Microinvesting: Pros and Cons

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What is Microinvesting?

Microinvesting is a simple way to make investments with small sums of money, and is a great way to get started in the world of investing. It is the digital equivalent of emptying your loose change into a piggy-bank, with the hopes it gradually accumulates. There are a variety of microinvesting platforms available and each work in a slightly different way. This article outlines the pros and cons of microinvesting to make sure you make an informed decision about getting involved.

The platform ‘Spaceship Voyager’ offers two market portfolios of which you can invest in with as little as $1 at a time. They do not charge fees on the first $5,000 you invest (management cost rebate is applied to the first $5,000 of your balance). ‘Raiz’ is an app that rounds-up your everyday transactions and invests the difference. For example, if your purchase costs $8.20, Raiz will invest 80-cents, to round the purchase up to an even $9. As the extra-amount charged is small, you are unlikely to notice the difference, but over time and over many transactions these small roundups accumulate. ‘CommSec Pocket’ offers seven different themed investment portfolios (ETFs) with a minimum investment of $50. Themes include tech-savvy, sustainable leaders, health-wise and the Aussie top 200.

Microinvesting Pros

One of the biggest microinvesting pros is that it is a great tool for those who have little experience and are wanting to test the waters of investing. It enables one to commence investing without deep pockets or extensive knowledge of how markets function. Platforms such as Raiz, have a set and forget approach to investing through their automatic round-up system, reducing the effort and time required to grow your portfolio.

Traditional investment platforms can require a substantial initial transaction (often over a thousand dollars) followed-by minimum values for all future investments. Whereas most microinvesting platforms do not have special circumstances for the initial deposit and all investments are treated with the same rules and fees.

Most platforms are accessible through an app on your phone, simplifying the account set-up process. It can be as simple as downloading the app and following the set-up prompts. These apps provide straightforward navigation of the platform and allow you to conveniently check the status of your portfolio.

Microinvesting Cons

Microinvesting is targeted toward those who lack the funds to invest in a more traditional way. A microinvesting con is that investors with higher incomes and experience with investing may be dissatisfied with the returns. It is also targeted to technologically-sound users as most of the account set up, help centres and complaints processes are digital (potential link to online trading warnings article). As microinvesting encourages small investments of one’s ‘loose change’ it can take a considerable period of time to build significant wealth reserve, hence it is likely more suited to younger investors.

Each platform charges fees for investing. For example, CommSec charges $2 for trades up to $1,000 and Raiz charges a monthly maintenance fee. You should also note some platforms, such as Raiz and Spaceship, increase their fees once your portfolio exceeded a set value. These costs should be monitored and compared to other investment options to ensure you are maximining your net returns and investing in a cost-effective way.

Like any investment, microinvesting attracts risk. Financial markets are changing every day and there is no guarantee you will make positive returns, hence the importance to invest in-line with your goals and risk tolerance.

Before making any financial decisions, we suggest speaking to a financial expert to ensure that they are in line with your goals, needs and objectives. We would also suggest reading the PDS’ of each of these products. Our team of award-winning financial planners are happy to help you get on top of your finances. Feel free to send us a message on our Livechat, or contact us.

PDS links:
Spaceship Voyager
Raiz
CommSec Pocket

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