You no longer need at least $500 to start investing in the sharemarket. Micro-investing apps Commsec Pocket and Raiz Invest let you get started with as little as $50 and $5 respectively. We take a look at how they work, the fees and their performance.
Launched in mid-2019, CommSec Pocket lets investors buy into a choice of seven exchange traded funds (ETFs) with as little as $50 – a fraction of the minimum $500 needed to buy most sharemarket securities. Investors can make one-off investments, or set up a regular investment – either fortnightly or monthly.
With Raiz Invest (formerly Acorns) you can get started in the sharemarket with as little as $5. The app’s round-up function automatically rounds up transactions made with a linked debit card to the nearest dollar, and invests the “change” once the balance reaches $5. There’s an option for regular investing – either daily, weekly, or monthly, or to make lump sum investments any time you have the spare cash.
How does it work?
To get started you’ll need a linked Commonwealth Bank transaction account to debit or deposit funds when you buy/sell investments. From there, you can make a minimum trade of $50, with the flexibility to mix and match your investments based on seven “themes” corresponding to the seven ETFs available through CommSec Pocket. It’s possible, for instance, to focus on Australia’s largest listed companies with the “Aussie Top 200” strategy (iShares Core S&P/ASX 200 ETF), dabble in healthcare with the “Health Wise” option (iShares Global Healthcare ETF), or invest indirectly in technology stocks by opting for “Tech Savvy” (BetaShares NASDAQ 100 ETF).
Raiz doesn’t require a particular bank account, though you will only start investing once you have accumulated $5 in your Raiz account.
Investors can select from six readymade portfolios comprised of varying blends of nine ETFs. The portfolios are named for their different levels of risk, from “conservative” (least risky) to “aggressive” (most risky), the idea being that you can pick the portfolio that best matches your tolerance for risk.
As a guide, the “conservative” portfolio invests 13.5% in Aussie shares (SPDR S&P/ASX 200 ETF), whereas the “aggressive” portfolio has a 54% weighting to Australian shares. The lower-risk portfolios have a higher proportion invested in ETFs representing fixed interest assets – mainly Australian government and corporate bonds.
The “Emerald” portfolio is the exception to the risk-based format. It follows a theme of socially responsible investing, and is a mix of ETFs focusing on local and international shares.
In this sense, Raiz offers considerable diversification. Investors can switch between portfolios, and each portfolio is automatically rebalanced in line with market movements.
How much does it cost?
You only pay whenever you trade with CommSec Pocket – there are no starting or ongoing account fees. Trades up to $1,000 cost $2. This is vastly cheaper than regular online brokerage, which can be $29.95 per trade with CommSec. Trades over $1,000 attract brokerage of 0.20% of the trade value.
Exactly how much you pay over time depends on the frequency and size of your trades. If you plan to grow a $1,000 portfolio by sticking to the minimum trade of $50, it will cost $40 in total brokerage. Using the same process it would cost $200 in brokerage to build a $5,000 investment. These are all one-off costs.
There is a slight catch. As noted earlier, you’ll need a Commonwealth Bank transaction account to use CommSec Pocket. CommBank’s Everyday Account comes with a $4 monthly fee. This can be avoided if you deposit $2,000 into the account each calendar month. If you only use the account for trading with CommSec Pocket though, the fees adding up to $48 a year can gobble up the value of a single $50 trade. Commonwealth Bank may also waive the monthly fee in other circumstances, for example if you’re under 25 or are a student.
Raiz has zero start-up fees and charges no brokerage. Instead, a monthly fee of $2.50 applies to balances below $10,000, or 0.275% annually on balances over $10,000.
The flat $2.50 fee means you’ll pay $30 each year regardless of whether you have $1,000 or $5,000 invested.
Bear in mind, the underlying ETFs for both options charge their own management fees (or MERs). Part of the appeal of ETFs though is that the fees are very low – typically well below 1% annually.
How have the funds performed?
The CommSec Pocket stable of ETFs generally performed well in the 2018-19 financial year, with most notching up double digit returns, especially those with an international focus.
|CommSec Pocket performance|
|CommSec Pocket Investment option||Selected ETF||Annual return 2018-2019 Financial Year|
|Aussie Top 200||iShares Core S&P/ASX 200 ETF (IOZ)||11.38%|
|Aussie Dividends||SPDR MSCI Australia Select High Dividend Yield Fund (SYI)||10.06%|
|Global 100||iShares Global 100 ETF (IOO)||14.44%|
|Emerging Markets||iShares MSCI Emerging Markets ETF (IEM)||5.75%|
|Health Wise||iShares Global Healthcare ETF (IXJ)||17.07%|
|Sustainability Leaders||BetaShares Global Sustainability Leaders ETF (ETHI)||19.02%|
|Tech Savvy||BetaShares NASDAQ 100 ETF (NDQ)||16.41%|
|Source: Blackrock, State Street Global Advisors, BetaShares|
Looking at the table below it would seem that Raiz recorded lower returns in 2018/19 than CommSec Pocket. This is because Raiz doesn’t just focus on share-based ETFs. Most Raiz portfolios also include exposure to fixed interest ETFs, which are lower risk than shares, and so tend to deliver lower returns.
The upside is that Raiz portfolios could potentially outperform CommSec Pocket in those years when share values take a dive.
|Raiz Portfolio performance|
|Raiz Portfolio||Annual return
2018-2019 Financial Year
How do the two services differ?
CommSec Pocket is all about exceptionally cheap brokerage coupled with wafer thin minimum trades so it’s easy to invest with the barest of capital. If you’re happy to invest largely in share-based funds, CommSec Pocket is a low cost way to get started in the sharemarket.
Raiz’s round-up function makes it effortless to gradually build a diversified portfolio that matches your tolerance for risk. By automating investing, the round-up feature delivers the benefits of dollar cost averaging, bypassing the need to overthink market timing. The downside is that building a reasonable portfolio can take time, and all the while you’re paying a $2.50 fixed fee each month. But that may be a small price to pay to develop a lifelong habit of investing.
|At a glance: CommSec Pocket v Raiz Invest|
|Key features||CommSec Pocket||Raiz|
|How much you need to get started||$50||$5|
|Cost (exclusive of ETF fees)||$2 for trades up to $1,000
0.2% for trades over $1,000
|$2.50 per month on balances below $10,000
0.275% annually on balances over $10,000
|Number of investment options||7 exchange traded funds with varying themes||6 portfolios combined of a blend of ETFs, catering for different appetites for risk|
|Added extras||Features tips and articles on investing.||Raiz Rewards loyalty program – when you shop with a partner brand (including Woolies, Bonds, and Airbnb) the retailer will invest a dollar amount or % of your purchase price into your Raiz account.
Raiz Kids which lets you nominate a portion of your balance (or even all of it) to be transferred to your kids when they turn 18.
|Requires|| iOS 10.0 or later
Android 5.0 and up
|iOS 11.0 or later
Android 5.0 and up
|Both CommSec Pocket and Raiz Invest are free to download|
About Nicola Field
Nicola Field is a personal finance writer with nearly two decades of industry experience. A former chartered accountant with a Master of Education degree, Nicola has contributed to several popular magazines including the Australian Women’s Weekly, Money and Real Living. She has authored several best-selling family-focused finance books including Baby or Bust (Wiley) and Investing in Your Child’s Future (Wiley).
Main image source: Jacob_09 (Shutterstock)