There has been an influx of micro investing apps that are trying to appeal to newbie investors, making it painless and easy to invest with small amounts of money. However, that has a lot of us in the personal finance world wondering is micro investing worth it for millennial investors?
But let’s back up a second and talk about investing in general and why it’s important…
Investing works on the “smarter not harder” premise of making your money work for you. Invested money earns you dividends or interest. Despite natural fluctuations in the market (there are always going to be occasional downturns), you are earning passive income when you invest. And that’s the key to funding your retirement and long-term wealth.
Even if you get that investing is important, it gets confusing when you look at the variety of investment vehicles – ETFs, mutual funds, stocks, bonds, even real estate. And if you’ve never invested before where do you start?
Until micro investing popped up as an option, traditionally people would invest through a brokerage like Schwab, Fidelity, TD Ameritrade, etc. But, one of the fears is that you’d need some larger chunk of money to buy in. That’s not at all the case with micro investing… you can literally start with as little as $5.
Micro investing works to remove or reduce the barriers to traditional investing.
If you haven’t started investing yet, why? What are the barriers holding you back? If you’re like many people, it’s probably for one of the following reasons:
- Thinking you don’t have enough money to start investing, like needing a big buy-in
- Having no idea where to start, what to buy, etc.
- Feeling like you’re going to lose all of your money
Those are legitimate feelings and concerns. For those of you who are nervous about investing with a traditional brokerage, micro investing apps might be a good way to ease into it.
What is micro investing exactly?
It’s essentially investing with small amounts of money. That can be spare change, $5 here and there, etc. Some of these apps even refer to it as spare change investing. This means you don’t need a huge lump sum to start with, which makes it much more approachable for many millennials and new investors.
With most micro investing apps, you are buying partial shares of ETFs (exchange-traded funds). Those are inherently diverse assets (diversity is good), and a partial share naturally costs less than a full one.
Micro investing apps go one step further, making investing even easier by:
- Automating your investments. These apps will pull money from your linked account and deposit it for you.
- Helping you pick your investments. Most of these apps help you pick a portfolio that is based on your risk tolerance and time to reach your goals.
- Giving you a clean and intuitive design. The design of these apps isn’t overwhelming, and they are easy to navigate and use.
Each micro investing app is going to have some things in common, like how you sign up and create an account, but there are subtle differences from there on out. To see what I mean, let’s take a look at a few of the most popular options.
Best micro investing apps for 2019
Acorns found its fame by rounding up transactions from linked credit and debit cards to the next dollar, then investing the difference. Acorns call these “round-ups.” Spend $4.37 on a latte and Acorns will invest the $0.63 difference for you. Cool, right?
Let’s look a little closer…
Signing up for Acorns
To open an Acorns account, you will use your email address and need to create a strong password. Then, you’ll need to provide them with a little bit of personal information (the same kind of information you’ll need for any micro investing app or traditional brokerage), including name, birth date, and social security number.
Choosing your Acorns account
Acorns have three different types of accounts:
- Acorns Core $1/month (free for college students with a valid .edu email address). This is a basic investment account.
- Acorns Core + Acorns Later $2/month. This allows you to also put money aside in a dedicated retirement account.
- Acorns Core + Acorns Later + Acorns Spend $3/month. Everything listed above plus a checking account.
These monthly fees are for account balances under $5,000. After that, you’ll be charged 0.25% per year, which is divided up monthly.
Depending on your current age, projected age of retirement, and the level of risk you’re comfortable with, Acorns will recommend one of five different portfolios, from conservative to aggressive.
No matter which portfolio you use, you’ll be investing in micro shares of a variety of ETFs. You can see how much you own of each ETF in the app, or when you link your Acorns account to a money tracking tool like Personal Capital.
More to know about micro investing with Acorns
- Acorns will take money from your linked account and deposit it into your investment account once you hit $5 in round-ups.
- You can use the Acorns Multiplier to round up your transactions by 2, 3, or 10 times more.
- Acorns have partnered with over 200 different companies that boost your investments when shopping with your linked account through one of their websites, including companies like Hulu, Nike, and Apple.
- You can schedule recurring deposits through the app, which you can cancel or pause at any time.
Learn more about Acorns in my full M$M Acorns 2019 Review.
In addition to rounding up transactions from linked accounts to the next dollar amount and investing the difference, Stash gives you another micro investing option with what they call Smart Stash. Basically, the app learns your spending and saving habits to come up with a safe amount of money to pull from your linked account and put into your Stash investment account.
