Micro-Investing Apps: How To Invest With Micro-Investing Apps

With its specialized terminology, brokerage costs, seemingly time-consuming stock market monitoring, and high investment minimums, investing can appear overwhelming. Applications that facilitate microinvesting allow users to save and make tiny, regular investments, thereby streamlining the investment process.

Significance of Microinvesting Apps

It’s not surprising that both seasoned investors and novices are drawn to micro-investing applications since they provide a simple and convenient way to manage your finances.

Spare change or other little amounts of money are saved, and they are regularly invested in the markets using fractional shares of stock or exchange-traded funds (ETFs) as part of micro-investment. Small sums of money can grow into tens of thousands of dollars over time with prudent investment.

A lot of individuals believe that stock market trading and investing are exclusive to the rich. This is supported by the proverb “It takes money to make money,” but with microinvesting, you may begin making investments with as little as a few dollars per week.

The operation of micro-investing

If you don’t have much saved up, you can still invest your savings through micro-investing. You can start by not making the little purchases that have grown ingrained in your routine or by rounding up to the nearest dollar. Debit cards that automatically round up your transactions and invest the extra cash in exchange-traded funds (ETFs) or fractional shares of stock are also available through personal finance apps like Stash and Acorns.

A single share of well-known corporations like Amazon and Google’s parent Alphabet might cost upwards of $2,000 in the recent past, making it unaffordable for many investors. When stock prices hit these thresholds, many corporations split their shares to help keep them more accessible. However, fractional shares let you invest regardless of the price of a single share up until that point.

Over time, this strategy of gradually allocating money to the stock market has shown to be successful. Dollar-cost averaging eliminates the need to decide whether to time the market by investing a set amount every week or month. You will be purchasing more shares during periods of low price and fewer shares during periods of high price due to your continuous purchases. You will be purchasing over time and averaging your purchase prices when you use dollar-cost averaging.

Microinvestment examples

Microinvesting is flexible and may be tailored to your financial situation and budget. Here are some instances of how it could function in real life:

Let’s say you establish a 50-30-20 budget and find you have $50 to allocate to investments and savings each month. You choose to deposit $20 a month into an investment account and $30 a month into an emergency savings account since saving and investing have different goals.

Suppose your biweekly paycheck goes up by $100 because you received a raise at work. You set up your investment app to automatically transfer $50 from each paycheck into your investment account because you want to use part of that extra cash to invest in your financial future.

You can deposit extremely modest amounts of money every day when you make purchases if your investment app has a bank account with a debit card that rounds up your purchases. Let’s take the scenario where you spend $3.50 on coffee each weekday morning. After rounding that transaction to the nearest $4.00, your bank account deposits the remaining $0.50 into your investment account. That means you may use $2.50 a week, or roughly $10 a month, to make small investments using just the money you spend on coffee.

An increase in micro-investments

The adoption of micro-investing apps and micro-investment tactics has skyrocketed, particularly among Gen X, Millennial, and younger investors who might not have the capital to make sizable investments. An increasing number of non-traditional investors are becoming available to the market as a result of micro-investing’s removal of some of the actual and perceived obstacles to conventional investing. Younger investors have also shown interest in mobile-based investment apps because of their added ease and convenience. With features like automatic investing and robo-advisors, these apps may make investing in stocks less daunting for them. Indeed, it is anticipated that the market for micro-investing platforms will expand at a compound annual growth rate of 9.6% between 2023 and 2030, rising in value from $19 billion in 2023 to $36.1 billion by the end of that same year.

The advantages of micro-investing

Micro-investing has several distinct advantages in addition to assisting in de-risking the idea of investing:

Those who don’t have a large initial investment can nonetheless access it.
It presents the stock market to novice investors without requiring a significant investment.
It facilitates the development of reliable investing habits.
Generally speaking, microinvesting apps charge less.
Regular investing is made easier with automated investing.

