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Micro investing is big right now, but is it a viable way to build wealth? We've found out who micro investing is for and the best apps for getting started.

Integrating the tech industry with the finance sector has allowed the global economy to grow at a rapid rate. A report by PwC reveals that 82% of the incumbents plan to increase their FinTech partnerships in the next three to five years.

How Did Beginner Investors Fare Before?

I remember the darker times. A few decades back, things looked bleak for new investors. Other than using a savings account, there were little investments options, unless someone had substantial capital.

For example, in the ’80s, you had to invest at least $45 for stock trades. Initially, those who were interested in opening a brokerage account had to toil hard and save thousands of dollars for a deposit before they could proceed further.

Fortunately, over time, the industry became softer for new investors. I remember the beginning of the 2010s vividly. If you purchased a share of an IT giant like Google or Microsoft, you paid a low fee for trading–less than $10–but still, a deposit of $1,000 was the prerequisite that itched investors.

Micro-Investing – A Powerful Contemporary Option for Investors

One of the modern investment tools that address the concerns of investors is micro-investing, a reliable investment solution. It provides ordinary people with an opportunity through which they can cash in on the considerably higher returns provided by the financial markets in a stress-free and user-friendly way.

2010 coincided with the creation of many flexible financial firms. These firms offered accounts that required zero-to-little deposits. They facilitated the cash-strapped strata with fractional investing: this is how I purchased $8 of Amazon Stock in 2011. In this guide, we will explain how to build wealth with micro-investing.

Is Micro-Investing Better Than a Savings Account?

This is the most attractive attribute of micro-investing. If you are looking for long-term returns, it will help your capital grow faster than storing it in a bank.

On average, the return on a savings account is somewhere between 1.0 to 1.5% per year. The best account I came across offered no more than 2.5% per year. This means that despite putting in $2,000, I ended up with a meager return of $50. Was it a safe mode of payment? Yes, but I didn’t even beat inflation.

Now, let’s assess my micro-investing experience. When I invested $2,000 in the Invesco QQQ ETF, I raked in $400 in a year. That was a 20% return, which was eight times higher returns than the earning on all my saving accounts. Keep in mind that this isn’t typical, but an example of what investing can do.

However, stocks are not without their faults. For instance, what if I had made the same investment in the times of the Dotcom crash? Here, my investment would have gone down the drain. However, these are outliers since crashes don’t occur every year. On average, stocks have always fared much better than a savings account.

Related: Cool Ways to Invest $10

How Does Micro-Investing Work?

In micro-investing, you have to download apps like Acorns on your phone. These apps use ETF (exchange-traded funds). An ETF is traded just like a stock, and it is made of several securities that track an underlying index.

Usually, platforms propose personalized portfolios. They rely on the risk tolerance of a user. These factors are used to process risk tolerance.

  • Age
  • Life plans
  • Aversion to loss

These apps have become so advanced that you can link up your bank account for transferring funds. Similarly, you can add your credit or debit cards into the mix.

Jump into micro-investing if you fit the following profile:

  • You are skeptical regarding investing.
  • You have little experience in investing.
  • You have little capital on hand.
  • You want as low commitment as possible.

Who Makes the Micro-Investment Community?

Most of the micro-investing community consists of millennials (those born in the ’80s and ’90s). Since millennials are heavily tech-oriented and do not like commitments, it is easy to see why they were so quick to adopt micro-investing. The allure of optimizing and automating their financial routines has led them to depend on a variety of apps.

The U.S. Census Bureau maintains that millennials will surpass baby boomers by this year. These population estimates are expected to have far-reaching impacts on the financial sector. The higher number of millennials naturally means they now have the ability to transform the investment industry by setting trends and standards.

Millennials will also earn more and thus stand at the edge of their primary investing years. It is sufficient to say that their involvement is not only going to sustain the momentum of the micro-investing industry but also push it to unchartered regions.

How to Check a Micro-Investing App

Since more and more apps are being churned out for micro-investing, I have come up with the following assessment that can assist individual investors.

How Much Does an App Cost?

From an investor’s viewpoint, the cost will always have a large amount of influence. Look carefully–some services may not appear to charge any fee for trading or bank transfer, but they may trick you with some hidden charges. On a similar note, some platforms advertise the waiver of minimum account balances, whereas some may make them mandatory.

Assets under management have the most fees out of them all. For instance, if I have $10,000 with a 0.50% management fee, then I would have to pay around $50 per year.

There can be further charges as well. For instance, mutual funds are also a factor in fees other than management fees which can stave off your returns. This is also known as the expense ratio of the fund. On average, a hybrid mutual fund–one that invests in the real estate, bonds, stocks, and other assets–has an expense ratio of 0.74% for each grand. So had I invested $2,000, then my charges would have been $148.

Wall Street Journal has stated in the past that the expense ratios of ETFs are 0.44%.

What Are the Best Leading Micro-Investing Platforms?

If you are confused about which micro-investing platform to pick, you need not worry. To save you time, I have performed the research. Here are some apps that can answer your question on how to build wealth with micro-investing.

Acorns

Invest Your Spare Change. Anyone Can Grow Wealth.

This tagline of Acorns says it all. Acorns is one of the most well-known platforms in micro-investing. It facilitates users to amass their savings and guides them to invest when spending money.