Just like Acorns, your money is invested in micro shares of ETFs.
Investing with Stash
All of these apps have a really similar sign-up process. You’ll need to provide your personal info, link a card, and pick an account type.
Stash has three different account options, and it takes $5 to invest in any of them.
- Starter $1/month. Includes personal account, unlimited trades, unlimited education, and financial coaching.
- Long-Term $2/month (free if you’re under 25). Includes retirement account, unlimited trades, unlimited education, and financial coaching.
- Wealth Builder $3/month. Includes retirement account, personal account, unlimited trades, unlimited education, and financial coaching.
These prices are for accounts with less than $5,000. Once you hit that milestone, your fee changes to 0.25% per year.
Investing your money with Stash
Whether you do roundups or Smart Stash, you will have to do the actual investing part. That means money is deposited into a cash account for you to invest. You can browse through over 40 different ETFs to find ones that match your interests or values.
When you find one you like to invest in, you use what’s in your cash account (as little as $5) to purchase a micro share of that asset.
Here’s an example of some of the ETFs you’ll find on Stash:
- Clean & Green (companies with clean and renewable energy) is the Stash name for the iShares Global Clean Energy ETF, ticker symbol ICLN
- Women Who Lead (female-focused companies, leadership, and charitable work) is the Stash name for SPDR SSGA Gender Diversity Index ETF, ticker symbol SHE
- All That Glitters (precious metals) is the Stash name for Aberdeen Standard Physical Precious Metals Basket Shares ETF, ticker symbol GLTR
Stash is growing informed investors
Stash also gives your really important information about each ETF before you click the “buy” button, like performance, position, and expense ratio. You can visit each ETFs website, and if you don’t understand any of the terms, Stash has a pretty large library of articles to help grow your investment knowledge.
You can learn more about Stash in my M$M Stash Review 2019.
Started by insurance giant John Hancock in 2018, Twine has branded itself as a saving and investing app that’s built for two. That can be investing with your spouse, your partner, even your friend… if you really wanted to.
The app has both savings and investment account options, and the idea is that you set financial goals and then start working towards them with a partner. These could be things like funding a vacation, saving up for a down payment on a house, buying a car, etc. You don’t have to save for every goal in an investment account, but long term goals (when you don’t need quick access to your funds) are better for investing.
How to invest with Twine
- Sign up is similar to the rest of these micro investing apps, including the type of information you’ll need to provide when opening a new account.
- You pick a financial goal, including a time frame, and then invite someone to invest or save with you.
- You both make contributions to a shared investment account and can see your combined progress.
The money you invest through Twine is put into diversified and “sensible” portfolios that are made up of both stock and bond ETFs.
The cost of investing with Twine
With this micro investing app, you pay per the amount you have invested – $0.25 per every $500 invested or 0.6% annually.
Learn more about Twine in my Twine App Review: Money Saving Solution for Couples.
Robinhood is pretty different than the rest of the micro investing apps on this list because you aren’t investing with spare change – you’re actually purchasing full shares of stocks and ETFs. The reason I’m still listing it here is because they break down one of the major barriers to investing, and that’s dealing with fees.
Robinhood’s flagship accounts don’t have any fees for account management, and you can buy and sell stocks and bonds for free.
What you get for free
The Robinhood investing app is really, really stripped down. The app is clean and easy to use, but it doesn’t come with the research, news, charting, and educational resources that many of these other micro investing apps offer new investors.
What you get for $5 with Robinhood Gold
Robinhood recently added another account level with Gold. It’s $5 a month, and it gives you a lot of resources that are missing with a free account, including:
- Morningstar research reports
- Nasdaq Level 2 market data
- Margin loans
How to pick the best micro investing app
Besides Robinhood, these apps all have pretty subtle differences. To decide which one is best for you, here are a couple of things to consider:
How mindless do you want your investing experience to be?
When I say mindless, I’m talking about how involved you want to be in the process. Investing small amounts of money into a preset portfolio, like what Acorns and Twine offer, is something you can easily forget about. It happens in the background.
Automating your investments ensures that you’re actually investing, but it can be hard to build a habit that you’re not actively working at.
On the more active side, Stash funds your investments mindlessly, but you are responsible for choosing them. Robinhood is the least mindless app of them all – you actively fund and choose each investment you make.
How much control do you want to have?
With both Stash and Robinhood, you get to pick exactly what you’re investing in. Stash is still micro shares of ETFs, but you pick which ETFs. You can also invest your money into companies that match your interests and values.
