New apps and services make it easier to get started investing, even if you don't have thousands of dollars.
For many people, investing money is seen as difficult, time consuming, or something that you can only do if you have a lot of money.
Micro-Investing makes this process much approachable by making it possible to regularly save small sums of money that might otherwise be considered "not enough" to invest. This enables many people who might usually consider investing to do just that.
The Pros of Micro-Investing
Simplicity
Micro-investing apps like Stash, Acorns, and WealthSimple make it easier than ever to invest. There are no minimum fees and automatic contributions are extremely easy to set up. Acorns, for example, will round up purchases to the nearest dollar and invest the difference. For example, if you buy a coffee for $4.75, a quarter would be invested into funds of your choosing.
Low Monthly Fees
For most micro-investing platforms, including Acorns and Stash, the fee is around $1 per month for account balances under $5,000. This low fee makes getting started very approachable – after all, micro-investing is just supposed to get you started investing.
Encourages Consistent Investing
A habit that micro-investing should instill, is consistent investing. These apps kind of force you to save, without you even thinking about it. This is especially good for people who struggle with prioritizing short-term goals, like perhaps a car, over long term goals, like retirement or education for a child.
The Cons
Despite the obvious advantages to micro-investing apps, there are certainly drawbacks to think about when beginning to invest.
Not Enough For Your Goals
Let’s do some quick math. Say for example, you round up $0.35 for every transaction you make a month, and you make 50 transactions throughout the month. That is a total of $17.50 invested for the entire month, say $16.50 after the monthly fee. If this $16.50 was invested every month, returning the market’s annual average of 7%, after 30 years, you would have $19,295.
That is a nice chunk of change, but it is nowhere near enough for you to retire.
Fees Can Be Higher Than They Seem
It was mentioned earlier that one of the great things about micro-investing apps, are low fees on small amounts of money, up to about $5,000. Beyond that, you will be paying annual fees of 0.25%-0.50%, which is not competitive with many of the big financial institutions.
Large Institutions like Vanguard, Fidelity, and Charles Schwab have funds with incredibly low fees, in the ballpark of 0-0.10%. If you have a larger amount to invest, say over $5,000, you would be charged less in fees at these larger institutions.
Overall, Micro-investing apps are a great way to start investing and build the habit of regular contributions, for a decently low fee. However, once you have enough capital, it may be better to invest with larger firms , by making regular contributions.