Gone are the days when investing was only reserved for those with deep pockets and an in-depth knowledge of financial markets. Today, even with limited funds, you have other options to grow your money beyond traditional savings accounts and term deposits.
Micro-investing has expanded wealth-building opportunities and broken down barriers that once kept many people out by allowing users to invest small amounts and simplifying the whole trading process.
You only need a smartphone and can get started with pocket change to enter the markets.
See Also: How Teens Can Start Their Investment Journey
What is Micro-Investing?
Micro-investing is the relatively new kid on the wealth-building block that enables individuals to invest in growth assets like stocks with small amounts of cash. These small contributions are pooled and typically invested in diversified portfolios such as exchange-traded funds (ETFs), making it relatively low-risk for investors.
Compared to traditional investing, which attracts high entry fees, micro-investing generally has lower start-up costs. Fees are charged either at a flat monthly rate or a small percentage of the invested amount and users can get started with investments as low as $1-$50. This is much lower than the $500 minimum to invest on the ASX, for example.
It's typically facilitated via an online platform - usually a smartphone app - and comes with features like spare change investing, which automatically rounds up small purchases to the nearest dollar and invests the cents. Micro-investing app users can also make lump sum deposits or set up recurring top-ups.
These platforms also allow users to buy fractionally if they cannot afford full units, e.g. buying a 50-cent worth of a stock or ETF whose price costs $100 or so. The idea is to make it easier for investors to invest a little bit regularly and capitalise on the effect of compounding interest over time
Key Features to Look For in a Micro-Investing App
Every micro-investing app in Australia offers different features and investment options with varying risk profiles and rates of return. Before you sign up for "best micro-investing app" or the one an online 'fin-fluencer' strongly vouches for (but is actually paid to say that), assess whether the platform and what it offers align with your investment goals.
Here are the features you should consider and evaluate:
User-friendly interface
The whole idea behind micro-investing is to make the process easier, so look for an app with a simple, intuitive interface that allows you to manage your investments effortlessly even if you're a beginner. A well-designed app should make navigating your portfolio, buying and selling assets, and tracking your investment straightforward.
Some micro-investing apps also feature educational resources and easy-to-understand visuals and summaries, simplifying complex concepts and guiding users through the process.
Payment automation
Automation is a significant benefit of micro-investing. Aside from making the process effortless without needing constant monitoring, automation ensures that even if your investments are small, you can consistently make regular contributions.
One of the popular micro-investing app features is round-up, which automatically invests the spare change from your daily purchases. For example, if you buy a coffee for $4.50, the app will round it up to $5 and invest the extra 50 cents on your behalf.
If you would rather invest a fixed amount regularly, select an app with a recurring deposit feature.
Fees and overall cost
Convenience often comes at a cost. Just because micro-investing apps let you invest with chump change doesn't guarantee you'll come out ahead. And while there are often no brokerage fees or management fees, the regular monthly subscription fees can actually be costly relative to the size of the trade.
For instance, if you invest just the minimum amount in CommSec Pocket, which is $50, and are charged the flat fee per trade of $2, you are effectively paying 4% of your investment amount. At that rate, your investment must return more than 4% for you to make gains, or at least 4% to break even. But if you invest $1,000 and are charged the same amount, you'd only need a return of investment over 0.20% to reflect a gain.
In contrast, investing directly in ETFs often costs $5-$20, and the ETF provider charges a yearly management fee, usually less than 1%.
See Also: What is CommSec Pocket?
While the draw of micro-investing apps is the small amount of investments they allow you to chip in, the truth is that the less you invest, the more regular fees can cut into the gains you could potentially make.
That said, check whether a particular app's products and the expected returns will be far greater relative to the fee structure and all the costs associated with using it.
Investment options
Scrutinise the investment options available in the app before signing on to one. Different micro-investing platforms provide access to different investment products, all with varying risk profiles and rates of returns. With these apps, you will typically gain exposure to exchange-traded funds (ETFs), which in itself are already diversified as they consist of different assets like stocks and bonds - and even cryptocurrency.
Check the investment options' performance and whether they align with your risk tolerance. If you prefer more flexibility in tailoring your investments, some apps might also allow investing in individual stocks, bonds, or managed portfolios.
Security
Since you're entrusting your money and will typically link your bank account to these apps, make sure they are safe and compliant. Opt for micro-investing platforms regulated by Australian financial authorities such as the Australian Securities and Investments Commission (ASIC).
Strong security features, like encryptions and two-factor authentication (2FA), should also be standard to protect your funds and personal data from cyber threats.
In addition, many investment apps do not have CHESS-sponsored shares. This is essentially a paper trail of you owning that stock. As you are fractionally investing, this is not possible, and you instead invest in a trust that then invests the money for you. If a paper trail is important to you, you may want to invest directly in an ETF or individual company.
