Investing. It sounds like a big deal. It sounds kinda intimidating, the type of thing done by adults, or people who have their sh*t together, right?
It’s an understandable attitude.
Generally, if we really want to benefit from investing, the earlier we start the better, and this is because investing is about (amongst other things) time in the market. We shouldn’t wait to feel adult to start investing. (I don’t expect to feel adult any time soon, and I’m closer to 30 than to 20.)
But investing is sometimes hard without a bit of cash. And for traditional investments, the minimum cost and associated fees can be a formidable barrier.
What is micro-investing?
Micro-investing is when you invest using small amounts of money regularly. It makes investing more accessible, especially because it's usually done through an app (such as Spaceship Voyager or Raiz).
Who is it good for?
Micro-investing can be great for beginner investors, and anyone who wants to do something with their money but lacks the resources to break into traditional investing.
So far, millennials have embraced micro-investing, but it can also suit: investors that don't have too much capital; investors who want to stop themselves over-trading; investors looking to take advantage of dollar-cost averaging or anyone who likes the idea of automating their investing.
How does it work?
Different apps take different approaches. Some buy units of pre-established exchange-traded funds (ETFs) and managed funds, while others build their own products from scratch. Spaceship Voyager offers two managed funds (Spaceship Index Portfolio and Spaceship Universe Portfolio), with investment strategies managed by an in-house investment team.
What should you look out for?
- Fees and costs. There’s always a cost of doing business. Make sure you read the fine print. Are you being charged a flat fee? A percentage? Is it free up to a certain account balance? Don’t forget to check for withdrawal fees too. (Spaceship doesn’t have any withdrawal fees). Make sure you know what you’re signing up for by reading the relevant product disclosure statement.
- Portfolio diversification. You typically want your money to be nice and spread out so if anything happens to a particular company or sector, the impact to your overall investment is minimised.
- Low minimum investment requirement. Because let’s be real. If you need a fat chunk of money to opt in, it’s not really micro-investing.
- It allows you to access a diverse portfolio with a small amount of money. Like really small. If you were going with traditional methods, you might struggle to buy into any kind of fund, even with a few hundred dollars to play with.
- It's super easy to get started. Download the app, make an account. You can be good to go within minutes.
- You can set and forget. Most apps have some kind of automation feature. For example, Spaceship Voyager allows you to set up an investment plan for every week, fortnight, or month, while other micro-investing apps offer roundups. Of course, you can also put more money into your fund whenever the mood strikes!
- It helps you start building good financial habits.
- If you already have a diverse portfolio, micro-investing may not expose you to anything new.
- With some micro-investing apps, you may feel you have limited account options. For instance, you may want to invest in a few individual stocks, but you may only have the option of investing in a portfolio of stocks.
At the end of the day, micro-investing helps solve some of the main blocks for beginner and young investors: lack of knowledge or understanding and lack of capital. Depending on your financial needs and goals, you may decide to move from micro-investing into something more traditional down the track.
No matter where you are or see yourself financially, something is generally better than nothing, and micro-investing can be a great start.