Micro-Investing: How You Can Start Investing With as Little as $5

Myth: You need lots of money to start investing.

Micro-investing apps are giving everyday people access to the stock market for as little as $5.

Micro-investing allows you to start small — really small. Apps like Acorns and Stash work by transferring small sums of money from your bank account to a diversified portfolio.

Research shows that these tiny money moves can really add up.

According to a consumer study by Cornerstone Advisors, saving and investing apps like Acorns helped consumers save an average of $600 a year above their standard level of savings — and one in five users saved more than $1,000.

Is a micro-investment app right for you? The answer depends on your financial goals and income.

What Is Micro-Investing?

Micro-investing allows you to automatically allocate small amounts of money into a portfolio of stocks and bonds — even if you know nothing about investing.

This fintech term applies to a handful of mobile-based platforms that make investing easy and painless.

Here are a few common features these micro-investing apps share:

• The ability to set up recurring transfers from your bank account to your investment account.
• The option to round up purchases and sweep the spare change into your investment account.
• Robo-advisors that select a portfolio of diversified investments tailored to your goals and risk tolerance.
• Fractional shares of stocks, which allows you to start investing with small amounts of money (think $5 or less).
• A flat monthly fee for services or a fee equal to a percentage of your account balance.
• Educational resources that teach you about personal finance.

Micro-investing can be a good option if you’re tight on extra cash or you’re new to investing and not sure where to start.

You can customize how much money you invest and how often — putting you in the driver’s seat. These apps also remove some of the barriers of traditional brokerage accounts, such as account minimums and trading fees.

“Micro-investing apps lower the cost of entry, which opens up investment opportunities to a wider audience,” said Summer Red, a financial advisor and education manager at the Association for Financial Counseling & Planning Education. “Investing is complex, and the best way to learn about it is to actually invest.”

You can use a micro-investing app like training wheels to support you as you begin your investing journey.

Or you can use it as a second emergency fund or as an auxiliary account to save for a mid-term goal, like buying a home.

Still, most financial advisors agree these apps should be just one small (some might even say micro) piece of your long-term financial picture. They aren’t intended to replace your emergency fund or make you a millionaire.

You’re going to need to do more than round-up your Uber Eats orders to save enough money for retirement.

How Micro-Investing Platforms Work

Here’s what to expect once you dive into micro-investing.

Where Is My Money Invested?

After you download a micro-investing app and create an account, you’ll need to link a debit card or bank account.

You’ll also be prompted to complete a survey designed to determine your risk tolerance and financial goals.

From there, many apps select a pre-made portfolio where your money gets invested. You can usually choose a different portfolio if you disagree with the algorithm but you may not be able to select individual stocks or other assets.

In this way, micro-investing apps also work like robo-advisors, online brokers that use advanced software to invest money and manage your portfolio.

Portfolios most often comprise exchange-traded funds, or ETFs. ETFs bundle many different investments into one fund, giving you exposure to hundreds of stocks (and/or bonds) with a single purchase.

Exchange-traded funds provide instant diversification, and are considered less risky than investing in individual stocks. They’re similar to mutual funds in that respect, but at a lower cost.

From there, you can customize how much money you want to invest and how often.

How Does Rounding Up Work in a Micro-Investing App?

Several micro-investing platforms work by rounding your purchases to the nearest dollar before tucking the difference into your investment account.

So, if you spend $10.35 on Amazon, you’ll actually get charged $11 and the app will set aside 65 cents.

Once your round-ups total a certain amount (usually $5 or more), the app transfers the spare change to your personal investment account.

Round-ups are an attractive option for new investors because they’re simple, easy and automatic.

According to Acorns, users invest about $30 a month, or $360 a year, with the app’s Round-Up feature. If you’re new to investing, $360 in the stock market is a step in the right direction.

Recurring Transfers, Retirement Accounts and Other Features

Every app also lets you set up recurring transfers from your checking or savings account on a daily, weekly or monthly basis. You can enable this automated investing feature in addition to spare change round-ups so your money grows even faster.

For example, you can set your account to automatically withdraw $20 a week from your savings account.

Investing a fixed amount of money each week or month plays into a key investing strategy known as dollar cost averaging.

By making regular, fixed-amount investments, you average out the roller coaster highs and lows of the stock market. You end up buying more when the price is low and less when the price is high.

Some investment apps also give users the option to put money into sustainable portfolios that align with your social or environmental views. You can make some green while supporting green companies.

