The Beginner’s Guide to Micro Investing

Micro investing is the latest fintech trend which enables even the most novice investor to invest effortlessly. The idea is geared towards young people who have a limited amount of resources and don’t have much left for investing.

Millennials are facing a litany of financial challenges in today’s market. They’re not making as much money as their parents were at their age, student debt has ballooned to outlandish proportions, and many of them are living at home instead of owning a home of their own.

What is micro investing?

When you’re struggling to pay the rent and your paycheck is barely enough to cover your bills and put some food in the fridge, the last thing you’re concerned with is saving. But these days, the earlier you set your mind to thinking about retirement, the better off you’ll be when that time comes. The time to invest is now.

That’s where micro investing comes in, an idea so unique that it seems tailor made for millennials. The idea is that you save small increments of money so that eventually those tiny contributions add up to big bucks later on down the line. It’s a way to make investing feasible for young people who aren’t making a lot of money and don’t have much in the way of assets.

Of course, the way they go about doing this is through digital access. There is a range of apps on the market, like stash and acorns, that you can download to your smartphone or tablet (two of the essentials for millennials everywhere).

These apps basically collect a few cents to a few dollars and place these incremental amounts into an investment portfolio. Think of it as a virtual spare change jar, only this one is earning a return on your money over time.

It certainly sounds different but there is enough intrigue behind this new way of investing that Wall Street has begun to embrace the notion of chipping in at a micro level.

This contemporary approach to getting younger investors involved in the market has put a renewed interest in exchange-traded funds (ETF’s).

An ETF is a fund that takes ownership in any type of asset, from stocks and bonds to gold and oil futures, splits up the ownership of that asset into shares that are held by the shareholders who have contributed money into the fund.

The rise of these micro investing apps have made low-cost ETF’s a hot item as of late since it doesn’t require investors to sink large sums of money to participate and that has resulted in serious gains.

As of 2015, assets in these investment vehicles have grown to nearly $3 trillion (with a T) in capital investments. Experts are projecting an annual growth of 17% over the next two years.

Many stock exchange operators are excited that a segment of the population that has been famous for staying out of the market, the 20-35-year-old demographic, is now showing serious interest in getting involved through micro investing opportunities. It’s not just ETF’s either. Many of the apps on the market take these incremental sums and place them into investment retirement accounts (IRA’s), stocks, mutual funds, or a simple savings account that earns interest.

Scrimping and Saving

Since this is an investing idea geared towards millennials, the apps that are available do all the work of putting money towards the future. Many of them link up to a credit or debit card and round up on every purchase transaction with the purpose of putting the difference away as a contribution to your portfolio.

So if you buy a cup of coffee at Starbucks for $3.49, the app will take 51 cents from your credit or debit card and put it towards your investments.

Purchase an app on the iTunes store for 99 cents and the app will add the extra penny to your transaction and drop it in the virtual bucket.

A penny here, a couple of quarters there and before too long you’ve funded low cost investments that are earning money. The best part is, these contributions are painless and you won’t feel the pinch of a few cents each time.

It’s much easier than putting aside a few hundred or thousand bucks to get into the market.

The Best Apps on the Market

Now that this new method of saving has become investing 101 for new generations, it’s a good idea to get in on the right apps. Here are some of the hottest and most useful ways to get into micro investing for yourself:

Acorns

-Rounds up on every transaction and puts the difference into savings.

-$12 annual fee

-Connects to a credit or debit card and the app removes your money for you

-The innovator, this is the app that put micro investing on the map and spawned many of the others apps just like it.

Betterment

-No minimum investment

-Focuses investments on retirement accounts: Traditional IRA’s, Individual IRA’s, Roth IRA’s, 401(k) accounts.

-Charges a .35% fee each year for any accounts with a balance under $10,000

-175,000 customers using the app with investments totaling over $5 billion

Stash

-Use the app for investing in ETF’s

-Investment contributions can be as little as $5

-Charges a fee of $1 each year for any accounts with a balance under $5,000

-Charges a fee of .25% for balances over $5,000

-One of the best apps for investing into funds

Folio

-Works like a brokerage allowing you to invest in a diverse amount of investments including stocks, ETF’s, and mutual funds

-A good app to learn about online trading

-No minimum investment.

-Each trade costs a fee of $4.00 or you can subscribe for unlimited trading at $29 a month.

About the Blogger: Michael Banks, otherwise known as Mr. Fortunate Investor, is a seasoned finance professional turned blogger who founded The Fortunate Investor. With 20 years of professional experience in the financial services industry, he uses his expertise to turn simple lessons on money into lifelong habits that form the basis for a successful financial future.