because those fractional shares are in exchange-traded funds (ETF), the consumer’s investment is diversified across many different stocks and/or bonds, helping to protect against market swings in a way that investing in a single stock does not.
Even for people who save regularly, micro-investing platforms can improve their situation. Saving $50 a month for 10 years in a savings account with 0% interest rate results in $6,000, which actually has less intrinsic value after 10 years since savings accounts usually pay interest at a lower rate than inflation. Investing $49 a month (after the $1 platform fee) for 10 years with an average annual return of 7%, however, results in $8,580 before taxes and inflation.
Special Considerations
Features of Micro-Investing Platforms
Automatic investment is not a required feature of a micro-investing platform. The ability to invest very small amounts of money is. To that end, some micro-investing platforms aim to help users to not only get in the habit of saving and investing but also to learn about investing. The platform might teach them how to choose an ETF based on their goals, risk tolerance, interests and beliefs, for example.
A notable micro-investing platform is Acorns Inc. which automatically invests a user's spare change through a smartphone app. Micro-investing platforms must register with the Securities and Exchange Commission (SEC) as a Registered Investment Advisor (RIA) and as a broker-dealer.
FAQs
A micro-investing platform is an application that eases the process of investment by enabling users to save and invest small amounts of money periodically. Micro-investing platforms are different from conventional investment schemes in the sense that there is no minimum limit on the amount that can be saved.
How does micro-investing work? ›
Micro-investing is the act of investing very small amounts of money over time instead of a big lump sum all at once. It's akin to putting your spare change in a piggy bank.
What is a disadvantage of using a micro-investing app? ›
Pros include low investment amounts, ease of use, and potential educational resources. Cons encompass fees, limited diversification, lack of personalized advice, and potential for losses.
Can you make money on micro shares? ›
- Micro investing is adding small amounts of money regularly to your investment account. - Fractional shares allow you to purchase a dollar amount of a stock, instead of a number of shares. - Compounding gains over time can turn small investments into a really big deal.
How much does micro-investing cost? ›
Consumers don't need to save up $100 for one share of a stock or mutual fund, and they don't need to pay a brokerage fee to purchase that share. Instead, they pay the micro-investing platform a nominal fee, perhaps $1 per month, and it invests their money in fractional shares.
Is micro-investing worth it? ›
The strongest benefit of micro-investing apps is how affordable and easy they make it to invest often. Provided the investment itself generates positive returns—even if those returns are small, patience and persistence in investing pays off over the long-term.
How to get into micro-investing? ›
Micro-investing is when you regularly invest small amounts of money. You can start micro-investing using brokerage platforms that connect to your bank account to make small transfers. One method is round-up investing, where you round up your purchases and invest the change.
What are the risks of micro-investing? ›
Market volatility: Investing small amounts of money may expose investors to higher levels of volatility, particularly in times of market turbulence. Risk of loss: Like all investments, micro investing carries inherent risks, including the risk of losing money.
What is the safest app to invest money? ›
Summary: Best Investing Apps
| Company | Forbes Advisor Rating | Best For |
|---|
| Betterment | 4.8 | Best Robo-advisor Investment App |
| TD Ameritrade's thinkorswim | 4.4 | Best Investment App for Experienced Investors |
| Fidelity Mobile | 4.3 | Best Investment App for Average Investors |
| E*TRADE from Morgan Stanley | 3.6 | Best Investment App For Beginners |
1 more rowJun 4, 2024
Traditional investing often comes with commissions and high account fees (such as brokerage fees, monthly fees and withdrawal fees) which can eat into your returns. Micro-investing apps, on the other hand, usually have lower fees or even offer fee-free options.
10 best ways to turn $100 into $1,000
- Opening a high-yield savings account. ...
- Investing in stocks, bonds, crypto, and real estate. ...
- Online selling. ...
- Blogging or vlogging. ...
- Opening a Roth IRA. ...
- Freelancing and other side hustles. ...
- Affiliate marketing and promotion. ...
- Online teaching.
$1,000 is enough to consider some solid stock choices. If you have an extra $1,000 sitting in a savings or checking account, one of the best ways to earn a return on that money is to invest in the stock market.
How much money do I need to trade micro futures? ›
Trading Micro Futures Contracts: Our Recommendation
For those looking to day trade micro futures contracts like the MES (Micro E-mini S&P 500), MNQ (Micro E-mini Nasdaq-100), M2K (Micro E-mini Russell 2000), and MYM (Micro E-mini Dow Jones), we recommend a minimum deposit of $1,000.
Is it worth investing $1,000? ›
Investing can help you turn your money into more money, even when you start small. A $1,000 investment—whether you pay down debt, invest in a robo-advisor, or get your 401(k) match—can help lay the foundation for a prosperous financial journey.
Is $500 enough to start investing? ›
You'd be surprised just how far $500 can go when it's invested in the right way. Not only is it enough to start growing wealth in a meaningful way, but investing even a small amount can help you build positive investing habits that will help you to reach your future financial goals.
How much money should you use to start investing? ›
“Ideally, you'll invest somewhere around 15%–25% of your post-tax income,” says Mark Henry, founder and CEO at Alloy Wealth Management. “If you need to start smaller and work your way up to that goal, that's fine. The important part is that you actually start.”
Is micro trading profitable? ›
Understanding Micro Trading
A primary advantage of micro trading is the potential to generate frequent profits due to the high volume of trades. However, it also comes with challenges. The profit margin for each trade is small, so costs and fees can quickly eat into gains.
How long will it take for a $1000 investment to double in size when invested at the rate of 8% per year? ›
For example, if an investment scheme promises an 8% annual compounded rate of return, it will take approximately nine years (72 / 8 = 9) to double the invested money.
Can you make money investing small amounts? ›
A common myth about investing is that you need a big, fat bank account to get started. In reality, building a solid portfolio can begin with a few thousand—or even a few hundred—dollars. Starting small with your investments isn't a bad thing. The key is just starting, period, and investing your money wisely.