Negative aspects of micro-investing

Microinvesting can have drawbacks and hazards, just like any other kind of investing:
Smaller investments typically result in smaller returns and dividends.
If you’re only investing $5 to $10 a month, even minor fees will deplete your portfolio.
For significant long-term objectives like retirement, microinvesting by itself is probably not going to be beneficial.
There might be fewer options available for investment accounts that provide fractional shares and investment applications.

How to begin making tiny investments

When you’re ready to take a risk with investing, starting with micro-investing only requires a few straightforward steps:

To begin with, pick an investing app with a modest minimum investment and fractional shares. Make sure that you are aware of the costs related to your investing account.
Register for a new account. Your age, present financial status, future financial objectives, retirement investment horizon, and risk tolerance will all need to be answered on a secure questionnaire.
Link your bank account once your investing account is open.
In your investment app, set up automated investing after determining how much and when you want to invest.

Why Is Micro-Investing Popular?

Investing a few dollars here and it is rather simple with micro-investing. It’s a set-it-and-forget-it method that eliminates the need for an intricate saving plan. Rather, it makes use of any extra change you may have left on your counter after work. That requires very little work.

It’s also not necessary to start with a lot. You might have to pay a small user fee, depending on the app. For example, Acorns levies a $3–$5 monthly fee, contingent on the account type selected.1. However, you can begin investing with the spare change from your morning cappuccino after joining up! That is as simple as it gets, assuming that is what you want.

A Few Cautions Regarding Apps for Micro-Investing

It’s quite acceptable to deposit your extra change into a savings account. However, some programs for micro-investing allow you to make significant choices, and that’s where things become complicated.

Consider Robin Hood as an example. Using this program, users can trade, purchase, sell, and invest in company stocks as well as cryptocurrencies without having to pay commission fees. Because you can invest as little as $1.2 in thousands of stocks, the app is referred to as a micro-investing tool.

However, you can invest even more. The typical Robinhood user has $5,000 available in their balance.3. Furthermore, users of the app may become trade-crazy without having a thorough understanding of how the stock market operates because it only takes a few minutes to join up and begin trading.

It’s also important to keep in mind that the business is currently dealing with 50 ongoing legal cases and increased regulations due to some very dubious actions, such as limiting trade.4

With that said, exercise caution. Investing feels almost like a game thanks to micro-investing apps. But never forget that you are playing with your future.

Should We Encourage Microinvesting?

It’s not a horrible idea if we’re talking about investing apps that will automatically round up your Starbucks purchases to the nearest nickel and deposit them into your 401(k). However, you should get ready to go hungry in retirement if that’s your only strategy.

Microinvesting yields micro-level outcomes. We do not advise using it as a major component of your investing strategy for this reason.

Conversely, it depends on where your money is going if you’re considering click-of-a-button stock market investing—with higher dollar signs attached.

Single stocks can be quite dangerous, so you shouldn’t invest in them. Additionally, on applications like Robinhood and Stash, you can only make certain kinds of investments at this time.5,6

Look, there are more risk-free, low-effort ways to strengthen your investments than with micro-investing apps. To begin with, you may contribute enough to your company’s 401(k) to receive the match.

So where do you even begin when it comes to developing a retirement strategy that works?

Lay a Solid Foundation First

Rather than experimenting with micro-investing with your spare change, use that additional cash to pay off your debt, start accumulating a $1,000 emergency fund, and then grow your emergency fund to cover three to six months’ worth of expenses. Here, these are referred to as the initial three Baby Steps.

Until you’ve completed Baby Steps 1-3, you are not prepared to invest. When you’re still making payments on items you purchased months or years ago, how can you possibly hope to save for the future? Your salary is the most powerful tool for accumulating wealth that you may use to pay off debt. You can truly strive to save 15% of your income for the future rather than hoarding your spare change.

Furthermore, what makes possessing a sizable emergency fund so crucial? Take this into consideration: According to data from Ramsey Solutions, 45% of Americans have less than $1,000 saved for an emergency. We’re all subject to unforeseen costs, such as auto repairs or malfunctioning water heaters. You won’t have to take money out of your investments or incur debt to pay for emergencies if you have an emergency fund.

