Listen Up, Here’s How To Grow Your Money By Micro-Investing

By Emma Edwards
23rd Jun 2020

a woman writes on her ipad while leaning against a brick wall outside.

When we think of investing, it’s traditionally associated with white men in suits and Lamborghinis and angry blokes yelling down phones on Wall Street. Luckily, investing has changed a lot through the introduction of technology, and you can get started with as little as five bucks. 

What Is Micro-Investing?

Put simply, micro-investing involves investing small amounts of money regularly into the share market, usually into what are called ETFs. ETFs are Exchange Traded Funds, which are essentially a group of shares from various companies that collectively track an underlying index—like the Australian Stock Exchange (ASX). 

All investments carry risks, but ETFs are slightly different in that you’re investing in the fund of multiple shares, rather than one single business itself. As a result, the returns are generally more conservative and suited to a long term strategy. These aren’t the type of investments that you might buy one day and sell for double in a month’s time.

What Platforms Can I Use To Micro-Invest In Australia?

Micro-investing apps are becoming more and more popular in Australia. Raiz (formerly Acorns) is commonly used thanks to its round-up feature. When you link your transaction account, Raiz automatically invests your spare change into your chosen ETF. For example, buy a flat white for $4.50, and $0.50 gets invested. Don’t knock it, those cents add up quick. Plus, you barely notice them.

Other microinvesting apps to explore include Spaceship, Up and CommSec Pocket.

Note: Spaceship does not invest in ETFs. It operates its own managed funds.

How Much Do I Need To Invest?

Micro-investing allows greater accessibility to the share market by having low minimum investments. Traditionally, you’d need a minimum of around $500 to start investing, but despite all of 2020’s flaws, we are living in a time when we can invest with as little as $5. Yeehah!

The important thing to remember when deciding how much to invest is that your investments are not the same as your savings account. The market will fluctuate, which means you’ll see the value of your investments going up and down. For this reason, you don’t want to be anchored to the idea of withdrawing at a specific time, because you don’t know what the market is going to do. 

Investing in ETFs lends itself to a longer term strategy, so only invest money you know you won’t need for some time. 

Micro-investing can be helpful if you want to invest in a similar manner to the way you save. So rather than saving up $1000 and then making one single investment, microinvesting allows you to invest gradually. That might be $100 a week for 10 weeks, or $10 a week for 100 weeks. Whatever works for you.

Investing small, regular amounts also allows you to take advantage of an investing concept called Dollar Cost Averaging. This means that rather than timing the market to buy all your shares at once, you’re investing a set amount regularly and therefore buying at different values. Doing so can mean you take advantage of buying more units when the values are low, and less units when the values are high.

Will I Lose Money?

All investments carry risks. You’re investing in small slices of business’ pies—it’s not like a static savings account. 

Ultimately, people lose money in the share market when they sell the shares at less than they bought them for. This tends to happen when an investor needs to access cash urgently, and they’re forced to sell their shares while the market is low. For this reason, it’s important to only invest money that’s at a surplus to your lifestyle. That way, you can ride the waves of the market, and when you eventually choose to sell them, you can do so at a time that the market is performing well.

What Are The Fees?

Traditional investing was operated through hefty brokerage fees for every trade, which tends to be why we associate investing with wealthy white men. With micro-investing, you simply pay a monthly account fee which may vary depending on how much you’ve got invested. Raiz’s monthly fee is $1.25 for balances under $5,000, which rises to 0.275% of your balance on balances over $5,000. Spaceship is fee-free on balances under $5,000, and between 0.05% and 0.10% for balances above. 

Phew, that’s a lot of adulting. Up for one more little slice of the grown up Kool Aid? Read all about how to buy your first property.

Emma is a finance blogger at The Broke Generation and a reformed spendaholic. She shares hot tips on saving, property, tax, career and investing for millennials who want to break the spending cycle and get financially confident.

Image Credit: Brooke Cagle

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