Micro-Investing is a financial product that comes ready-made with a built-in strategy to help savers reach certain financial goals, while an Online Share Trading Platform allows investors to execute and manage their own trading strategy.
What is Micro-Investing?
The actual concept of Micro-Investing has been around since the dawn of time. In those days it was slightly simpler but nonetheless, it meant starting small such as saving loose change, small notes – or a specific amount set aside as a regular instalment. Historically, this involved opening a savings account with a bank and depositing the loose change you had collected over a period of time.
Typically, households would be provided a piggy bank or use an old jar that would be filled and eventually, when full, taken to a local bank to deposit. The bank would pay you an amount of interest each month and that would be added to your savings balance. This process would repeat until you reached the goal you set. So, what’s changed?
Compare Online Share Trading with Canstar
If you’re comparing online share trading companies, the comparison table below displays some of the companies available on Canstar’s database with links to providers’ websites. The information displayed is based on an average of six trades per month. Please note the table is sorted by Star Rating (highest to lowest), followed by provider name (alphabetical). Use Canstar’s Online Share Trading comparison selector to view a wider range of online share trading companies. Canstar may earn a fee for referrals.
Everything old is new again
Today, using cash as a means of paying for items has pretty much been taken over by electronic means. You simply wave your phone at a terminal, tap a credit card or may even use a Buy Now Pay Later Scheme. Receiving small amounts of change after a purchase is for many people, a thing of the past, much like video stores, manual gearboxes and wet film cameras. Even buskers and Big Issue sellers have moved to cashless transactions because so few people carry loose change these days.
More importantly, the returns received on your bank savings can be called ‘lazy money’. It’s no longer working hard enough to provide a decent level of return. These developments have forced the hand of innovation to provide an increasingly popular means of regular savings, hopefully, with better returns.
Enter Micro Investing. As mentioned earlier, this is a product designed to save and invest that comes with an in-built strategy. The product issuer typically does the thinking for you and monitors your daily spend, rounds up to the nearest dollar and debits that amount on a regular basis to invest in a financial product with the potential for capital growth and returns above what you would get from a regular savings account with a bank.
In this case, the financial product that your regular savings go into is usually an Exchange Traded Fund or ETF. Think of an ETF as a type of ‘mega-share’ that invests in a wide range of other shares with just one transaction. ETFs provide diversification, growth and income with minimal savings needed to get started – and minimum effort from you. The strategy is already taken care of without the need to make any further decisions, so in this case, you’re the lazy party – not your money.
The downside to this approach is your control over the strategy and what you can invest in. Your investment choices are made by someone else and your interest in any shareholdings are usually registered alongside other investors in a pooled account.
So if control is more your kind of thing, read on…
What are Online Share Trading Platforms?
To be clear here, share trading platforms are not ‘financial products’ as such, but rather offer you the tools and services to acquire and deal in financial products such as direct shares, Exchange Traded Funds and Listed Investment Companies – to name a few. You choose what to invest in and when to invest. Your investments are usually held with the broker in your name and you will receive all correspondence from the company or financial product you have invested in, including any dividends, and voting rights at annual general meetings.
Compare Superannuation with Canstar
The table below displays some of the superannuation funds currently available on Canstar’s database for Australians aged 30 – 39 with a super balance of up to $55,000. The results shown are sorted by Star Rating (highest to lowest) and then alphabetically by provider name. Performance figures shown reflect net investment performance, i.e. net of investment tax, investment management fees and the applicable administration fees based on an account balance of $50,000. To learn more about performance information, click . Use Canstar’s superannuation comparison selector to view a wider range of super funds. Canstar may earn a fee for referrals.
Fee, performance and asset allocation information shown in the table above have been determined according to the investment profile in the Canstar Superannuation Star Ratings methodology that matches the age group specified above.
So immediately you can see how much more involved you are with this investment approach. It requires more regular monitoring and requires you to have a strategy not just to make investments – but also an exit strategy if you fall out of love with a particular stock. To get started with an Online Share Trading Platform, your starting amount is $500, so this may not be ideal for someone who doesn’t have this amount up front or is too time poor to manage their own strategy.
The below table will help to better explain the differences in investing using Online Share Trading Platforms or Micro Investing.
|Feature||Online Share Trading Platform||Micro Investing|
|Minimum Investment||$500||From $1|
|Brokerage per transaction||Yes||No|
|Fee on amount invested||No||Yes|
|Pick your own shares/fund||Yes||No|
|Registration in your name||Yes||No|
|Investment Tax Reporting||Yes||Yes|
Only you can determine which strategy is best for you and your choice will ultimately depend on the amount you are willing to invest, the controls you prefer and features that make regular investing in the modern era relevant and exciting enough for you to stay the course.
Main Image Source: Shutterstock by WAYHOME studio
About Lily Elliott
Lily Elliott, Head of Leveraged, is an accomplished Executive Manager with more than 20 years’ experience in the Australian banking and finance industry. She brings a strong record in driving a consistent customer experience and advocacy, particularly in the Broking and Margin Lending space.