Acorns has a mechanism to do this: Round-Ups–it integrates a checking account to the app. For all purchases, it rounds up the figure to an even dollar amount. Then the difference between the dollar amount paid and the actual purchase amount is sent to your investment account in the Acorns app–when it reaches $5, Acorns sends that money to an investment option.

Fortunately, you need no minimum balance to create an Acorns account. However, investing is initiated when you surpass the $5 barrier. Your preference will then decide if your money will be invested in real estate, bonds, or stocks.

As all payments from spending accounts might add money into the Acorns account, your savings exceed your spending–a dream scenario for any of us.

The fee structure is conditional:

  • If your account balance is lower than $5,000, you have to pay $1 per month as a management fee.
  • If your account balance is higher than $5,000, you have to pay $1 per month as management fees and an additional 0.25%.
  • If you are a college student, you can use the app for free.

The app is available for download on iTunes, Google Play, and Amazon.

Visit Acorns or read the full Acorns Review

Stash

Do you have $5 in your pocket? Well, that is enough to begin your budding investment career with Stash. The working of Stash bears similarity to robo advisors; you open an account and fill out a questionnaire that calculates your risk tolerance and investment goals.

After getting your data, Stash performs data analysis and responds with investment recommendations. In an ocean of thousands of ETFs and individual stocks, you would get a tailored answer that would suit your requirements.

So how is Stash different than robo advisors? Well, it is different because it is your prerogative to act on a suggestion.

For the transfer of funds, all you need to do is to integrate your bank account with the app. The fee structure of Stash is the same as Acorns (i.e., $1 management fee for sub-$5,000 accounts and an additional 0.25% for higher account balances).

You can download the app on Google Android and Apple iOS.

Visit Stash or read the full Stash Review

Public

Everyone wants shares of the big stocks out there, but not everyone has the money to invest $1,000 per share. That’s where Public comes in, allowing users to buy slices of stock in dollar amounts. That means you can get your hands in the pie of some of the most lucrative stocks available.

They’re also set apart by their social aspect, allowing users to see what other like-minded investors are investing in (it’s possible to opt out of this feature for those who want more privacy).

Public is a great way for beginners to get started in the world of investing because they’ve made it so easy to get access to stocks, ETFs, and a 2.5% APR on cash accounts. Plus, there are no account minimums and they don’t charge trade commissions.

The app is available for iOS and Android, though does not currently have a desktop platform.

Visit Public or read the full Public Review

Robinhood

RobinhoodWant a free app that opens the doors to a wide array of trading possibilities? Robinhood is the way to go.

It’s great for both novice and more-advanced stock trading, plus provides features such as cryptocurrency investing, the ability to purchase fractions of shares (similar to Public’s slices), access to multiple types of investments, and a premium option that provides users with Morningstar Research Reports and Nasdaq Level 2 Market Data for $5 a month.

Overall, Robinhood is a very intuitive and easy-to-use platform, accessible via mobile and their desktop site.

Visit Robinhood or read the full Robinhood Review

Advertiser Disclosure – This advertisement contains information and materials provided by Robinhood Financial LLC and its affiliates (“Robinhood”) and Doughroller, a third party not affiliated with Robinhood. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Securities offered through Robinhood Financial LLC and Robinhood Securities LLC, which are members of FINRA and SIPC. Doughroller is not a member of FINRA or SIPC.”

Bottom Line: Should I Go for Micro-Investing?

You now know how to build wealth with micro-investing. By now, you might have also done the math: a small investment generates a small profit.

Micro-investing is no Bitcoin–it will not make you a millionaire overnight. Practically speaking, it can help you to save only hundreds of dollars per year. Thus, don’t imagine yourself in the middle of a luxurious vacation.

However, you must understand and view things from the other perspective. Micro-investing is a superior alternative over saving accounts. These reliable and risk-free savings can become the nucleus of your emergency funds.

You can also use micro-investing as your first step in the investment scene. Taking the knowledge from this domain, you can target higher and better investment solutions.

Author Bio

Total Articles: 126
Chris has an MBA with a focus in advanced investments and has been writing about all things personal finance since 2015. He’s also built and run a digital marketing agency, focusing on content marketing, copywriting, and SEO, since 2016.

Article comments

2 comments
Mighty Investor says:

Thanks for this one. Interesting. I hadn’t heard of all the options. Schwab and Fidelity now are free to open an account and commission free. I think their tech stack is a lot more dependable than the newer firms mentioned here (see Robinhood’s crazy outages in March). Yes, you can’t buy fractional shares with them (as far as I know) yet, but I think their technology dependability and better customer service (available 24/7) probably outweigh the advantage of being able to buy fractional shares. Also, if the $1000 price tag for some stocks is too high, then purchasing the QQQ etf (which is less than $300) presently is a way to get started with broad exposure to the dominant U.S. tech firms (assuming this matches your risk tolerance etc). The earlier you start, the earlier you learn, and the sooner you get comfortable with experiencing volatility. Thanks for this article. I learned a lot.

joanofark06 says:

I like and use one called Stockpile dot com. I’ve been using it for about a year, and have had no problems at all with it. Great for beginners too.