How To Get Started In Micro-Investing

Key Takeaways:


In recent years, smart investors and developers have championed a revolutionary new system that makes investing more accessible. This system is called micro-investing. In particular, it has democratized investing for the masses, seemingly overnight. The ability to invest effectively with smaller sums of money awards just about anyone the ability to build wealth at a comfortable sustaining pace. There may not be a better way for someone to take the first step on their investing journey, which begs the question: What is micro-investing? What is it about this new type of investment approach that can level the playing field for amateur investors? Better yet, how can new investors get started, and what can they expect from the best micro-investing apps on the market? The answers to these questions, and many more just like them, will be outlined below.

What Is Micro-Investing?

Micro-investing is the practice of making small, incremental investments in fractional shares of equities (stocks). As its name suggests, micro-investing allows investors to make relatively smaller investments. In doing so, equities may be purchased in fractions instead of as a whole.

Let’s say, for example, a young investor with limited funds would like to purchase a share of Amazon but can’t afford to spend thousands of dollars on a single stock. As of this writing, shares of Amazon are trading for $3,242.00. Traditionally, buying one share would cost the full $3,242.00, but micro-investing allows investors to purchase fractions of a single share. As a result, the same investor can spend $1,621.00 (half the stock price) to own half of a share. That way, micro-investing can democratize Wall Street and enable everyone to take advantage of the stock market’s benefits.


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Best micro-investing apps

Micro Vs. Bigger-Sum Investing

Micro-investing is quite simply the antithesis of large-sum investing. Not unlike how micro-investing sticks true to its name, “bigger-sum” investing centers on the idea of depositing large sums of money into equities at a single time. To be clear, the two strategies are merely a unique means to an end; they both entertain the idea of increasing one’s net worth by investing in appreciating assets. However, it is worth noting that the way they go about doing so may result in one significant difference: risk exposure.

For example, large-sum investments allow investors to buy into an equity at a great price. Provided the investment was made when the equity was lowest, investing a large sum of money can be a great idea. That said, it’s nearly impossible to time the market, and nobody knows when the best time to buy a stock will be. Therefore, those who invest a large sum of money all at once are susceptible to fluctuations, both up and down; their cost basis remains unchanged after stock increases or drops.

Micro-investing, on the other hand, allows investors to dollar-cost average. In its simplest form, dollar-cost averaging is a tried-and-true investing technique that involves investing fixed amounts of capital into specific equity at predetermined intervals over extended periods of time. In utilizing this technique, investors reduce their exposure to risk if/when the stock price drops. By investing in a little bit at a time, investors may reduce their cost basis if the price drops.

Advantages Of Micro-Investing

Micro-investing has grown increasingly popular in a short period of time. More people than ever are taking advantage of the best micro-investing apps, and for good reason. Here’s a look at why more people are choosing micro-investing over other approaches:

  • Dollar-Cost Averaging: As previously stated, micro-investing awards investors the ability to dollar-cost average. This strategy simultaneously mitigates risk and reduces the downside of an investment.

  • Overcome Anxiety: Micro-investing can help investors overcome the anxiety that has become synonymous with investing. If for nothing else, depositing smaller sums of money is a lot easier for people without access to a lot of capital to deal with.

  • Mitigate Risk: By dollar-cost averaging, investors won’t lock themselves into an expensive valuation. In the event, the equity’s value drops, investing more money will drop the average price paid for it.

  • Affordable: Not surprisingly, micro-investing is more affordable than investing large sums of money all at once. In fact, the ability to invest small sums of money is why more people can take advantage of today’s stock market.

  • Automation: The best micro-investing apps have enabled investors to automate their deposits and invest, sometimes through brilliant, ingenious methods. Regardless of each micro-investing apps’ approach, the majority of them allow users to “set it and forget it.” In the end, micro-investing comes a form of forced savings with the potential for growth.

Chris Davis, an investing specialist at NerdWallet, is quick to point out that micro-investing is not unlike traditional investing. Most notably, even micro-investing isn’t without risk. “Even though the amounts are smaller, it’s important to remember micro investing is still investing, which comes with inherent risk,” says Davis.

“With investing, there’s no guarantee, and it’s possible the value of your investment could fall. However, by investing your spare change in highly diversified ETFs instead of one or two individual stocks, you can lower that risk of volatility, and if you plan to hold your investments for the long-term, you can weather any short-term volatility that does occur.”

6 Best Micro-Investing Apps To Get Started

There are countless micro-investing apps to choose from, and more are on the way. However, we have compiled a list of the six best micro-investing apps available today:

  1. Acorns

  2. Robinhood

  3. Stash

  4. Rize

  5. WiseBanyan

  6. Betterment

Acorns

Acorns is a “fintech” app which has taken it upon itself to look after the financial best interests of up-and-coming investors. Founded on the concept of micro-investing, Acorns bridges the gap between those who want to invest and those who do invest. More specifically, Acorns makes investing easy and accessible for anyone with even the slightest interest in growing their net worth.