Comparing Micro-Investing Apps in Australia
Micro-investing apps became available in Australia around 2016. Since then, more platforms have launched to offer a low-barrier entry point to investing. Here are some of the micro-investing apps available in the country.
| Micro-investing app | Unique features | Fees | Minimum investment | Investment options |
|---|---|---|---|---|
| Raiz Invest | Round-Up feature | Brokerage fee: $0 | $5 | ETFs with varying risks:
|
| Customisable portfolio | Account fee:
|
|||
| Spaceship Voyager | Round-Up feature | Brokerage fee: $0 | $0 | Managed funds of stocks of global and Australian companies:
|
| Investment boost | Account fee: 0.15% - 0.50% per year | |||
Monthly fee:
|
||||
| CommSec Pocket | Accessible via CommBank app | Brokerage fee:
|
$50 | Themed ETFs:
|
| Features educational tools and resources | Account fee: $0 | |||
| Sharesies | Fractional investing | Brokerage fee:
|
$0 | Individual stocks and ETFs listed on the ASX, NZX, NYSE, CBOE, and NASDAQ |
| Limit orders, Stop loss, and trigger buy orders (for US investments) | ||||
| Stake | CHESS-sponsored investing | Brokerage fee:
|
AU$500 for ASX US$10 for Wall St (fractional shares) |
Stocks, ETFs, and other securities traded on ASX and Wall St |
| Fractional investing | Currency conversion fee: 0.70% | |||
| Account fee: AU$17 per month (for Stake Black) | ||||
| Blossom | Daily interest calculation | Brokerage fee: $0 | $5 |
|
| Easy fund withdrawal | Management fee: 1.2% p.a. | |||
| Round-Up feature |
These are correct at the time of writing and are subject to change.
Raiz Invest
Formerly known as Acorns, Raiz is among the most popular micro-investing apps in Australia, having been the first to launch in the market. It popularised spare change or 'round-up' investing.
Users can start investing with as little as $5 into a mix of ETFs. Investment selections are based on investors' acceptable risk level and planned market time. The portfolios are categorised as 'Conservative', 'Moderately Conservative', 'Moderate', 'Moderately Aggressive', 'Aggressive', 'Emerald', 'Sapphire', 'Property', and 'Plus'. Sapphire includes a 5% allocation to Bitcoin, while Plus lets you customise your portfolio.
It offers some of the widest array of portfolio options and customisation, but also attracts some of the highest fees.
Spaceship Voyager
With no minimum investment amount required, Spaceship Voyager is one of the most accessible micro-investing platforms in the country. It allows users to set up automated investments into managed funds of stocks from global and Australian companies seen as having growth potential or making positive impacts.
The app also comes with a round-up feature and investment boosts. Payday Boost invests a set amount when your pay hits your account. Budget Boost, on the other hand, automatically invests whenever you spend on a certain category, e.g. an amount is invested whenever you buy a coffee.
Spaceship doesn't charge brokerage fees, while management fees vary by portfolio. Monthly fees are charged on accounts with balances over $100.
CommSec Pocket
CommSec Pocket is a micro-investing app offered by Commonwealth Bank of Australia's online brokerage firm CommSec. It enables users to make small investments, starting at $50, into diversified ETFs available on the platform. The app charges a flat brokerage fee of $2 for each trade up to $1,000, or 0.20% of the trade value for investments over $1,000.
CommSec Pocket provides users exposure to 10 themed ETFs, which include portfolios that consist of companies that track the ASX200, firms known for paying high dividends, and tech companies listed on the NASDAQ, among others.
Sharesies
Sharesies is a micro-investing app that allows users to invest in over 8,000 companies and ETFs across multiple markets including the Australian Stock Exchange (ASX), New Zealand Exchange (NZX), and US exchanges such as the New York Stock Exchange (NYSE) and NASDAQ.
Through its fractional investing feature users need not purchase a whole share but can instead buy fractions or portions of it. This is especially beneficial for those with limited funds but would like to invest in expensive stocks like Tesla or Apple. It also comes with advanced features typically unavailable in micro-investing platforms, such as trigger buy orders, stop loss orders, and limit orders.
Stake
Stake is an Australian-based micro-investing platform that allows low-cost trading in US and Australian markets. Users will have access to over 2,500 Aussie stocks and ETFs, as well as more than 9,500 investments trading in the US stock exchanges. A $3 brokerage fee applies on each trade up to $30,000 (in US and AU dollars). The minimum investment is $50.
It offers CHESS-sponsored investing, which means investors will have their shares held in their name and recorded on the official ASX system. Fractional investing is also allowed.
Premium membership through Stake Black includes added features such as instant funds settlement, market depth data, and access to analyst ratings, among others.
Blossom
Blossom is a unique prospect in the market because it offers access to bonds - traditionally an asset class reserved for high-net-worth individuals or institutions.