Robinhood gives you near total control, even as far as needing to do your own research before deciding which assets to add to your portfolio. You also have access to more options.
Being in control is great for some investors, but others might find it overwhelming.
Remember the point of micro investing
Really, the goal of micro investing is to remove the barriers to traditional investing and to help new investors build good habits. Honestly, I think that’s awesome, but at some point, you’ll need to bump up your game to make big gains.
What you can expect with micro investing
Low starting deposits
When you ask millennials why they aren’t investing yet, the number one reason is because they think they can’t afford it. According to this poll, nearly 80% millennials aren’t investing, and 40% say it’s because they lack the funds to do so.
Depending on the app you use, you can literally start investing with less than $5. That blows up the myth that investing is only for old rich dudes. The low buy-in makes investing accessible to people who didn’t think that they could afford to.
M$M tip: If you are wanting to grow your income to invest even more, my Facebook Side Hustle Course will teach you everything you need to know about running Facebook Ads for local business. With just a few hours a week, you can be earning an additional $1,000+ per month.
What the returns are like
If you’re thinking you like how little it costs to start micro investing, then you’re probably wondering is micro investing worth it on the returns. But, I’m about to deal you a bummer here…
Despite not being a big Dave Ramsey guy, there was an article published on his website, that gave a really great description of what you can expect with micro investing. Put simply: “micro investing produces micro results.” Ouch.
You can still earn on your investments, but these are micro (small) investments. And if we stop to think about one of the main reasons we should invest – retirement – small returns equal a small retirement fund.
Micro investing alone shouldn’t be your retirement plan because not even the power of compound interest will turn that spare change into enough money to fund your golden years, especially if you’re wanting to retire early.
The cost of micro investing
Millennials aren’t just turned off by the perceived high cost of the actual investment, they’re also bummed out by all the fees – brokerage fees, commissions, advisory fees, even fees for inactivity. These all depend on the brokerage firm you go with, but fees are a reality of investing.
Micro investing, though, typically has much lower fees than traditional trading platforms, and I’m talking $1 per month for most. The problem is that your fees are going to increase significantly when your balance hits $5,000. That’s a mark you will eventually want to hit.
So fee wise, is micro investing worth it? Kind of.
When you’re starting out, those low fees are great, but those fees are going to start hurting when your balance exceeds $5,000. Plus, if and when you decide to pull money out of these micro investing platforms and put them somewhere else, it may cost you.
The cost of moving your money from a micro investing platform to a traditional brokerage will vary, but here are some of the costs associated with moving your investments:
- You can only transfer full shares. Partial shares will need to be liquidated, and you will have to pay taxes on that.
- Some apps charge you for transfers, which can be as high as $50-$75.
Micro investing is still investing real money
The average millennial knows way too little about investing, and I’m not faulting anyone for that because investing isn’t the easiest thing to understand. Many millennials also think investing is something you have to do in person, at an office, with a dude who’s going to tell you about golf clubs or playing lacrosse in college.
Micro investing isn’t that at all. It’s ridiculously approachable.
Do you have a smartphone? Do you know how to log into your bank account? Do you have 5-10 minutes? If you can answer yes to all of those questions, then you have the knowledge, skills, and time it takes to start micro investing.
Seriously… it really is that easy.
You don’t need to know a lot about the stock market to start micro investing, but I strongly believe that taking the educational aspect of investing into your own hands can turn you into a smarter investor overall. And remember, despite being idiot proof, you shouldn’t be an idiot with your money.
Those small amounts of money are still money… real money… so if you’re going to choose any of these micro investing platforms, work on growing your knowledge of the market overall.
Unlike traditional brokers who offer a variety of account options, micro investing isn’t going to have everything you need. Some of them even lack the tax-deferred options you’ll see in things like a Roth IRA.
Option wise, is micro investing worth it? Not so much. Because to make your money really work for you, you’ll need more options as you go forward. This leads to diversification, and that’s where you’ll see long-term gains and security.
Overall, is micro investing worth it for millennials?
There are very few things that I’ll take hard stances on, unless that’s paying off your student loan debt or starting a side hustle, and I’m not ready to add a definitive “yes, micro investing is worth it” to that list.
Micro investing isn’t going to make you rich. It’s not even going to give you enough cushion for retirement. But, what it does well is to introduce newbie investors to the market. It makes investing an approachable option for people who don’t feel like they have much money to put towards investing in the first place, and that’s pretty cool in itself.