Micro-investing platforms enable individuals to make small investments without breaking the bank. Some investment apps connect directly to bank accounts and automatically move money from checking into savings each month.
Others charge a flat monthly fee and use automated advisors to select portfolios of assets that align with your goals and risk tolerance, along with educational resources for beginning investors.
1. Rounding up purchases
Micro-investing apps allow users to link their checking and credit card accounts, and automatically invest small amounts. For example, when purchasing coffee at $2.50 instead of $2.00, the app rounds it up to $3.00 and invests the extra 50 cents. Over time this could amount to significant returns.
App-based investments typically offer low minimum investments; in some cases, investors can even purchase fractional shares – meaning they could own a piece of an expensive company like Apple without shelling out $2,000 to acquire their full share.
These investment apps are great ways to introduce people to investing, but they may not be suitable for everyone. Before committing to an app, carefully consider its fit with your personal financial goals and long-term investing strategy; and be sure to select one with multiple account types, reasonable fees and plenty of educational materials available.
2. Automatic transfers
Many micro-investing apps use an automated process that connects users’ investment accounts with their bank or credit card accounts, with money then invested into stocks, ETFs and mutual funds of their choosing. Investors answer some questions regarding their investing goals and risk preferences before the platform recommends investments – this process is known as “robo-advice”, similar to workplace retirement accounts.
Investment platforms typically transfer money automatically into accounts on a weekly or monthly basis, typically by purchasing exchange-traded funds (ETFs) that help spread risk across a portfolio of companies. Some micro-investing apps also allow investors to buy fractional shares allowing you to invest in smaller pieces of a company without buying entire shares.
Micro-investing can be an excellent way to explore saving and long-term investing, but it likely won’t put you on track to meet all your financial goals – for instance retirement goals should still be pursued via savings in employer 401(k) plans and tax-advantaged individual retirement accounts (IRAs).
3. Savings accounts with credit unions
When it comes to savings accounts, there are various options available. Online accounts typically offer competitive annual percentage yield (APYs), while credit unions may provide access to higher yielding accounts.
Credit unions differ from banks in that they are member-owned and not-for-profit, providing more competitive interest rates on loans and savings accounts as well as no account fees on deposit accounts.
Digital Federal Credit Union and Pentagon FCU offer share certificates as an investment account type that goes beyond savings accounts. You’ll find these accounts similar to savings accounts but require you to lock away funds for a specific duration (ranging from three months up to several years). You’ll find them available at many credit unions across the nation, including Digital Federal Credit Union.
While high interest rates can be tempting, keep in mind that your money saved with banks, building societies or credit unions could be at risk should any institution experience financial difficulty. To keep yourself protected within the FSCS limit of PS85k you should diversify your investments across different accounts to avoid an eventual cap being placed upon your funds.
4. Self-directed investing
Micro-investing has made investing accessible to everyone without needing access to an advisor, making investing accessible without needing large initial investments or ongoing fees.
With an investing app, users can link their bank accounts and set up regular deposits of small amounts into their investment account. Once connected, the platform rounds purchases to the nearest dollar and invests any spare change into a diversified stock portfolio.
Many brokerage services and micro-investing apps don’t require a minimum deposit and offer fractional share investments that allow investors to purchase partial shares instead of paying $2,000 upfront for one full share.
Micro-investing can be an excellent way to begin and form good investing habits, but it may not be sufficient to meet retirement savings goals. You will also need to set aside part of each paycheck as savings.