Phone-based apps that perform the same function and invest cents into your chosen type of investment product.
Subscription services that deduct your specified value from your account for reinvestment each week or month.
Some micro-investing services offer dual functions, providing portfolios that balance your desired risk exposure or offering fixed-rate or minimum interest on cash balances, putting even the smallest amounts of passive income to good use.
A lot depends on the product or provider you choose. Still, you can open a micro-investment account linked to your bank account, round up purchases, or set a defined amount you feel comfortable investing on an ongoing schedule.
Guidelines for micro-investors
Those new to micro-investing often think of it like putting their spare cash into a piggy bank—but one that has the potential to grow without the significant barriers to investment that exist in conventional investment markets. A recently published guide from South African Fintech Wonga defined the benefits of micro-investing as follows:
- Accessibility: Anyone, even those without extensive financial literacy, can micro-invest with apps available via any mobile or internet-connected device.
- Low barriers to entry: Minimum investment amounts are low and flexible.
- Diversification: Investors can diversify by picking asset classes in various markets or locations.
- Education: Platforms offer educational resources to improve understanding.
- Automation: Apps with automated features stimulate ongoing savings or investing habits without time pressures.
- Growth opportunities: Small, invested values can grow significantly due to compound interest.
- Engagement: Micro-investors can participate in online and real-world communities, adding a social and support aspect.
However, it remains essential that micro-investors are cautious of the risks, which are an inherent part of any investment project, fund or account. While minimum investment values are low, the yields on offer also tend to be fairly small – which means a savings account could potentially be more profitable, depending on the amounts you expect to contribute.
Likewise, micro-investing products normally have low fees but aren’t comparable to large-scale and high-value investment funds, which have numerous account options and structures.
A final word of warning is that, although micro-investing is set to be ground-breaking in opening up the opportunity investment offers to millions of households, fund management fees remain a reality. It is important to keep an eye on the administrative or transactional fees linked to any micro-investment account to be sure the effort and financial contributions you’re making are worth the cost.
