What Is a Micro-Investing Platform?
Let me explain what a micro-investing platform is: it's an app that lets you save small amounts of money on a regular basis. These platforms break down the usual hurdles to investing, like needing a minimum balance for a brokerage account, so you can start investing even if your income and assets are limited.
Key Takeaways
- By simplifying the process and making it painless, micro-investing platforms help people who wouldn't otherwise save for future investments build up their funds.
- These platforms collect tiny amounts, often from rounding up your transactions, and put them into accounts based on ETFs.
- Those small savings add up over time and can provide returns that outperform traditional options like savings accounts or certificates of deposit.
Understanding Micro-Investing Platforms
Think of micro-investing platforms as the modern version of collecting spare change in a jar from your daily buys and then depositing it at the bank. For instance, you sign up for an account on one of these platforms and link your debit card. Every time you make a purchase, the app rounds it up to the nearest dollar and invests the difference into your account. Robo-advisors like Acorns were among the first to popularize this approach.
You probably won't even notice that extra $0.50 gone when you spend $3.50 on a cappuccino. But over time, you'll see your investment account growing. If you grab that coffee 20 times a month—say, every workday—you'll have invested $10 by month's end or $120 by year's end without much effort. Sure, you'd do better brewing your own at home for $0.50 and investing the $3.00 difference per cup, netting you $60 monthly or $720 yearly, but if you're not changing habits, micro-investing beats doing nothing.
These platforms make it feasible to invest just a few pennies by cutting out per-transaction fees and minimums. You don't have to save $100 for a stock share or pay brokerage fees. Instead, you pay a small fee, maybe $1 a month, and the platform invests in fractional shares.
Since those shares are in exchange-traded funds (ETFs), your money spreads across various stocks and bonds, offering protection from market volatility that single-stock investing lacks.
Even if you already save regularly, micro-investing can enhance your results. Putting away $50 monthly for 10 years in a 0% interest savings account gives you $6,000, but that's worth less after inflation since rates often lag behind it. Investing $49 monthly (after the $1 fee) at a 7% average annual return yields $8,580 before taxes and inflation over the same period.
Special Considerations
Automatic investing isn't mandatory for a micro-investing platform, but the core is enabling investments of very small amounts. Some platforms go further, helping you form saving and investing habits while teaching about the process. They might guide you on picking an ETF that matches your goals, risk level, interests, and values.
Features of Micro-Investing Platforms
A key example is Acorns Inc., which invests your spare change automatically via a smartphone app. Remember, these platforms must register with the SEC as Registered Investment Advisors (RIAs) and broker-dealers.
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