Investing can seem daunting with all of its specific jargon, brokerage fees, the seemingly laborious monitoring of the stock market, and large investment minimums (looking at you, $250,000 account minimum). Micro investing can feel like a much more manageable solution.
What is micro investing
Micro investing is a method by which you invest amounts small enough to fit into your budget. Small enough you don't have to sacrifice happy hour drinks with your buddies. Small enough you can still pay your full credit card balance each month. By micro-investing, you’re investing small sums of money—sometimes even just spare change—and collecting returns slowly. You don’t really need any specific investing knowledge to start micro investing.
The concept of micro-investing is a relatively new one. In the past, investing was reserved for only those with bulging wallets. In recent years, micro investing has gotten very popular, particularly with millennials or those just getting started with investing. A recent survey commissioned by Wealthsimple found that money causes millennials more stress than anything else in their lives. Micro investing is the perfect way for millennials or any other generation to begin investing.
A popular way to start micro investing is to round up your spare change and invest the difference. While in theory, you could do this by totting up the difference yourself and transferring the money into a personal investment account, thankfully there are a number of platforms and apps that will do this for you automatically.
What is a micro-investing platform
The convenient thing about micro investing is that, yes, as we mentioned there’s an app for that. These apps eliminate high investment account minimums and normally don’t have fees for individual transactions like your bank may have.
Micro investing apps are usually linked to your debit card and/or credit card and either make automatic recurring deposits or round up any amount you use for purchases on a debit card. So say you pay $2.50 for a coffee cake, the app will round up your purchase to $3 and divert the 50 cent into an investment or savings fund. It's a piece of cake!
So where does all that small change actually go? Most micro investing platforms will normally invest your money into exchange traded funds (ETFs), which are diversified funds consisting of several different stocks, bonds and real estate. Because of their diversified nature, your money is somewhat protected against any dramatic swings of a particular market. You’re able to purchase fractional shares of stocks through these ETFs—stocks that you otherwise may find hard to afford.
Get started micro investing with Wealthsimple — with no account minimum, low fees and a personalized investment portfolio.
Is micro investing worth it?
So what’s the catch here? Well, minimum input usually leads to minimum output. In other words, the small nature of your investment is unlikely to lead to large returns. That said, you've got to start somewhere. You could think of micro-investing as a strategy to save money while getting a small taste of how investing actually works. After all, the best time to start investing is as soon as possible, even if you can only afford to invest smaller amounts.
Unlike other investments, micro investments aren’t really ideal for your retirement strategy. Unless you're a shopaholic, you’ll probably only set aside a couple of hundred dollars a year with a micro-investment app. That’s not going to cut it if you’re trying to save up for retirement or a house, but you could end up investing a couple of hundred dollars that you would otherwise have spent. If you don’t have any other significant savings, then those extra three-to-five hundred dollars at the end of the year can make a big difference. And since the money you’re investing is hopefully growing over time, it's working harder than if you put it under the mattress or spent it on avocado toast. That extra $500 or so at the end of the year can go toward paying off debt (especially high-interest credit cards), funding a well-deserved vacation or finally upgrading your phone!
Micro investing can also be a great way to save enough money to meet an investment minimum of a provider that has one. Or, in the case of investment platforms that don’t require an account minimum, your savings can give you a head start in getting the most out of your money.
Another benefit of micro investing — it’s a low-risk way to get acquainted with investing basics. Low risk in that because you're only investing a small amount of money, you also only stand to lose a small amount. Most apps will ask you to choose your risk level and show you what an ETF consists of, and which are most suited to your risk tolerance and financial goals.
Advice for micro investing
Ask yourself: what are you saving for? Are you just hoping to maintain a rainy day fund? Are you trying to learn more about investing? Are you saving for something specific, like a vacation or a big purchase? Are you trying to pay off debt? Depending on your goals, you’ll be able to find a platform that works for you, and get advice on how exactly to invest your money in order to meet those goals.
Then ask yourself, what can you live with? Can you live with $5 less a week? $10? Would you really care if your debit card rounds up your purchases and invests the change? Would you even notice? Decide on what is the least obtrusive, most sustainable way for you to start putting some money into a portfolio, and stick to it. Most micro investment apps encourage you to set up automatic recurring deposits, so you can just set-it-and-forget it. Once you’ve set up a system that works for you, let it be. Forget your account even exists, let those cents and spare dollars add up, and reap the benefits of your patience several months down the line.
Finally, make sure you check the fees. It's how micro-investing apps make money — they eat into how much you take home.
Still curious about investing but unsure where to start? Wealthsimple offers personalized portfolios and expert advice on how to start making smart financial decisions for your future. Regardless of whether you have $1 or $250,000 to spare you can get started investing here.
Last Updated
March 15, 2024
