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Not so long ago, investing wasn’t easy for the average consumer (especially those with little money). Online brokers typically required high minimum investment amounts; even without minimum requirements, the fees alone rendered smaller investments useless. But micro investing offers opportunities for those looking to start investing a few dollars at a time.
In a nutshell, micro investing is the process of investing small amounts of money — sometimes as little as $5. Micro investment platforms typically lack minimum account balance requirements, and fees are either minute or non-existent. Moreover, a number of platforms even allow individuals to purchase fractional shares, meaning that there is no longer a requirement to buy 100% of a share of stock.
In this article, we’ll cover the ins and outs of micro-investing — how it works, and who it’s suitable for. We’ll also provide you with a brief overview of some of the best micro-investing platforms currently available.
What is Micro Investing?
Micro investing is a means of gaining exposure to the financial markets without facing the barriers of high fees and high account minimums. Before we explain the benefits of micro-investing, let’s consider the problem it solves.
Traditional stockbrokers and investment platforms have historically catered to those who are prepared to invest larger amounts of money. While specific amounts will vary from broker to broker, “larger amounts” generally means a minimum investment that runs into the thousands of dollars.
Even if a broker does allow smaller account balances, what’s on offer would still be out of reach for the average investor when fees are taken into account. This is especially true with platforms that charge a high per-trade fee.
Micro Investing Platforms
Micro investing platforms operate in stark contrast to traditional stockbrokers, in that they cater specifically to those who want to start small. Whether an individual wants to make a small deposit or has a small account balance or small trade, micro investing platforms do not penalize individuals that want to take small steps to invest.
The overarching reason that micro investing is now possible is a proliferation of new online investment services with a new approach toward earning a profit. Instead of charging high trading fees or annual maintenance fees, a number of micro investing platforms allow investors to trade for free and make their money from other revenue sources, such as advertising or low monthly subscriptions.
How Micro Investing Works
Micro investing operates like a traditional investment platform, in that the platform will facilitate the buying and selling of financial assets. Some platforms allow you to make investments on a DIY basis, meaning that you choose your own investments. Alternatively, some micro investing platforms also offer robo-advisor services.
With a robo-advisor, the platform’s underlying algorithm will facilitate your investment needs, based on your long-term investing goals and tolerance to risk. The robo-advisor will proceed to make adjustments to your portfolio to ensure it mirrors your requirements.
Whether you go the DIY route or use a platform with a robo-advisor, there are similarities between these micro investing platforms, which we have outlined below.
Low Minimum Deposit
First and foremost, micro investing platforms rarely require account minimums. This means that you can deposit really small amounts from everyday payment methods, such as a debit card.
In addition, micro investing platforms rarely require you to hold a minimum account balance, which is great if you only want to start with small amounts.
No Funding Fees
On top of low minimum deposits and account balances, micro investing platforms will usually allow you to fund your account for free. This is crucial, especially if you’re looking to invest really small amounts. (It would be counterintuitive if the platform allowed you to deposit $5, only to then charge you a $3 funding fee!) Rules for withdrawals, on the other hand, do vary, and you might need to stick with a traditional bank transfer if you’re looking to avoid paying a fee.
Low Trading Fees
A good number of micro investing platforms now allow you to buy and sell financial assets on a fee-free basis. (Again, This is something that would have been unthinkable just a few years ago, as trading fees were typically the main source of income for brokers).
It is important to note that although a micro investing platform might not charge any trading fees outright, you still need to consider the spread. (This is the difference between the “bid” and “ask” price, so a high spread can result in indirect fees.)
Low Annual Maintenance
If you decide to use a micro investing platform with robo-advisor services, then you’ll likely need to pay an annual maintenance fee. This is typically charged as a percentage of the total amount that you have invested at the platform.
However, this will often cost no more than 0.25% per year. In some cases, micro investing platforms refrain from charging robo-advisor fees, period!
Did you know that Berkshire Hathaway (the investment fund owned and managed by legendary investor Warren Buffett), has a stock price (as of this writing) of more than $340,000 per share? Therefore, investing in Buffet’s company is going to be beyond the realm of possibility for the vast majority of people.
However, some micro investing platforms now allow you to purchase fractional shares, which means that you are no longer required to purchase a full share of higher-priced stocks. Instead, you can buy very small fractions of shares, with some micro investing platforms permitting a minimum investment of just $5 per share.
Why Might People Micro Invest?
