A Beginner’s Guide to Micro-Investing (and Our Favorite Apps)
In the 21st century, we like things small.
Our headphones, computers and dogs are all shrinking. Teacup pigs are surging in popularity. It’s no surprise that we like our investments small, too.
That’s because the word “investment” seems way too big for most of us. It’s too much to learn, too much responsibility, too much risk — just too much.
Micro-investing, on the other hand, is just plain adorable. Snappable, ’grammable adorableness.
Like a pig small enough to fit in a teacup, micro-investing is about investments small enough to fit anyone’s budget.
Interested? Here’s our beginner’s guide.
Table of Contents
- How Micro-investing Works
- Why Millennials Like Micro-investing
- Our Favorite Micro-investing Apps
- Is Micro-investing Worth It?
How Micro-Investing Works
Micro-investing apps allow you to automatically invest small amounts of money in stocks, even if you know absolutely nothing about the stock market. They funnel your extra cash into portfolios of stocks that they craft for you.
Your investment money is typically used to buy exchange-traded funds, or ETFs. These funds helpfully spread your risk around by buying up shares in dozens or even hundreds of different companies.
Don’t worry, you don’t have to suddenly start following the stock market. You don’t have to watch CNBC or read The Wall Street Journal. You can continue binge-watching “House Hunters” or “Cupcake Wars” if you like.
Why Millennials Like Micro-Investing
Here’s another plus: You don’t need much money to start micro-investing. Heck, you can launch this baby with five bucks if you want.
The idea is to get you to start investing.
You’ve probably heard that Americans aren’t saving enough for retirement. Well, it’s true! The average U.S. family has nowhere near enough money set aside for retirement. It’s going to be such a train wreck when we all get old.
If you’re not already investing, the first step is the hardest. No, micro-investing won’t make you rich. Instead, this is about getting you to take that crucial first step toward investing for your future.
Our Favorite Micro-Investing Apps
Naturally, there are a whole bunch of apps competing for your micro-investing dollars. They’re all clamoring for your spare change, and they’re promising to grow your investments like diligent little money gardeners.
Virtually all of these options will have you set up a profile that lets the app know what kinds of things in which to invest your money. It’s a classic “set and it and forget it” approach.
Here are some of our favorite micro-investing apps of 2020. They’re all available on Apple and Android phones.
Acorns makes it easy to invest without missing the money you set aside. It rounds up your debit or credit card purchases to the nearest dollar and invests your digital change.
You can have it automatically round up all your purchases, or manually round up only the transactions you choose. Because the money comes out in increments of less than $1, you’re less likely to feel an impact in your bank account.
Penny Hoarder Dana Sitar shared her Acorns review — she saved $116 in three months, about $35 a month, by connecting one debit card to the app and forgetting about it. At that rate, you’d put away $420 a year. And if you use your credit cards more frequently, your round-ups could amount to much more.
You don’t have to choose exactly where to invest your money. Instead, you’ll answer a few questions to create a financial profile and state your goals. Acorns uses this to build your investment portfolio, which ranges from conservative to aggressive
You start out with a free $5 bonus if you sign up here.
Cost: $1 per month for an account with a balance below $5,000
Stash lets you start investing with as little as $5. You can set it up to withdraw a certain amount of cash from your bank account every week or every month, so you can grow your investments over time.
Like Acorns, Stash will ask you a few questions to determine your risk profile: conservative, moderate or aggressive. Then it invests your dollars in a set of simple portfolios reflecting your beliefs, interests and goals.
You can choose from more than 150 ETFs and stocks. Instead of overwhelming you with industry jargon, Stash curates and categorizes these funds and gives them understandable names.
Want more information? Read our complete Stash review.
You start out with a $5 bonus if you sign up here.
Cost: $1 per month for an account with a balance below $5,000. Balances of $5,000 or more cost 0.25% a year.*
Rize is a savings and investment app.
The savings part is a pay-what-you-want web app that’ll help get your savings on track. It siphons part of your paycheck into a separate savings account.
You’ll create a goal and set a deadline. These could be short-term goals, like saving for a weekend road trip or meeting your monthly student loan payment. You’ll even earn 1.16% interest on your balance. (For some context, that’s 19 times higher than the national average for savings accounts.)
If you have a longer-term goal, have Rize invest the money for you and help you maximize returns.
You can easily tweak your settings in Rize at any time. Plus, the app has some fun automated features like “accelerate,” which automatically increases your savings by 1% each month, or “boost,” which triggers Rize to squirrel away money when it makes the most sense.
Cost: An annual management fee of 0.25% of your investments
The Robinhood app is best known for having no trading fees. You can buy and sell stocks on U.S. exchanges without paying a commission, and you’ll pay no account maintenance fees. You can also buy and sell ETFs and cryptocurrencies, if you’re into that sort of thing.
In keeping with its stripped-down approach, Robinhood doesn’t offer investment research or advice on your portfolio. So you won’t necessarily get a lot of guidance here. It’s a no-frills, bare-bones app that’s designed for investors who want to trade stocks frequently while keeping their costs down.
Cost: It’s free. There’s also a premium service called Robinhood Gold that enables you to buy “on margin,” which means borrowing money to purchase stock. Frankly, that’s not for beginners. The cost depends on how much you want to borrow. Also, you need a minimum of $2,000 in your account to do this.
You can start investing with as little as $1 with WiseBanyan, and the app charges no monthly fees or trading fees.
Financial advisors can cost more than you’re even trying to invest, especially if you’re just getting started. But free online services like WiseBanyan can provide the same kind of support.
The service is completely digital, eliminating the usual management, trading and rebalancing fees, but it still offers the same services as traditional financial advisers.
Once you sign up, you can create a “Milestone” by entering your goals (whether it’s saving for retirement or a jet ski) and a time frame. WiseBanyan automates everything, from suggested deposits to rebalancing your accounts to help you achieve your goal.
Cost: Free, but fees do kick in if you opt to upgrade to premium services. You can mix and match services to create personalized premium packages. These packages include detailed investment strategies, increased personalization and additional automation services.
Is Micro-Investing Worth It?
If you’re even a little math-minded, you might have realized: If you invest a small amount, you can only expect a small return, right?
You probably won’t become a millionaire or retire early from investing your spare change.
Realistically, these apps could help you set aside a few hundred dollars a year. It’s nothing to write Warren Buffett about — but it’s no small feat if you’ve been living paycheck to paycheck, wondering how you can get ahead.
You could have $500 in your emergency fund by the end of the year — before the next thing on your car breaks.
Or you can use micro-investing as a first step into bigger investments.
Or just save for one more year, and you can get yourself a teacup pig!
*Clients may incur ancillary fees, charged by Stash, its custodian or both, that are not included in the monthly Wrap-Fee.
Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder. He already invests, but he clearly needs to invest more.
This article contains general information and explains options you may have, but it is not intended to be investment advice or a personal recommendation. We can't personalize articles for our readers, so your situation may vary from the one discussed here. Please seek a licensed professional for tax advice, legal advice, financial planning advice or investment advice.