Today I’ll be covering all things micro-investment related. I’ll be discussing what micro-investing is, the pros and cons of using this investment strategy, the most popular Australian micro-investing apps and whether they’re worth using.
Micro-Investing is an investment method in which people invest small amounts of money into a range of different assets, typically on a frequent basis. This differs from traditional investing, which requires a brokerage account and an often-large amount of capital.
As such, micro-investing is tailored to beginner investors who do not have brokerage accounts or a lot of disposable income. Investors can get begin investing in micro-investment products with as little as $5, which is why it is also sometimes referred to as ‘pocket-money investing’.
Micro-investing offers a lot of perks, particularly for beginner investors or people who don’t have a great deal of financial knowledge. They provide an easy, simple way of investing for people who otherwise would be unable to invest, either due to a lack of initial funds or a lack of investment knowledge.
Before the rise of micro-investing and micro-investing apps, people who wanted to invest would have to go through the hassle of opening a brokerage account, saving enough capital to start investing (which can range from hundreds to thousands of dollars and having to research what investments they wanted to pick. Now, it is as simple as linking your debit card to an app, picking from a list of pre-selected investment options and pressing ‘buy’.
The convenience and simplicity of these micro-investing platforms make them attractive options for beginner investors looking to do something with their spare income.
Micro-investing is offered through a range of different mobile and web-based apps. Depending on the app you select, they will typically offer units of exchange-traded funds (ETFs) or managed funds. These types of funds contain exposure to a range of different assets, markets and sectors. By linking your debit card and/or bank account, you can invest small amounts of money into the fund of your choice. You can do this either through an investment plan, one-off investment or round-up, depending on the app that you select.
Investors who choose to use an investment plan can invest recurring amounts of money on a weekly, fortnightly or monthly basis. This automates the investing process, provides an easy way to dollar-cost average (DCA) and can be aligned with your paycheck to ensure that you only invest when you have the funds.
One-off provides the ability to make singular investments. This can be useful for people who want to deposit large sums on an infrequent basis. It is also useful for people who would like to make a single large sum investment before adopting an investment plan.
Round-up works by automatically rounding up all your purchases to the nearest dollar. This amount is then set aside and invested in your chosen profile. This can be useful for automating the investment process, as you can make small investments with every purchase you make.
The most common investment options offered by micro-investment apps are ETFs and Managed Funds. ETFs are typically passive and seek to replicate a specific market index, such as the top 200 companies in Australia for example. ETFs typically have lower management fees due to being passive, as they are simply designed to reflect an index.
Alternatively, managed funds include assets and stocks that are individually picked by a fund manager, who tries to outperform a specific market. Managed funds typically have higher management fees, due to the fund manager taking a more active role in allocating investments.
These investment vehicles are commonly offered by micro-investment apps, as they are diversified. Diversification is an investment strategy that ensures that investors have exposure to a range of different assets, as this increases the likelihood of your portfolio containing high performing assets and reduces the impact of poorly performing assets.
Micro-investing apps are mobile and web applications that offer people the ability to invest small amounts of money regularly. Also known as loose-change investing, these apps streamline the investing process, by providing an easy, cost-efficient way of investing smaller sums of money into popular investment options. The most popular micro-investing apps offered in Australia are currently Spaceship Voyager and Raiz.
These apps are great for beginners starting on their financial journeys, as they eliminate the hassle of having to set up a brokerage account, having to decide between thousands of investment options and allow users to invest with low amounts of capital. As such, micro-investing apps serve as a pivotal stepping stone for people who have just begun embarking on their investment journey, with some investors deciding to use these apps long-term, due to their convenience and simplicity.
Micro-Investing apps provide immense convenience. Being tailored for beginner investors, they provide a convenient and simplistic way of being able to invest in a range of diversified funds. These are easy to navigate, have a narrow range of investment options to avoid confusion and typically provide investors with simple guides on finance.
Investing has traditionally been an esoteric venture, with investors typically requiring a great deal of financial knowledge and start-up capital to begin investing. Through these apps, people from all walks of life, regardless of their income or financial prowess can gain exposure to investment options that they otherwise wouldn’t be able to.
Being technology-based, micro-investment apps are very easy to use and navigate. They typically provide all the information that you need on their main screen and can be set up in a manner of minutes. They provide concise descriptions of their investment options and keep them limited, to ensure that you can get started on your journey with as much ease as possible.
Due to micro-investing apps offering convenience and accessibility, they typically come with fees for these perks. Spaceship Voyager does not charge fees for balances under $5,000, however, balances above $5,000 incur 0.05% p.a. and 0.10% p.a. fees depending on which profile you select. Raiz charges $2.50 per month for balances under $10,000. For balances above $10,000, they charge 0.275% per year, charged monthly and computed daily.
There are hundreds of ETFs and managed funds available on traditional markets, in addition to thousands of individual stocks. However, micro-investment apps only have a few investment options available, with Spaceship offering 3 portfolios and Raiz offering 7. This is due to these apps being tailored for beginners and to prevent confusion when deciding on an investment. However, for more seasoned investors, these apps may not offer enough variety.
There are other funds and assets out there that have cheaper fees and experience greater returns. This is to be expected, due to the small range of investment options offered by these apps. However, it is worth noting that Spaceship Voyager’s Universe Portfolio experienced a very impressive yearly return of 35.07% during 2019. However, it is unclear whether it can maintain those returns over a longer investment horizon.
Micro-Investing apps are great for beginner investors starting on their investing journeys. They provide convenient, easy to use investment options for people who don’t have a lot of initial funds to invest or people who may be unsure about how to invest via traditional means. Their convenience and accessibility are second to none in this regard, making them a very popular option for people who prefer a more simplistic investing experience.
For more seasoned investors or people seeking a wider array of investment options, these apps may not be appropriate, given their higher fees, lack of investment options and potential to underperform options that are available elsewhere. However, for the most part, these apps are very useful for a wide range of Australians and are a great first step for people on their journeys to reaching financial independence.
If you would like to read more information on Spaceship Voyager vs Raiz, I have attached links to my more thorough reviews on them below, in addition to one that compares them both side by side. In these reviews, I cover the pros and cons of investing with both platforms and take a more in-depth look at the portfolios and features that they offer.
If you would like to join either platform, you can use the following referral codes to get $5 deposit bonus when you sign up and deposit $5 or more.