How Does Micro Investing Work?

Investing is a daunting task for many people, as it features industry jargon, brokerage fees, the endless task of watching the stock market, and large minimums for investment. In fact, some accounts require a minimum of up to $250,000 just to get started. This is not feasible for most entry-level investors, and that’s the reason micro investing seems much more appealing. 

What is micro investing?

Micro investing is a strategy that allows you to invest virtually any amount that fits into your current budget. This method makes it to where you don’t have to sacrifice any of your favorite pastimes. The amounts you invest are so small that you can still pay all of your monthly bills. By using this strategy, you can invest small amounts of money, such as spare change if you wish, and slowly collect returns. This is a great way to get into investing because it doesn’t require you to have any prior knowledge or experience with it. 

This concept is new. In years past, investing was for those privileged enough to have big wallets. Micro investing has become popular recently, especially with millennials and those wanting to ease into investing. 

One common way that people start is by simply rounding up their spare change, and investing the difference. So, in other words, you go to the coffee shop and buy your usual for $4.75, you round up the charge to an even $5.00 and the extra $0.25 goes straight into your investment account. While you could do this on your own by transferring to a savings account, it’s much easier to do it through the use of an app.

What is a micro investing app or platform?

The best thing about micro investing is there are lots of apps to make it even easier! The apps get rid of the high account minimums and don’t generally charge fees to users. 

When using a micro investing app (such as Acorns), you simply link it to your credit or debit card. Once you’ve done this you’ll have the option to round up (as we mentioned above) or you can set up recurring deposits of any amount. 

So where does your money actually go? Platforms usually invest your money into ETFs or exchange traded funds. These are diversified funds that consist of different real estate, bonds, and stocks. Since these funds are so diversified, it protects your money from substantial swings that may occur in the market. ETFs allow you to buy fractional shares of stocks that you otherwise probably couldn’t afford. 

Is micro investing worth your time?

Micro investing can be a slow process, but in the end you just might find it worthwhile.

You may be thinking this sounds too good to be true. What’s the downside? To put it simply, inputting minimal money results in minimum output. So, basically your small investments are not likely to end in large returns for you. Yet, think about it – you have to start somewhere. It’s best to use micro investing to learn more about how investing works. 

Where other types of investments fit into a retirement plan, micro investments really don’t. At most, you’ll probably save a few hundred dollars per year with one of these apps. If you’re being honest with yourself, that’s not enough to save for buying a home or retiring. However, the positive thing is that you’ve saved a few hundred dollars you probably would’ve spent otherwise. 

If micro investing is the only form of saving that you engage, the extra hundreds at the end of the year will make a big difference to you. Yet, this doesn’t mean you should blow the money at the end of the year. Instead, it’s smart to use the money to upgrade your car, go on an earned vacation, or even pay off credit card debt. You can also use the money to meet investment minimums from larger investment firms. 

Advice for getting started

The first thing you will want to consider is what you are saving the money for. Is it just savings for when you need it? Is it to buy a big ticket item or pay off debt? Once you determine the goal you’re trying to reach, it will help you choose the best platform for you. 

Next, you’ll want to determine how much money you will put toward it. Will you invest just $5 per week? Or are you looking to invest $100 per month? Will it hurt you if your debit card purchases are rounded up? Be sure to choose a strategy that won’t affect you. Most of these platforms encourage you to set up weekly or monthly recurring deposits, so this allows you to ensure you’re putting money in regularly. The good news is that you can cancel this feature at any time.

The best thing you can do for yourself is choose a platform, decide on a strategy, and then forget about the account. You’ll be pleasantly surprised at how much you can save within a year by just investing $5 per week and rounding up your spare change!