There are a number of reasons to engage in a micro investment strategy. Here’s a breakdown of why micro investing might be suitable for you.
Micro investing platforms are ideal for those who only have a few dollars to spare at the end of each week, meaning that you can still see your money grow over the course of time. This is further amplified by the effects of compound interest, which is where “your interest earns interest.”
To illustrate what small amounts of money can do, let’s say you saved $50 per month without fail for 50 years, and your investments averaged 10% per year in gains. At the 50-year mark, your money would be worth just under $70,000 when it comes to maturity. Increase that to just $100 per month, and you’re looking at more than $139,000 when you factor in compound interest!
It’s also worth considering a micro investing platform that comes with a debit card “spare change” feature. This is where your payments are rounded up to the nearest dollar, with the change invested directly into your micro investment portfolio.
Ultimately, failing to develop a long-term investment plan will cost you in the long run. Once you start to consider inflation, your wealth is being eaten away year-on-year. If you’re mindful of every dollar, micro investing platforms are a must!
Micro investing is also an excellent option if you have little to no knowledge of, or experience with, the financial markets. Historically, many entry-level investors have chosen to start investing by opening a “paper-based” account. This is where you go through a period of making dummy investments, giving you the opportunity to see how your investments perform without risking your own money. A number of online investment platforms now give you the option of trading with a demo account, which many traders like.
The benefits of a paper or demo trading account, however, are extremely limited. Investing with fake money is never going to prepare you for the realities of the investment space.
Micro investing platforms, however, give you the best of both worlds. First, you get to invest your own money into your trades, meaning that you will get a real feel for how the markets work, including that of the (potentially emotional) roller coaster ride of ups and downs. Secondly, because micro investing platforms allow you to invest really small amounts, the mistakes that you will inevitably make at the start of your investment journey will not be as costly.
It is also worth noting that micro investing platforms are a great tool for diversifying across multiple markets, and in some cases, multiple platforms. Regarding the former, you can literally invest in hundreds of individual assets without needing to fork out large amounts of cash. Instead, by investing as little as $5 per financial instrument, you can engage in a sensible diversification plan that reduces your long-term exposure to potential market downfalls.
The low account minimums that come with micro investing platforms are also an excellent mechanism for diversifying across multiple providers. For example, let’s say that micro investing provider A is great for equities, and provider B is great for ETFs. The lower investment commitments make investing with different platforms easier.
Pros of Micro Investing
- Ability to invest really small amounts
- Really low account minimums
- Easy to diversify
- Exposure to the financial markets regardless of your income
- Choose from DIY investing or robo-advisors
- Fractional shares
- Free deposits and withdrawals
Cons of Micro Investing
- Number of assets is often limited
- Fewer research tools than fully-fledged platforms
- Not suited for advanced or professional traders
- Fees often hidden in the spread
Top Micro Investing Apps
Do you like the idea of what a micro investing platform offers for your long-term investment goals? Check our list of the best micro investing apps currently on the market.
Mylo is a Canadian micro investing platform that is ideal for those that are looking to invest really small amounts of money. The app comes with an innovative ”spare change” feature that allows you to round up your debit card purchases. For example, let’s say that you buy a cup of coffee for $2.50. You can instruct the app to take $3 from your card, with the remaining $0.50 going directly into your Mylo portfolio.
You also have the option of investing one-off sums or regular monthly amounts. There is no need to have any prior knowledge of the stock markets, as Mylo offers five pre-built ETF portfolios. The underlying investments will be based on the risk level that you choose, which ranges from aggressive (80/20 split on stocks and bonds) to conservative (100% savings).
Fees: Users only pay $1 per month to use the Mylo app, which is great when you consider that you are not required to play an active role in the investment management process. Some ETFs that Mylo chooses for you might come with an annual maintenance fee, although this will rarely surpass 0.40% per year.
- No experience needed
- Just $1 per month
- Choose an investment portfolio to mirror your risk tolerance
- Spare change feature rounds up debit card purchases
- Only five portfolios to choose from
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If you’re an absolute beginner in the world of investing, then it might be worth checking out Acorns. The US-based micro investing platform offers a truly user-friendly application that is suitable for all skill levels. Much like in the case of Mylo, Acorns offers the debit card ”spare change” feature.
Similarly, you won’t have the luxury of choosing your own investments, although this shouldn’t be an issue if you’re a newbie. Instead, there are a number of ETF portfolios to choose from.
Fees: Acorns offers three main account tiers, which range from $1-$3 per month. The fees will only increase once a user’s portfolio hits the $1,000,000 mark, at which point they will have to pay $100 per month.
