Can Micro Investing Really Add Up? You May Be Surprised by the Results
Have you ever thought if it is worthwhile investing just a small amount of money over a long period of time? For one who does not have much money to invest, trying to strategize how one should commence can be intimidating. Thankfully, there are micro-investing apps that make it possible for an individual to begin investing with just the change they have in their pockets. In fact, some of the best investment apps do not come with any minimum deposit balance or any initial investments at all.
So, is it really practical to “invest” your spare change? If done a while, micro investing can indeed help you build some wealth over time. Moreover, if you form a habit of micro-investing regularly, you might even find additional disposable income in the future to invest. A decade or two hence, those paltry sums could prove to be quite fruitful in returns.
What is the strategy involved in Micro Investing?
Micro investing means that one invests small amounts of money in places over and over through out a period of time. This option however wasn’t available to investors before owing to the fact that investment houses used to set a minimum amount and even required one to buy shares in units.
At present with the assistance of fractional share investing facilities even children can invest in stocks with any amount. Nowadays, there are many investing applications and brokers that have no minimum buying limit and allow buying stocks with no limits. Using this option, you may purchase the stocks of large corporations even when the costs are high and your savings low. For instance, if one share of stock of a particular company is going at $2000, Fractional investing gives you the opportunity to buy a part for say a dollar. You would still only purchase 0.0005 shares. Still, it gives you the ability to participate in investments that would be beyond your means otherwise.
At the same time, it allows you to reduce the risk taken by investing in various assets. But in the old days, whenever you considered investing in a stock in your portfolio, you had to accumulate money to buy an entire share. Nowadays, because of fractional investing, you can invest in as many stocks as you have the will to.
Some of the micro-investing platforms have even taken it a step further by rounding up your purchases to the nearest dollar and investing the difference without your consent. Or allow you to make small regular payments to begin micro-investing.
Is It Right For You To Start Micro Investing?
It is an ideal approach for beginner investors since it requires minimal investment. It usually calls for minimal investments on the part of the investor.
However, it is not therefore the best approach for every investor. Those with thousands of dollars in hand to invest and looking for better and cheaper alternatives may while finding such other investment opportunities.
How Much Money Is Enough To Make With Micro Investing?
Micro investing can indeed pay off especially if you do it regularly over a longer time span. Let’s consider two examples.
To drive home this point, let us take the case of an individual who has a monthly bill of $ 14 for a streaming service which he decides to do away with and invest the sum in a portfolio accruing 8% yearly. After forty years of making this monthly contribution, culturally this would amount to close to $48,873 excluding fees.
In the second case also, payments through Acorn’s Round- Ups feature. In 2017 the average number of payment transactions per person per month was reported as 70 by Federal Reserve Bank of Boston. For each transaction done this way using up 50 cents round up the average person may invest about USD 35 a month. This amount invested for forty years at a rate of return of 8% could reach close to $122,185 without deducting any fees either.
Best Practices for Micro Investing
Know The Investing Basics: It is recommended to understand the investing basics such as risk tolerance, compound interest, long term investing, index investing, prior to engaging in micro investing.
Research Platforms: In micro investing all apps/platforms are not identical. Make sure you understand what fees and what investment options are available on the platform before you invest.
Be Mindful of Fees: Fees can have more effect on your investment returns in the long term than one may think. As an example, if my case is to put in $25 every month towards an investment but I’m charged, say $5 a month. It means I’m wasting 20% of my investment. Be sure there are no monthly fees and have to factor in the expense ratios on the investments made.
Set Up Recurring Transfers: For some, while rounding up purchases is enough to encourage them to develop a habit of investing, for others regular transfers on top of that can hasten the rate of progress and may even result in reaching the target faster. You may make a transfer on every payday of an amount you are comfortable with seeking to check whether it is possible to increase gradually that amount.
Don’t Stretch Your Budget: Put every effort to ensure you make sustainable and realistic investments. Do not borrow money to invest for example in the event of a shortfall for one month’s budget, do not invest and we wonder why the bills have been charged to a credit card with a higher interest rate. Some investments may have to be liquidated to settle some other bills at certain times due to various reasons. In a bearish market, it can be difficult to dispose of an investment without making losses incurred when investing.
Pitfalls to Avoid
Funding Better Matched to Your Profile Is the Pillar for Avoiding Capital Losses: You should always consider taking a risk tolerance quiz before you start. Investing over your limits could cause you some panic during very low stock market periods which might want to force you to sell your investments at a loss.
Leaving Investments in Cash: Just because someone has wired cash into an investment account, it does not always imply that the funds will be invested. Make sure the cash flows into the investments you select.
Investing Money which is Short-term By Nature: Do not invest money that you expect to use in the near future. A big market down turn may prevent you from getting back the capital, especially of funds you put in for a short term need.
Staying with Micro-Investing Apps Too Long: Even though micro-investing is an excellent tool for novice investors, it may not be the most suitable for long-term. After initial accumulation of balances, you may wish to transition to a traditional brokerage that supports more options but charge lower commissions.
Popular Micro-Investing Platforms
Acorns: Good for passive customer saving via the spare change investment scheme, the service ‘rounds up’ customer purchases to a higher amount and invests the difference. With a starting fee of three dollars, three dollar monthly fee, this system integrates portfolios designed by a noble prize winning economist h. Markowitz.
Betterment: Betterment is an inexpensive robo-advisor whose minimum account(no minimum balance) invests in fractional shares of etfs and has additional functionalities like tax-loss harvesting and rebalancing.
Public: Public blends the aspects of a social platform and investing activity. The focus of the platform is on conversation among investors around best practices. It is possible to buy partial shares of stocks and ETFs without needing minimum account balance or paying any commissions.
Robinhood: It is famous for zero commission fees which enable loads of users to trade in fractional shares of many classes of investment structures like stocks, ETFs and cryptocurrencies however more complicated but for those willing to select stocks to buy for themselves will enjoy this handpicked type of service provision.
Stash: Targeting long-term investments, Stash provides clients with more than 27 000 stocks and ETFs. Another great feature is that customers can use a Stock-Back debit card to get stock rewards for card purchases.
FAQs
How Much Money Can You Make Micro Investing?
In micro-investing as well as traditional investing, investing small or large amounts does not change the ability to gain profits. Nonetheless, micro-investing fees may be more troubling to your gain than normal for a more sizable investment.
What Is the Best Micro-Investing App?
The answer to this question is as it relates to your objectives. Acorns may be perfect for manually-pushed efforts, whereas it could be better to download Robinhood for those willing to go shopping stocks.
How Much Do You Need To Start Investing?
Definitely. It is possible to utilize many applications which do not require a considerable amount in the first place to invest; in fact, some amount requested in the applications is as low as $5.
The Bottom Line
Micro-investing is a method of investing that makes it possible for a lower-class individual to enter the stock market. There are quite a number of platforms available that do not have an initial minimum investment and support the buying of fractional shares, thus making it easy. Losses come together with the investment, but to invest the little amounts you are saving now could in the long run become a lot.
View micro-investing as an important aspect of your financial planning. Arm yourself with the essential knowledge and seek a site that best fits your investment plans. After you are fully geared up, proceed to put your money into the investments and be committed to the investment process for a long time.
