Micro Investing Explained

Updated on November 12, 2016

The Rise of Micro Investing

Micro investing has been increasing in popularity over recent years. Micro investing means investing small amounts of money on a regular basis, sometimes referred to as investing your loose change. A number of investment companies offer phone apps, to make investing and monitoring your investment more streamlined.

The investments work by linking your nominated bank account and 'rounding up' each ordinary bank transaction you make to the nearest dollar. The 'round up' is then invested into your chosen micro fund. As an example, if you spend $84.59 at Walmart, the 'round up' amount of $0.41 will be invested to your fund.

If your bank transaction ends with a whole dollar amount, an amount of $1 will be invested to your fund. This 'round up' method includes all bank transactions, not just debit card purchases, e.g. online bank transfers and payments. As an example, if you pay your AT&T monthly $30 bill via online banking, an amount of $1 will be applied as a 'round up' to your micro fund.

The idea behind this micro investing is the amounts you are saving are so small, you don't notice any impact on your day-to-day cash flow. Most micro investment funds wait until your 'round ups' have reached $5 before deducting the amount from your nominated bank account and applying the funds into your micro investment.

Micro investment funds also allow recurring savings to be invested, as an example a direct debit of $10 per month on top of your 'round up' amounts. The recurring investment can be set up on a daily, weekly or monthly basis, and can be adjusted via your chosen micro app at any time. One-time investments can also be made into your micro investment account, which can be completed via the app with just a small number of clicks.

Invest Your Loose Change

Is It Worthwhile to Micro Invest?

The average person makes 30 bank transactions per week, making the average amount invested per week around $7 - $8. Over a full year, this would be over $364. Whilst this may not sound like much, it's money that you otherwise wouldn't have essentially 'missed'. You also receive dividends and interest from your chosen investment, which is automatically reinvested into your micro investment account.

The micro investing apps do charge a monthly fee, which is $1 per month in the USA ($1.25 in Australia) for balances under $5,000 with Acorns (the market leaders in USA & Australia for micro investment apps). In the UK the fees are higher at £1.00 per month + 0.57% per month in fees with Moneybox (this equates to an extra £0.57 per £1,000 invested). Acorns do not currently operate in the UK. Moneybox waive the £1.00 fee for the first three months, to help your investment start to grow.

The fees are quite small; however in the first couple of months of investing the fees are more noticeable. Once you begin receiving returns on your investment in the form of dividends and interest, they essentially offset the fees being charged. With an average investment, you should see the return from investment covering the monthly fee within the first six months (depending on your investment option chosen).

How Much to Save?

Micro Investment Options

Acorns USA and Australia offer five different investment options: Conservative, Moderately Conservative, Moderate, Moderately Aggressive and Aggressive. Each offers a different level of risk, corresponding to the possibility of return. As an example, Aggressive offers the highest level of risk, but also offers the possibility of a higher return than the other four options. Acorns' five diversified portfolios were constructed with the assistance of Dr. Harry Markowitz, a Nobel Prize-winning economist.

Moneybox UK offer three different investment options; Cautious, Balanced and Adventurous.

As micro investments are a financial product, it is essential you read the product guides available on the website of the financial service provider. Any micro investment (or other investment) you are considering must be registered with the appropriate financial body in your resident country.

How much would you be willing to micro invest each month?

See results

The Risk

The Western markets have been subjected to increased volatility since the GFC. Whilst some may argue this is the nature of stock and property markets, many investors are still very cautious and un-trusting of the investment markets.

Others feel that, with interest rates on cash so low, some risk is worth taking. Due to the small amounts being invested, some investors are willing to accept the risk of micro investing. It is important to consider your own personal circumstances, and obtain financial advice if required.

Saving For A Goal

If you seek to purchase a particular item at some point in the future (e.g. a new computer, a vacation), micro investing may be an option worth investigating. If you provide yourself with a time frame (e.g five years) and calculate the minimum funds you will need for your future purchase (e.g $3,000), you can then calculate how much you need to micro invest per month. In this example, you would need to invest $50 per month to reach your goal (subject to market fluctuations).

If you have a minimum goal, you can invest your 'round ups' each month, then 'top up' the amount to reach your $50. As an example, if you have $23.40 in 'round ups' for a particular month, you can then make a one-off deposit via the micro investing app of $26.60 to reach your monthly goal.

The Micro Investment Market Leaders

Additional Information

The micro investing apps also allow you to link a credit card, as well as a debit card. Linking a credit card would not be recommended, as the interest you will pay on your credit card is almost certainly going to be higher than any return you receive from your micro investment.

Both Acorns & Moneybox also have a simple 'swipe' option on their apps, whereby you can choose to cancel an individual 'round up' before it occurs. They usually allow a 48 hour period before applying the 'round up' to your account. As an example, if a 'round up' of $1 was applied because you completed an online bank transfer for $100, you can simply swipe on the app for this $1 not to be applied.

Acorns USA offer zero fees for college students with a valid .edu address for up to four years from date of registration, thus saving the $1 per month for investments under $5,000. Accounts over $5,000 in value are charged at 0.25% per year in the USA and 0.275% in Australia. Acorns Australia does not waive the fee for college students.

Acorns USA have also introduced Found Money™, which offers cashback to your micro investment account for purchases made with beta partners.

Long Term Outlook

A micro investment can take some time to 'build up' to a sizeable amount, however with patience you will see your funds grow into a worthwhile sum. If you consider the amounts invested are amounts you would otherwise have spent on disposable goods, you could view your micro investment as being a type of 'bonus' in the future. Due to the minimal impact on daily cash flow and budgets, the popularity of micro investments continues to rise.

Comments

    0 of 8192 characters used
    Post Comment

    No comments yet.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, toughnickel.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://toughnickel.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)