In doing so, the Acorns app links to a debit card, where it tracks every purchase. Instead of simply balancing a savings or checking account, Acorns rounds off the spare change from every purchase (to the nearest dollar) and moves the difference from the affiliated checking account into an Acorns investment account.

The money transferred after every purchase is automatically allocated to a diversified portfolio of investments, tailor-made for each investor and their respective goals. Let’s say, for example, an Acorns client spends $3.75 on a cup of coffee. The Acorns app will automatically round up to the nearest dollar and deposit the difference from their checking account into the app. The app will then take the twenty-five cents and diversify it amongst a portfolio of stocks of the client’s choosing. As a result, the client is making small, incremental payments into the stock market regularly—otherwise known as micro-investing.

Robinhood

Robinhood has taken Wall Street by storm. Robinhood has transitioned from a virtually unknown financial technology company into the stock trading platform preferred by millions of millennial investors in just a short period of time. As its name suggests, Robinhood awards its users the ability to tap into the same wealth-building machines that have kept Wall Street investors rich. In its simplest form, Robinhood has democratized stocks for everyone, from seasoned investors to those with a growing curiosity for how the stock market works.

Robinhood made a name for itself by granting commission-free trades, which attracted an entirely new generation of investors. However, Robinhood did more than cut commissions to make trading more affordable: it popularized fractional shares. With the Robinhood app, traders and investors can invest in fractions of their favorite stocks, making it easier to buy shares of today’s most popular companies (without having to front entire valuations). Fractional shares allow investors to participate in the stock market without having to purchase whole shares. In doing so, investors can put in smaller amounts of money but still reap the rewards of the best stocks on the market.

Stash

With more than five million users, Stash has also done its best to democratize investing. Not unlike the others on this list, Stash is a self-proclaimed “personal finance app that simplifies investing, making it easy and affordable for everyday Americans to build wealth and achieve their financial goals.”

Signing up for Stash can be accomplished in five simple steps:

  1. Fill out an “application”: Stash will have new users answer a few questions in order to get to know them better. In doing so, Stash lays the groundwork for how to proceed and get one step closer to financial freedom.

  2. Choose a plan: New users will be asked to sign up for a plan, starting at just $1/month. Depending on the plan, users will have access to a number of tools, each designed to help them start investing.

  3. Deposit money: Users will then need to deposit money, either manually or automatically. Investors can invest with as little as $1.

  4. Bank, budget and set goals: A number of tools are included in the monthly fee which will help investors make better decision.

  5. Invest: Following the initial deposit, investors can choose to invest it in fractional shares of thousands of stocks and ETFs (exchange traded funds).

Rize

Rize has branded itself a FAAS (Fintech-As-A-Service), and strives to “make financial services simple and accessible.” In cooperation with Apex Clearing Corporation, Rize brings brokerage services to the micro-investing community. Rize’s services allow investors to “move beyond traditional banking” and build a user experience tailored to their needs, not the limitations of an account. In building a unique experience, Rize grants its users access to several services, all of which are designed to combine multiple financial capabilities. The unique thing about Rize is that its applications may be applied to individuals, businesses, or groups, making it more diverse than most of its competitors.

WiseBanyan

WiseBanyan claims to be “The World’s First Free Financial Advisor.” Thanks, in large part, to proprietary algorithmic services, WiseBanyan accounts may take advantage of Low expense ratio securities, automatic rebalancing, financial planning tools, mobile app, auto tax integration. Much like the other options we have listed, the free accounts provided by WiseBanyan are a good way to start investing for those with little to no experience. However, it is worth noting that this micro-investing app offers the bare minimum experience to investors who are using the free version. To get more access to tools, investors will need to pay a fee upwards of $20/month.

Betterment

As perhaps one of the most well-known additions to this list, Betterment comes to the table with a proven track record. In fact, Betterment is one of the largest independent online financial advisors in the micro-investing community. Similar to its counterparts, Betterment is in the business of helping people “make the most of their money.” In helping users manage their money, Betterment grants them access to a globally diversified portfolio of index-tracking exchange-traded funds. As one of the best micro-investing apps on the market, Betterment gets to know its clients first and then recommends equities based on their risk tolerance. This particular app recommends an optimized portfolio and manages the buying and selling within. All micro investors need to do is give Betterment an idea of how they want to invest, and the app will do the rest.

Summary

In what seems like just a few short years, micro-investing has managed to democratize Wall Street for anyone with interest in growing their net worth. Thanks, primarily, to their access to fractional shares, people with access to just a few dollars can start growing their wealth immediately. That said, not all of the best micro-investing apps are created equal. Before embarking on their own investing journey, new investors should vet the available options and choose the platform that meets their needs the best. Hopefully, this primer will help lay the foundation for which app you choose.


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