Finally, micro-investing platforms offer other services, such as access to a financial advisor or a tax-advantaged retirement account — but you’ll pay more for these features.

Most apps automatically invest you in a taxable brokerage account, but for a couple bucks more a month, you can opt for a Roth or traditional individual retirement account (IRA).

Retirement accounts come with special perks from the federal government, like a deduction on your yearly tax bill. But it’s important to learn about IRS early withdrawal penalties and other restrictions before opening an IRA.

Pros and Cons of Micro-Investing

If you’re not investing already, the first step is always the hardest. Micro-investing apps make the process less intimidating and stressful for beginners.

“They’ve changed the format and experience so it’s much easier to get started than it was with old-fashioned investment companies,” said Justin Chidester, a certified financial planner and owner of the fee-only firm Wealth Mode Financial Planning in Logan, Utah.

Realistically, these apps can help you set aside a few hundred dollars a year — no small feat if you’ve been living paycheck to paycheck.

But over time, Chidester and other experts say you should adopt a more robust investing strategy by stepping up your 401(k) contributions at work and speaking with a financial advisor about retirement planning.

Pros of Micro-Investing

Easy to Use

You do everything else on your phone — why not start investing? Micro-investing platforms feature easy-to-use interfaces that make it super simple to round up your purchases and manage your account.

Safe

Apps like Acorns use multiple security features, including encryption, secure servers and alerts about unusual activity to keep your money safe. Stick with well-known apps from companies registered with the Financial Industry Regulatory Authority (FINRA) or the U.S. Securities and Exchange Commission.

Diversification

Buying individual stocks as a newbie can be risky. Diversification and asset allocation are the easiest ways to mitigate risk, and micro-investors do a great job at this by spreading your money across broad-based ETFs.

Low Minimum Deposits

ETFs can cost hundreds of dollars per share. But these apps get you started with an initial investment of $5 or less. How? By purchasing fractional shares of ETFs, which isn’t possible at many traditional brokerage firms. This gets you invested in the stock market quickly — even if you can’t afford to purchase an entire share at first.

Educational Tools

These apps provide lots of educational resources. They also offer financial and investment advice for beginning investors, from definitions of financial lingo to daily market commentary. They hammer home the importance of investing for the long haul. If you’re trying to boost your financial literacy know-how, definitely read up and take advantage of these free resources.

Micro-investing platforms are a great place to start, but most financial advisors agree that you shouldn’t stop there.

“Something that invests a few dollars a month for you isn’t going to make you rich,” Chidester told The Penny Hoarder. “You’re never going to be able to save for retirement unless you intentionally invest a higher and consistent amount of money.”

Cons of Micro-Investing Apps

Miss Out on Retirement Plan Tax Perks — or Pay More

Since most micro-investing apps offer taxable investment accounts, you won’t get the sweet tax perks of retirement savings plans like a 401(k). While apps like Acorns and Stash offer the choice to open an IRA, you’ll pay more, usually $3 or more a month.

Paying $36 a year to access an IRA is a pretty lousy deal. More robust robo-advisors like Wealthfront offer IRA access for a yearly charge of 0.25%, or just $2.50 per every $1,000 invested.

Account Fees

Account fees for micro-investing platforms vary widely. Some charge a flat amount for basic service, like $3 a month, while others charge a small percentage of your portfolio balance.

A micro-investing app may feature free trades until your account reaches a certain amount, such as $5,000. Most will offer additional services, like access to a checking account, for a higher monthly fee.

This may not seem like much, but it adds up. For example, a monthly $3 charge equals 36% in fees each year if you only have $100 in your account. Meanwhile, most brokerage services, like Robinhood, offer free trades and no monthly fees.

Limited Investment Choices

As you learn more about investing, you might want to DIY your portfolio or add specific assets. Unfortunately, micro-apps don’t provide much wiggle room as your investment strategy evolves.

Some apps won’t let you invest in cryptocurrency, and you may not be able to pick individual stocks. Many micro-investing platforms also lack access to professional investment advisory services.

Not Enough to Reach Retirement Goals

Micro-investments often lead to micro results. Meanwhile, retirement is really expensive: According to Fidelity Investments, you should aim to retire with about 10 times your current income banked.

So, if you make $50,000 a year, you’ll need at least $500,000 in retirement savings by the time you stop working. You can round up your Starbucks purchases for 30 years — and still fall miserably short of your retirement nest egg goal.

How to Start Micro-Investing

Thanks to technology, entering the investing world is as easy as doing some research and downloading an app.

