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What Is Micro-Investing & How Do I Start?

Tobi Opeyemi Amure
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What Is Micro-Investing & How Do I Start?

Micro-investing refers to consistently investing small sums of money over time, rather than making a single large investment.

This approach makes investing more accessible for those new to the market or without large amounts of capital.

Read on to learn what micro-investing is, how it works, who it benefits, and tips to get started.

But, for those short of time, what is micro-investing? Micro-investing is an investment strategy that allows individuals to invest small amounts of money, often as little as a few pounds or pennies, into diversified portfolios or individual assets. This approach is made possible through specialised apps and platforms that facilitate the purchase of fractional shares, making it accessible for those who may not have large sums to invest. It’s seen as a gateway to more traditional forms of investing and is popular among young or novice investors.

This article was reviewed by Tobi Opeyemi Amure, an investing expert and writer at InvestopediaInvesting.com, and Trading.biz.

What Is Micro-Investing?

Micro-investing involves regularly putting away small amounts of money to invest in stocks, bonds, exchange-traded funds (ETFs), and other securities.

It’s like depositing spare change into a piggy bank, except that “piggy bank” is an investment account.

Micro-investing allows you to buy fractional shares of stocks and ETFs. This means you can invest as little as £1 and still own a portion of a share.

Traditional investing requires buying whole shares, which can cost hundreds or thousands of dollars each.

How Micro-Investing Works

  • Open an investment account with a micro-investing app or brokerage.
  • Link your bank account to transfer funds.
  • Set up automatic recurring transfers on a schedule that matches your pay cycle or budget.
  • Use the money to purchase fractional shares and diversify your portfolio.
  • Let your money work for you as those micro-investments accumulate over time.

Many micro-investing platforms also offer helpful features like round-up programs that invest your spare change.

For example, if you spend £3.50 on coffee, it rounds up to £4.00 and invests the £0.50 difference.

Here’s a good video that goes into more detail about micro-investing:

Who Is Micro-Investing For?

Micro-investing appeals to:

  • Beginner investors intimidated by the stock market
  • Those without thousands of dollars to invest in stocks
  • Young professionals and students looking to build long-term wealth
  • Individuals who want “set it and forget it” hands-off investing
  • People seeking an accessible way to start investing with minimal effort

It allows anyone to start investing, even with just pocket change amounts of money.

Consistently investing small sums can add up over time through the power of compound interest.

Tips for Getting Started

  • Automate it: Set up recurring automatic transfers from your bank account to your investment account so it becomes a habit.
  • Start small, think big: Invest just a little from each paycheck or as part of your monthly budget. Increase the amount later as you can afford more.
  • Reinvest dividends: Use dividend payments from investments to buy more shares and stocks to compound your earnings.
  • Diversify: Micro-investing makes it easy to invest in diverse assets, reducing your risk through variety.
  • Use an app: User-friendly micro-investing apps simplify the process so you can invest with minimal effort and guidance.

While micro-investing requires consistency and patience, even modest amounts can grow with the market over time.

The set-it-and-forget-it approach helps remove barriers to investing and build wealth.

Unlocking Investing for Everyone

Micro-investing democratises investing, inviting non-traditional participants to dip their toes into the market.

The bite-sized, automated approach smooths the learning curve for investing newbies.

With low buy-in requirements, micro-investing empowers people to build wealth steadily, even with limited capital.

Benefits of Starting Small

Micro-investing offers compelling advantages:

  • Accessibility for those with minimal investable assets currently
  • Low-risk introduction to investing without overcommitting
  • Fosters habitual, consistent investing behavior
  • Lower account minimums and fees than traditional investing
  • Automation simplifies making regular contributions

Potential Drawbacks

Of course, micro-investing has limitations to consider:

  • Small investments mean smaller returns and dividends
  • Ongoing fees can disproportionately impact tiny portfolios
  • Generally insufficient as a standalone strategy for major goals like retirement
  • Fewer investment platforms offer fractional shares and micro-investing apps

Embarking on Your Micro-Investing Journey

The beginning is straightforward with a few key steps:

  • Select an investment app providing fractional shares and low minimums. Vet fee structures thoroughly.
  • Complete account application. Expect personal questions on age, finances, goals, time horizon, and risk tolerance.
  • Link bank account once investment account opens.
  • Determine the ideal contribution amount and cadence. Set up automated transfers.

Is Micro-Investing a Good Idea?

Micro-investing can be a good idea for beginners or those who don’t have large sums to invest, as it provides an accessible way to enter the investment world and cultivate a habit of saving.

However, small investment amounts typically won’t yield large returns quickly, and fees on some micro-investing platforms can be relatively high when compared to the investment size.

It’s advisable to consider your financial goals, risk tolerance, and the associated fees when deciding if micro-investing is the right approach for you.

Is Micro-Investing Safe?

Micro-investing is generally considered safe in the context of platform security and regulatory compliance, especially if you use well-known, reputable apps and platforms that are regulated by financial authorities such as the FCA in the UK.

However, like all forms of investing, micro-investing carries inherent market risks, including the potential for loss.

Before you start, make sure to do your due diligence on the specific platform and investment options, and consider your own risk tolerance and financial goals.

FAQs

Is micro-investing profitable?

Micro-investing can be profitable over time, especially if you consistently contribute small amounts and take advantage of compound interest. However, the small scale of the investments means that substantial returns may take longer to accumulate. It’s also important to consider fees, which can erode profits on smaller investment amounts. As with any form of investing, there are no guaranteed returns, and it’s crucial to assess your own risk tolerance and financial goals.

How much should you micro invest?

The amount you should micro-invest depends on your individual financial situation, goals, and risk tolerance. Micro-investing platforms often allow you to invest as little as a few dollars or even spare change, making it accessible for almost anyone. However, it’s important to balance this against any fees that the platform may charge, as high fees could erode the gains on a small investment. As a best practice, only invest money you can afford to lose and consider your broader financial plan when deciding how much to micro-invest.

Does micro-investing pay dividends?

Yes, micro-investing can pay dividends if you’re invested in assets or funds that distribute them. Many micro-investing platforms offer a variety of investment options, including dividend-paying stocks or exchange-traded funds (ETFs). When these assets pay dividends, your share of the payout will be proportional to the amount you’ve invested. Some platforms also offer the option to reinvest dividends, allowing you to take advantage of compound growth over time.

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Will Fenton is the founder of Sterling Savvy. He is a personal finance expert and writes about trading, investing, budgeting, and other financial topics.

Along with his education in Economics & Finance, he has experience working in the financial services industry in London working for one of the UK’s leading financial companies, “a trustworthy and respected provider of news, education and market analysis for the everyday investor”.

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