What is Micro-Investing and is it Worth Exploring?

Back in the day, if you were looking to save up your spare change, you’d look to the ol’ faithful piggy bank. But, nowadays, as cash is slowly becoming obsolete, some are turning to micro-investing as the modern-day answer to the piggy bank. And with micro-investing apps, not only can you save up your chump change but you can invest it.

In the past 12 months, investor interest in affordable investment vehicles like Exchange Traded Funds (ETFs) has spiked. Low-interest rates have seen many young Aussies looking for other ways to grow their money and micro-investing apps are an affordable and easily accessible way to get started in investing.

What is micro-investing?

If you’re not interested in building an investment portfolio and picking individual stocks, micro-investing could be for you. Micro-investing is about making small and irregular investments from everyday transactions. Most apps allow you to set up recurring investments, invest lump sums and even allow you to round up your purchases to invest your spare change. For example, a large cappuccino at $4.50 will be rounded up to $5 and the 50 cents would then be invested. Depending on how frequently you transact and how the market treats you, over time you could accumulate a sizeable nest egg.

Micro-investing Apps Available in Australia

Each micro-investing provider offers different investment options so it is important to understand what you are investing in before signing up.

• Raiz
• First Step
• Commsec Pocket
• Sharesies

This information is not an endorsement by Canstar of any particular investment products or any specific provider. Canstar is providing factual supplied by providers. Investments are speculative, complex and involve risks. Canstar is not providing a recommendation for your individual circumstances or in relation to any particular product or provider.

How do micro-investing platforms work?

Unlike traditional investing, to start with a micro-investing account, you don’t need to save hundreds of dollars to buy an individual share and there often aren’t any fees for individual trades. Most platforms charge a fixed fee based on the size of their portfolio. Some micro-investing accounts allow the users to invest directly into a diversified portfolio of ETFs whereas others invest their users’ money into fractional shares (less than one full share of an equity). This is often done through ETFs which means that the investment is well-diversified and could be less volatile than if you were to invest in one stock.

Why are some investors flocking to micro-investing apps?

There are a number of reasons investors are attracted to micro-investing apps.

No deposit needed

Traditionally to get started with investing an initial deposit is required, and this can be anywhere from $500-$5000. Although, with the inception of micro-investing the playing field has been levelled, and with as little as $1 you can start investing. Some platforms don’t require a deposit at all.

Related article: 6 Best Investment Apps

Convenient and easy

Apps by their very nature are generally easy and convenient to use, and micro-investing apps are no different. Right off the bat, by rounding up your transactions you are able to invest with virtually no effort required. Additionally, with most apps, setting up takes minutes and from there you can view your investment options and track your portfolio.

Not sure what to invest in? Most micro-investing apps invest in exchange traded funds or index funds, and to get you started, most apps can pair you with an investment portfolio based on your risk tolerance.  

The downside to micro-investing

You could get better returns elsewhere

Micro-investing apps don’t suit all investors. If you are a confident investor who has been around the proverbial investment block a few times now, you may be disappointed by the returns you receive from micro-investing apps. Engaging with a fund manager, or picking your own stocks or ETFs could result in better returns. Additionally, if you have an established portfolio, micro-investing may not provide any additional diversity or exposure to any new or hard to access investment products.

What are the fees for micro-investing platforms?

Fees can make a substantial difference to your returns, so it is important to consider the costs involved in micro-investing.

At the time of writing, for a standard portfolio account with spare change micro-investing app Raiz, users will be charged $3.50 per month on a balance under $15,000 and 0.275% for balances $15,000 and above. In other words, for a $15,000 investment, you’d be charged $41.25 a month.  On the other hand, if you’ve got an investment of $100, you’d be charged $3.50 per month which is a 3.50% fee. The silver lining – it’s an incentive to continue to grow your investment and make regular contributions to top-up your balance.

First Step charges 0.275% on investment balances, but there is a minimum fee of $1.25 per month. On the other hand, Spaceship Voyager charges $2.50 per month for balances above $100.

When you trade through CommSec Pocket, you’ll pay $2 each time you invest or sell up to $1,000 and trades over $1,000 are charged at 0.20% of the trade value. For example, a $1,100 trade will cost you $2.20 ($1,100 x 0.20%).

With Sharesies, you are charged a transaction fee when you buy and sell shares. For orders under $3,000 the fee is 0.5% for amounts above $3,000 the fee is 0.1%. Finally, Bamboo charges fees for deposits and withdrawals, and there is a tiered flat fee when trading less than $500, and for anything $500 or above the fee is 0.8%.

Also, bear in mind you will likely face ETF management fees which will likely be charged by the ETF or index fund provider and can vary. Make sure you read the PDS before investing.

Spare a thought

If you are looking to start small and perhaps ease yourself into investing, then micro-investing is an option. It can give you a good feel for investing without playing with large sums of money. However, before deciding on any investment product, consider the risks involved, make sure you do your research and always thoroughly read the PDS.

Cover image: Yulia Grigoryeva / Shutterstock.com