But here’s a quick rundown of a few of the best micro-investing apps on the market.

SoFi® Active Invest

SoFi Active Invest* lets you buy full or fractional shares of popular stocks, plus you can invest in exchange-traded funds — or collections of stocks. If you’re new to investing, SoFi has automated investing tools to help simplify things. Plus, they won’t charge you any SoFi management fees. It only takes a minute to open an account.

And when you open a SoFi Invest account and fund it with at least $50, they’ll give you stocks in return — worth up to $1,000**. Plus, get a 1% IRA Match on contributions & rollovers. Terms apply.

Acorns

Acorns lets you invest your spare change through a linked debit card and/or make recurring deposits to your account. This investing app works as a robo-advisor by creating a portfolio tailored to your goals and risk tolerance. Accounts cost $3 to $5 a month.

Stash

Stash offers many of the same perks as Acorns, including round-ups, fractional shares, recurring deposits and the option to open an IRA. However, this investing app also allows a user to tweak their investment portfolio, with more than 3,000 ETFs and individual stocks available. Monthly fees range from $3 to $9.

Public

Public lets you buy fractional shares of companies, and offers “themes” of stocks, such as health care and tech companies. This investing app also incorporates a social media-like feed, letting users keep track of other users’ stock portfolios. Public is a free app with no membership or commission fees.

Frequently Asked Questions (FAQs)

Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder. She focuses on investing, retirement, life insurance and taxes.

*Terms and conditions apply. Matches on contributions are made up to the annual limits.

Investment Products: Are not FDIC-insured, are not bank guaranteed and may lose value.

SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.

1. Other fees, such as exchange fees, may apply. Please view our fee disclosure to view a full listing of fees.

2. Investing in alternative investments and/or strategies may not be suitable for all investors and involves unique risks, including the risk of loss. An investor should consider their individual circumstances and any investment information, such as a prospectus, prior to investing. Interval Funds are illiquid instruments, the ability to trade on your timeline may be restricted. Brokerage and Active investing products offered through SoFi Securities LLC, Member FINRA(www.finra.org) /SIPC(www.sipc.org).

3. There are limitations with fractional shares to consider before investing. During market hours fractional share orders are transmitted immediately in the order received. There may be system delays from receipt of your order until execution and market conditions may adversely impact execution prices. Outside of market hours orders are received on a not held basis and will be aggregated for each security then executed in the morning trade window of the next business day at market open. Share will be delivered at an average price received for executing the securities through a single batched order. Fractional shares may not be transferred to another firm. Fractional shares will be sold when a transfer or closure request is initiated. Please consider that selling securities is a taxable event.

4. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire investment Before trading options please review the Characteristics and Risks of Standardized Options

5. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see https://www.sofi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information

6. SoFi Plus members can schedule an unlimited number of appointments with a financial planner during periods in which the SoFi Plus member meets the eligibility criteria set forth in section 10(a) of the SoFi Plus Terms and Conditions. SoFi members who are not members of SoFi Plus can schedule one (1) appointment with a financial planner. The ability to schedule appointments is subject to financial planner availability. SoFi reserves the right to change or terminate this benefit at any time with or without notice. Advisory services are offered by SoFi Wealth LLC, an SEC-registered investment adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at www.adviserinfo.sec.gov

1. Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease.

2. Terms and conditions apply*. For 401k rollovers, existing SoFi IRA members must complete 401k rollovers via this link For SoFi members without a SoFi IRA, a SoFi IRA must first be opened, and 401k rollover must be completed utilizing Capitalize via this link. SoFi and Capitalize will charge no additional fees to process a 401(k) rollover to a SoFi IRA. SoFi is not liable for any costs incurred from the existing 401k provider for rollover. Please check with your 401k provider for any fees or costs associated with the rollover. For IRA contributions, only deposits made via ACH and cash transfer from SoFi Bank accounts are eligible for the match. Click here for the 1% Match terms and conditions.

3. Must be a SoFi Plus member at the time a recurring deposit is received into your SoFi Active or Automated investing account to qualify. Bonus calculated on net monthly recurring deposits made via ACH and paid out as Rewards Points. See Rewards Terms of Service. SoFi reserves the right to change or terminate this promotion at any time without notice. See terms and limitations. https://www.sofi.com/sofiplus/invest/#disclaimers

*** Checking your rate won’t affect your credit score. Completing an application includes a hard credit pull. If you refinance with an extended term, you may pay more interest over the life of the loan.

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