Investors seeking to grow their money through low-risk, fixed-income assets like bonds and mortgage-backed securities may find Blossom a suitable option. This micro-investing app lets users start investing with as little as $5 into managed funds with targeted returns.
Returns are near-guaranteed because of the conservative nature of bonds, and management fees are deducted out of the gains made above that level. Users can also yield a higher return if they commit to a term, somewhat like a term deposit.
Blossom's structure is almost similar to a savings account in that users are provided with daily calculated returns, and funds can be withdrawn anytime. However, unlike a savings account, your money tied in the app is not government-guaranteed.
The platform focuses on responsible and sustainable investments, excluding sectors like coal and tobacco - perfect for those seeking to hit two birds with one stone in their advocacies and wealth-building goals.
Micro-Investing Apps vs Savings Accounts
Save or micro-invest? Understanding the right strategy is key to making your money work.
Risk vs Returns
Micro-investing apps and savings accounts offer two different approaches to growing your wealth. The general idea behind micro-investing is that small, regular contributions can accumulate over time and grow into a substantial portfolio. While it offers the potential for higher returns, it comes with risks and fees that could eat away at your invested funds and earnings.
Savings accounts, on the other hand, provide a secure option for storing your cash. Interest earnings are guaranteed and up to $250,000 of your deposit is protected by the government. Your funds are also accessible at-call - meaning you can withdraw or transfer them as you please. However, the trade-off of stability and accessibility is lower returns, which often fall short of inflation, reducing the real value of your money over time.
Cost vs Convenience
The highest savings account rates also often have deposit criteria, whereas with micro-investing you can likely just invest a few times a year and let the market do its work. It comes down to risk vs cost vs convenience.
Taxation
In terms of tax, capital gains tax applies to micro-investing assets and shares. This is only applied once you cash out i.e. a real gain, not paper gains. Assets held longer than 12 months get a 50% capital gains discount. On the other hand, savings account interest is taxed at your marginal income tax rate.
The Purpose of Investing and Goals
Ultimately, the choice depends on your goals and needs. A good 'ol savings account is best if you want to make your money work for you but still have access to it should an emergency arise.
However, if you want your cash to work harder for higher risks and higher returns, by all means, put it in a micro-investing platform. It's worth noting that investing should ideally carry a minimum timeline of 3-5 years to see meaningful growth.
At the end of the day, a balanced strategy might involve using both - parking your money in a secure vehicle such as a savings account for those shorter-term goals such as a house deposit, while investing small amounts for long-term growth.
Here in the country, saving and investing go hand in hand for many Australians.
Savings account is the most popular place for storing cash, with more than half or 57.4% of those surveyed by InfoChoice keeping - and likely growing - their money in the banks. This is followed, albeit by a large margin, by offset account (18.9%).
The State of Aussies' Savings Survey also found that 56.7% of respondents have at least a dollar invested in growth assets, besides property and super. Among the popular investment vehicles, most Australian investors across age groups favour shares (73.6%), with ETFs coming in second (41.8%).
See Also: InfoChoice State of Aussies' Savings Survey
Advantages of Micro-Investing Apps
Accessible for novice investors
Arguably the biggest advantage of micro-investing apps is that they make investing approachable and accessible for investors with limited funds and know-how. Features like automation and educational resources also help simplify complex investment processes, which is especially useful for those just getting their feet wet in the share markets.
Exposure to diversified portfolios
Diversification is a key principle in managing risks. And with micro-investing platforms, users can easily gain exposure to different share markets and invest in a range of diversified portfolios, reducing risks and increasing the potential for higher returns. These apps also make it easier for new investors to build a balanced portfolio without much effort.
Compounding potential
Micro-investing apps allow users to take advantage of the power of the compounding effect, even with just small investments. Your spare change can grow substantially in the long run so long as you are investing consistently and focused on long-term growth.
Drawbacks of Micro-Investing Apps
Fees could eat away at your earnings
At face value micro-investing apps make investing more affordable - and they do! However, one downside of these platforms is the fees they charge, which can add up, especially for small trades. Flat brokerage fees or percentages may seem insignificant, but if you are investing small amounts at a time, they could easily eat away at your potential returns.
When expressed as a yearly percentage, micro-investing can often be far more expensive than buying shares and ETFs through a brokerage, despite their more accessible nature.
Limited control and investment options
Another trade-off for the convenience micro-investing apps offer in terms of investing is the limited options and control over the investments you can choose. Users typically invest in pre-set portfolios available on these apps. While some may offer the ability to tailor the investments to personal preferences, this feature is often rare. This may not suit experienced investors who prefer to be hands-on with their choices.
Not ideal for short-term goals
Micro-investing is not a quick money-making platform, as it would take a long time before your small, incremental investments generate noticeable returns. Additionally, market fluctuations can affect the short-term value of your investments. That said, it is better suited for those focused on long-term wealth-building rather than short-term financial gains.
An earlier version of this article was written by Jason Bryce
Photos from Freepik
