Micro investing allows individuals to invest small amounts of money, often as little as a few dollars or cents, into a portfolio of investments. Micro investing platforms make it easy for people with little capital to start building wealth gradually. These platforms, typically available as mobile apps, let users automatically invest their spare change from everyday purchases or make small, regular contributions. While micro investing may not lead to significant returns overnight, it can be a simple and accessible way to start building a portfolio and develop healthy financial habits.
If you have a larger amount of money to invest, consider working with a financial advisor.
What Is Micro Investing?
Micro investing is a form of investment that allows individuals to invest small amounts of money, usually in fractional shares of stocks, exchange-traded funds (ETFs) or other assets. Even for those who don't have significant capital to get started in the market, this strategy makes investing accessible to everyone.
Unlike traditional investing, which can require larger sums of money upfront, micro investing allows you to build wealth incrementally over time. Many platforms offer ready-made investment portfolios tailored to different risk levels, so you can choose options that match your financial goals. Some provide access to robo-advisors that could supply additional services such as rebalancing.
The idea behind micro investing is that small, regular investments can add up over time, providing an easy way to start saving for the future without needing large capital outlays.
How Does Micro Investing Work?
Micro investing works by automating the investment process and allowing users to contribute small amounts regularly. Most micro investing platforms link directly to your bank account or credit card. As you make purchases, the platform rounds up each transaction and deposits the spare change into an investment account. Over time, these small amounts accumulate and are invested into a portfolio of assets, typically ETFs or individual stocks.
For example, if you spend $5.25 on a purchase, the app may round up the transaction to $6, investing the remaining $0.75. These round-ups can occur with every purchase, ensuring that you're regularly contributing to your investment portfolio without much thought. Some platforms also allow you to set up recurring deposits, such as weekly or monthly contributions, to accelerate the growth of their investments.
Pros and Cons of Micro Investing
While micro investing offers many advantages, it's essential to consider both the pros and cons before deciding if it's the right strategy for you:
| Pros | Cons |
| Low barrier to entry: Micro investing allows you to start investing with very little money, making it accessible to almost anyone. You don't need large sums of capital to get started, which removes a common obstacle many people face when trying to enter the market. | Small returns: Since micro investing typically involves small contributions, the returns may also be modest, especially in the short term. While compounding over time can help, it may take years for these investments to grow into substantial amounts. |
| Automatic and hands-free: Micro investing apps are designed to be automated, allowing users to invest without actively managing their portfolios. Spare change round-ups and recurring deposits make it easy to invest consistently without much effort. | Fees can erode gains: Some micro investing platforms charge monthly fees, which, although small, can eat into your investment returns, particularly if you’re only investing small amounts. Additional management fees may go to robo-advisors. Compare fees across platforms to ensure you're not losing more than you're gaining. |
| Builds good financial habits: By contributing small amounts regularly, micro investing helps people build healthy financial habits. These investments may not seem significant on a day-to-day basis, but over time, they can accumulate and contribute to long-term financial goals. | Limited customization: Micro investing platforms often offer pre-built portfolios with limited options for customization. This can be limiting for investors who want more control over asset allocation or investment choices. |
| Diversified portfolios: Most micro investing platforms offer diversified portfolios, often made up of ETFs that spread your investments across multiple asset classes. This reduces the risk of relying on a single stock or sector to perform well. | Not ideal for immediate financial goals: Micro investing is a long-term strategy and may not be suitable for those looking for short-term gains. The gradual nature of micro investing means it's unlikely to provide immediate or significant returns quickly. |
How to Know If Micro Investing Is Right for You
Micro investing may be a suitable choice for those just starting their investment journey or for individuals looking to establish consistent savings habits without large sums of money. If you find it difficult to set aside a significant portion of your income for investing, micro investing can offer a manageable solution by allowing you to invest small amounts gradually. The automated nature of micro investing can also be appealing for those who prefer a hands-off approach to their investments.
However, it's essential to consider your financial goals and risk tolerance before committing to micro investing. If you're aiming for significant short-term returns or need access to your funds in the near future, micro investing might not be the best fit.
And because micro investing typically results in smaller contributions, it's important to manage your expectations. If you're looking to build wealth over a long period and are comfortable with modest, gradual growth, micro investing can be an excellent tool for getting started in the world of investing.
How to Start Micro Investing
There are many apps and platforms to help new investors get started with micro investing. Here are five general tips you could follow:
- Choose a micro investing platform: Popular platforms include Acorns, Stash and Robinhood support their own flavors of micro investing with different features and fee structures. Compare options based on your financial goals, risk tolerance and how much control you want over your investments.
- Link your bank account or credit card: After choosing a platform, link your bank account or credit card to the app. This will enable the app to round up your everyday purchases and invest the spare change automatically. Some platforms may also allow you to set up recurring contributions for added convenience.
- Select an investment portfolio: Most micro investing platforms offer pre-built portfolios based on risk tolerance, ranging from conservative to aggressive. Review the portfolio options and choose one that aligns with your financial goals and comfort level with risk. Many portfolios consist of ETFs that provide diversified exposure to different sectors.
- Start investing small amounts: Once everything is set up, the app will begin rounding up your transactions and investing the spare change. You can also manually transfer additional funds or set up automatic deposits to grow your investment faster. Over time, these small amounts will accumulate and contribute to your overall portfolio growth.
- Monitor your progress: While micro investing is largely automated, it's still important to check in on your progress regularly. Monitor your portfolio's performance and make adjustments if necessary, especially if your financial goals or risk tolerance change over time.
Bottom Line
Micro investing provides an accessible way to enter the world of investing with minimal effort and capital. By automating small, regular contributions, micro investing platforms help individuals build portfolios over time and develop healthy financial habits. While this approach may not lead to quick returns, it offers long-term growth potential and can be a valuable tool for those new to investing.
Tips for Investment Planning
- If you want to build an investment portfolio, a financial advisor can work with you to identify investments and manage risks for your portfolio. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.
- If you want to know how much your investment could grow over time, SmartAsset's investment calculator could help you get a free estimate.
Photo credit: ©iStock.com/Yaroslav Astakhov, ©iStock.com/Steven_Kriemadis
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