Adhere to a Plain and Effective Investing Strategy

It is advisable to allocate 15% of your earnings towards retirement funds. Here’s how to get going:

Take a look at your investing alternatives at work first. Make the most of any business match offered on your 401(k)! Invest the full amount. This implies that you should invest at least 3% if your employer matches 3% of your contributions. That is a gratuitous payment.

You can increase your retirement contributions until you hit your 15% cap in your Roth 401(k) if you have one and have good mutual fund alternatives. If your employer matches contributions, you can benefit from both tax-free withdrawals upon retirement and a Roth 401(k).

If you have a regular 401(k), invest to the match and then discuss starting a Roth IRA with your financial advisor. Because you have additional alternatives for mutual funds and won’t pay taxes on the money you remove in retirement, a Roth IRA is a terrific addition to your 401(k).

Maintain a Long-Term View

For short-term savings, microinvesting could be a sprint, but long-term investments shouldn’t be depended upon. And if you want to truly fulfill your retirement fantasies, your assets will have to work hard. Traveling (67%) and spending time with friends and family (57%) are the top retirement goals for American workers, followed by hobbies (48%).7.

A large, substantial nest egg is necessary to realize your retirement goals—not a tiny one.

The good news is that you’ll have more time to invest your money if you get started earlier. That is compound growth’s strength! Here’s how something would appear to you.

Suppose you are thirty years old, with a median household income of approximately $67,521.8. You decide to fund your retirement funds with roughly $850 a month. That equates to roughly 15% of your annual salary. With a 10% rate of return, you might have over $3.9 million in retirement savings if you retire at age 67.

I think that sounds fantastic. However, it improves much further. Of that $3.9 million, just about $377,400 comes from your contributions. This indicates that compound growth accounted for 90% of that sum, rather than even coming from your wallet!

Participate in Your Investment Strategy

While micro-investing could seem enjoyable, a more safe plan is necessary if you wish to retire with confidence.

It’s common to experience some overwhelm when it comes to saving and making plans for the future. You need large results, after all, and you have big goals! For this reason, we consistently advise working with an expert. It never hurts to have professional advice while investing, regardless of your experience level—you can gain from it at any time.

Finding a dependable specialist who takes the time to explain your possibilities to you will enable you to make well-informed investing decisions. Whether the market is up or down, a financial advisor or other investment specialist can guide you toward long-term, wise investing decisions.

Some advice before selecting an app for micro-investing

Which apps are best for micro-investing? How you want to use investing and where you are in the process will determine this. To assist you in choosing what’s best for you, consider the following advice.

Take into account your investing objectives. If your goals for your investments are flexible or you just want to dabble in the world of investing, a micro-investing app can be a wonderful fit for you. Adding it to your current investing portfolio with an advisor can also be a viable option. If you’d like to invest a lot of money or are looking for a more individualized experience, you might want to avoid micro-investing apps.
Examine all of the app’s costs and fees. Ultimately, you are using an investing platform in the hopes of earning profits. If there is an app you are thinking about, make sure you look into their fees so you understand how they will impact your financial situation. Better still, seek around for the most reasonably priced apps on the market.
Consider the investing alternatives for the app. Not all applications provide the same alternatives for investing. While some exclusively provide exchange-traded funds (ETFs), others also provide bonds, individual stocks, mutual funds, ETFs, and even cryptocurrency alternatives. Choose the kinds of investments you want to have accessible to you before you sign up for any applications, whether you consult a financial advisor or conduct your study.
Evaluate the usability and UI of the app. One benefit of mobile investing is its user-friendliness; however, if an app is hard to use or comprehend, it probably serves no useful purpose. Once more, investigate which apps are the easiest to use and select the one you believe will provide you with the greatest experience.

Conclusion

Investing with small sums of money is known as micro-investing, and it is usually made possible by using an app or internet platform. Microinvesting applications allow users to invest in securities traded on stock exchanges (stocks, bonds, exchange-traded funds), unlisted managed funds, and even cryptocurrencies. They often have low to no minimum investment amounts and relatively minimal costs.

When comparing micro-investing software to a standard online share trading platform, there are no clear standards.