What is micro-investing?
Turn your spare change into big bucks with these 4 micro-investment apps.
Updated . What changed?
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Micro-investing is where you invest small amounts of money on a regular basis with the hope that over time, every little bit you invest adds up to a lot.
Today, there are dozens of micro-investment apps in the global market, a clear indication that it's a popular option among the next generation of investors. But how does micro-investing work and what options are there in Australia? Let’s take a closer look.
What is micro-investing?
The terminology is somewhat vague, but micro-investment apps let you invest very small amounts of money over time to build up a profitable fund. The premise is that if you frequently make small contributions over time into an investment portfolio, you have the potential to earn more than you would if you saved it up as cash in a savings account.
Who may be suited to micro-investing?
Micro-investing is a suitable option for anyone looking for a cheap and convenient way to start building an investment portfolio. However, because micro-investing requires a long time frame in order to build up any significant wealth, they may be more suited to a younger demographic.
It's also important to be aware that there are costs to micro-investing which may eat into what you're saving or getting back in returns. It's important to double check fees with the performance of the app's chosen investment portfolio. For example, if you're only investing $5 per month, the total fees are $2.50 per month and the returns are less than 1% per month, you might be better off sticking to a savings account.
The fees. There are any number of fees that a micro-investment app may charge. Some of the most common include:
- Brokerage fees. The cost each time you make a transaction or invest.
- Subscription or management fees. An ongoing monthly or yearly fee to keep the account open.
- Other fees. Additional costs may include cancellation fees, withdraw fees, transaction fees and account opening fees.
That said, you don’t need to be a millennial to take advantage of the benefits of micro-investing. In short, anyone who thinks they might benefit from the convenience of an automatic investment plan should consider the benefits of this approach.
Which providers offer micro-investing in Australia?
Micro-investing is still a relatively new sector on the Australian financial scene. At the time of writing, there are really just two micro-investment platforms available here – Raiz and Spaceship Voyager. Both apps work by allowing you to invest a few dollars at a time into an investment fund on a day-to-day or monthly basis, although Raiz is the only spare-change round up app.
However, there are a few non-traditional investment apps appearing now that allow you to invest small amounts directly into stocks or ETFs. While not exactly micro-investing, they do allow you to work on a similar premise. For the sake of interest, we've also included some of these below.
Raiz is a mobile app that rounds up the spare change from your daily purchases and invests the excess into a diversified portfolio of ETFs. There are six different portfolios to choose from based on your appetite for risk and you can also set up recurring payments or make lump sum instalments.
There are no minimum account balances and deposits and withdrawals are free. All you need to do to get started is provide your bank account number, BSB number and online banking login details.
Account balances of less than $10,000 attract a monthly maintenance fee of $2.50. Balances of $10,000 and above attract a monthly fee equal to 0.275% of your balance.
There are two portfolios to choose from – the Spaceship Index Portfolio and the Spaceship Universe Portfolio – both which invest your funds into a mix of Australian shares, global shares and cash.
Plus, you can set up regular top ups each week, fortnight or month and there are no contribution fees, brokerage fees, withdrawal fees or exit fees charged for either portfolio. There are however, management costs (0.5-0.10%) which are taken as a percentage of your portfolio's value once it hits higher than $5,000.
CommSec Pocket isn't a traditional micro-investment app however it does let you invest smaller amounts into the stock market than you'd normally be allowed. Usually when you invest in Australian ETFs or stocks, there's a $500 minimum initial trade requirement and brokerage fees upwards of $10 - $30.
There are 7 investment themes to choose from – and each of these are individual listed ETFs. This means it lets you directly invest in an ETF of your picking.
Like the others, you can either set it to make regular monthly or fortnightly payments, or you can make one-off payments as you like.
Micro-investment app comparison
|Platform||Fees||Minimum investment||Investment options|
|Raiz Invest||$5||Choose from 6 portfolios containing a mix of ETFs based on risk level.|
|Commsec Pocket||$50||Invest directly in a selection of 7 ETFs.|
|Spaceship Voyager||$0||Choose from 2 portfolios: The Spaceship Index Portfolio (index fund) or the Spaceship Universe Portfolio (managed fund). These invest funds into hundreds of Aussie and global shares and cash, rather than ETFs.|
Fractional share trading apps don't fall under the traditional banner of "micro-investment" however they do allow you to invest as little as a few dollars at a time into stocks (depending on the platform you use).
Fractional share trading is where you invest in fractions of shares rather than whole shares. For instance, instead of a buying a single Facebook stock for $260, you could buy one tenth of a stock for $26 or even one hundredth of a stock for $2.60.
While it's a popular trading feature in the US, only a few share trading apps offer the service in Australia. And so far, you can only trade US stocks in fractions, we don't yet have this option for Australian stocks.
Important: Share trading can be financially risky and the value of your investment can go down as well as up. Standard brokerage fee is the cost to trade $1,000 or less of US shares or ETFs without any qualifications or special eligibility.
Benefits of micro-investing
There are many potential benefits of micro-investing, including:
- It’s quick and simple to set up an account with a micro-investing platform and link it to your bank accounts. It then acts like a sort of electronic piggy bank for your spare change.
- Micro-investing requires minimal input on your part. Because the entire process is automated, you can start building an investment balance without even realising it.
You can start a savings habit
- By getting into micro-investing from a young age, you can create positive saving habits that will last a lifetime. It’s a very effective way for Australians who have never invested their money before to make a start.
Minimal investment required
- You don’t need a huge bank balance to take advantage of a micro-investing platform. You can start by investing your small change and then watch your balance grow.
Choose from diversified portfolios
- The money in your investment fund can be balanced in a diversified ETF portfolio based on your financial goals and your appetite for risk. You don’t need to be an investment expert or have specialised financial knowledge.
What are the risks of micro-investing?
Like any other investment option, micro-investing also comes with a certain level of risk. There’s no guarantee that the investment portfolio you choose will perform as you hope, and you could end up losing money. The investment portfolio recommended for you is chosen based on your risk tolerance, so, depending on your financial goals, you have the option to minimise your risk exposure.
It’s also worth pointing out that micro-investing platforms don’t offer their services for free. You’ll need to pay an account management fee that’s either a flat fee or calculated based on a percentage of your account balance, while brokerage and ETF management fees also apply when you purchase ETFs through your account.
These fees may also differ depending on your account balance, so it’s important to monitor your account regularly to make sure the fee structure continues to work in your favour.
The last thing to remember with a micro-investment account is that because the investing takes place in the background, it can sometimes be easy to forget about your account. While this can be a good thing for those investors who might be tempted to “over-manage” their savings, it’s still important to regularly review the performance of your investments to ensure that they are meeting your expectations.
Important Notice: The original article previously mentioned FirstStep, however the app is no longer functioning as a micro-investor.
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