- Spare change feature for rounding up purchases to the nearest dollar
- Accounts cost between $1-$3 per month
- Choose from a number of ETF portfolios
- No DIY investing
Stash is a mobile investment app that tailors to those that want to invest really small amounts in companies they prefer. And you can invest from just $5. You have the option of choosing your own investments on a DIY basis or choosing a themed portfolio. This will be based on your long-term investment goals and will center around risk.
Stash also allows you to reinvest your stock dividends automatically. This will allow you to achieve the full impact of compound interest without needing to lift a finger. Finally, Stash also comes with a number of handy educational tools, which further highlights its commitment to newbie traders.
Fees: Users of Stash pay a monthly fee, which starts at just $1. The highest tier costs $9. DIY traders will not pay any commissions or fees on their trades, which ensures that people can micro invest without being financially penalized.
- Perfect for beginners
- Invest on a DIY basis or choose a prebuilt portfolio
- No fees for buying and selling investments
- Monthly fees start at just $1
- Number of assets available is somewhat limited
Robinhood is now one of the most popular investment apps with US consumers, with the company now boasting more than 6 million clients. The app has grown in popularity extremely quickly, not least because it offers fee-free trading.
We like the fact that Robinhood offers heaps of financial instruments to choose from, which is perfect if you’re looking to diversify as best as possible. Robinhood covers the traditional stocks and shares space, as well as ETFs, funds, options, and even cryptocurrencies.
Fees: Robinhood does not charge any trading fees, nor does it come with any account minimums.
- Highly extensive list of assets
- More than 6 million users
- No trading fees or account minimums
- Best suited for DIY traders
- No robo-advisors
To learn more about Robinhood, see our full Robinhood Review article.
Stockpile is a micro investing platform that specializes in fractional shares. As noted earlier, this is where you can buy just a small fraction of a stock, as opposed to having to buy the entire share. The platform is best suited for DIY investors, as there are more than 1,000 individual financial instruments to choose from. They mainly cover stocks and a number of ETFs.
Fees: Staying true to the micro investing ethos, Stockpile does not charge any monthly fees, nor are there any account minimums to take into consideration. However, you will need to pay $0.99 for each trade that you make, both at the point of buying and selling.
- Buy fractional shares
- More than 1,000+ assets to choose from
- No monthly fees or account minimums
- Pay 99 cents per trade
Motif is a multi-purpose micro investing platform that allows you to achieve a number of goals. You have the option to buy fractional shares, as well as create portfolios with up to 30 equities or ETFs. You can also opt for a prebuilt portfolio that is based on investment “themes.”
However, one of the best features offered by Motif is that everyday investors have access to upcoming IPOs. Although you will need to invest at least $250 if you want to back an IPO, this is still considerably lower than what other brokers in the space demand.
Fees: Motif does not charge any fees to buy single stocks or ETFs, on the proviso that you engage in ”Next market open trades.” If you require real-time trades, you’ll pay $4.95 per execution, which likely won’t suffice for micro investors. Nevertheless, there are no account minimums to worry about. Editor’s note: As of this writing, Motif also offers DIY options with higher fees.)
- Wide range of investment options
- Invest in IPOs
- No account minimums
- Users required to pay a minimum of $4.95 for real-time trades
Review: Who is Micro Investing For?
Micro investing is great if you are:
- Looking to invest with really small amounts
- Wanting to learn how the financial markets work
- Keen to diversify with small amounts
- Happy to invest via your phone
- Interested in investing with your spare change
Review: Who is Micro Investing Not For?
Micro investing is not so great if you:
- Are looking to invest large amounts
- Class yourself as a professional trader
- Are looking to day trade via technical analysis
- Have complex investment requirements
- Are looking for sophisticated trading tools
- Need the advice of a certified financial planner
In summary, micro investment platforms have revolutionized the investment arena. They allow everyday consumers to invest money into the financial markets without being financially penalized for investing small amounts. Individuals can buy and sell a full range of assets with just a few dollars.
With innovative options such as the “spare change” feature, you can round your debit card purchases up to the nearest dollar, with the subsequent change transferred into your micro investing portfolio. Micro investing platforms rarely come with account minimums, and users largely have the luxury of depositing and withdrawing funds for free.
Finally, several micro investing platforms offer the option to choose investments on a DIY basis or use a robo-advisor algorithm that can rebalance your portfolio for you.
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