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Investors, especially younger ones just getting rolling with their portfolios, are plugging into mobile investment apps in greater numbers.
According to one industry study, approximately two-thirds of U.S. smartphone users have a financial app they use regularly.
In a separate study, 69% of millennials who want to invest state they find investing perplexing and 41 say they don’t believe they have enough cash to invest properly .That’s where micro-investment apps can help.
Advantages of using micro-investing apps
Micro-investing apps are technology’s way of saying you don’t need a big bundle of cash to invest. Instead, you can take a piecemeal approach and, dollar by dollar, begin your own lifetime investing program.
For example, let’s say you want to purchase stock in a popular tech company that’s valued at $100 a share, but you only have $20. Fractional shares will allow you to purchase a fifth of a share of that company.
“Micro-investing is used to describe the process of saving, depositing, and investing small sums of money into an investment account,” said Jeremy Quittner, head of editorial at Stash, a major micro-investment app provider. “These small sums may have a greater chance of growing in an investment account than in a traditional savings account. Micro-investing platforms generally aim to remove barriers to traditional investing—such as trading fees and minimum balance requirements.”
An increasingly popular way people micro-invest is by buying fractional shares of stocks and ETFs.
“Fractional investing allows you to purchase portions, or small slices, of a share,” said Quittner. “This can be cost-effective for investors who want to get into the stock market, but who don’t have a lot of money to begin with.”
A major upside to micro-investing is that you’re still investing in the company, but there’s no need to wait until you have enough money to purchase an entire share of a stock or fund. “It can be a great option for those who are just getting started,” Quittner added.
Some micro-investment apps allow you to automatically invest in the stock market with as low as $1 paid upfront. “It’s so inexpensive because micro-investing eliminates transaction fees and minimum investment and allows you to buy a fraction of a whole share,” said Gladice Gong, a personal finance blogger at Earn More Live Freely.
Although micro-investing offers a lot of benefits for beginner investors, Gong noted that most of the investing apps charge either a flat monthly fee or a percentage of your total investment if that investment exceeds a certain limit.
“What that means is that if you only invest a very small amount of money, your money might be eaten up quickly,” Gong said. “If you are planning to invest a big sum, you should always look for an investing app that charges you the cheapest fees. That’s because fees can negatively affect your investment returns in a big way.”
Who are these apps good for?
- If you value efficiency and access to major trading securities at a low price, micro-investing apps could be for you.
- Micro-investment apps, with their entry-level approach to investing, may be ideal for new investors looking to get some experience operating an investment portfolio.
- With no or ultra-low fees, micro-investing apps should appeal to investors (of all ages) who don’t like paying high fees or commissions.
- If you’re the parent of a middle-school-and-up child, you might use micro-investing apps to get your son or daughter accustomed to money management at a young age.
- Micro-investing mobile apps are also a good deal for investors who want to automate their investments and invest regularly, but not pay a stiff price for doing so.
The best micro-investment apps for 2020
There is a growing number of mobile micro-investing apps available for interested investors right now. These micro-investment apps are at the top of the “widely-used” list.
Billed as offering “affordability and simplicity” to investors, Stash offers banking, investing and education into one seamless experience to financial consumers.
Basically, Stash offers three, flat-fee subscription plans at $1-per-month, $3-per-month and $9-per-month. Each level offers fractional shares, so you can start investing with anydollar amount and comes packed with approximately 400 single stocks and over 75 ETFs.
With Stash, you can use a set schedule that enables you to invest a set amount on a weekly, biweekly or monthly basis. You can also use the app to round up spare change from everyday purchases. The company’s “Smart-Stash” feature tracks your spending and earning patterns, so you can intelligently save small amounts of money on a regular basis.
With Stash’s debit card, customers can also earn “Stock-Back Rewards”, where you automatically earn fractional shares of stock or funds by using the Stash debit card.
“Stash is my micro-investing app of choice because of its transparency and beginner-friendly attitude,” said Freya Kuka, a personal finance blogger at Collecting Cents. “Once you select a plan, you will connect your bank account and the app will help you place your risk level into one of three categories: conservative, moderate or aggressive.”
“After that, you select the type of companies you want to invest in and Stash does the rest for you,” Kuka added. “You can then choose companies to invest in based on Stash’s recommendations. You can also automatically invest a certain amount every week.”
Fair disclosure, this popular micro-investing app earned the ire of platform users when it crashed three times during the stock market meltdown of early March, 2020. Apparently, RobinHood couldn’t handle the surge in trading volume that occurred when the markets plummeted due to coronavirus fears and angst over declining oil prices.
Prior to that series of market malfunctions, RobinHood stood tall as perhaps the most popular micro-investing apps. The mobile app has been helping investors steer small portions of their money into the financial markets since 2013.
With RobinHood, investors face no commissions and you can open an account with no money down. The platform only offers stocks (no mutual fund or retirement fund trading is allowed) but it does offer full stock and exchange-traded fund trading, as well as options and cryptocurrency trading to users.
The user interface is streamlined and easy to use, and site users can benefit from free customized alerts that let you know there is news or activity on stocks you own, and an audio feature that enables you to listen live on stock market earnings calls.
The basic RobinHood platform is free to use but there is a $5 monthly fee for RobinHood Gold, which offers access to Morningstar research reports and NASDAQ trading market data.
A bonus – if you refer a friend to RobinHood you’ll both get a free share of stock free of charge.
This mobile investing app is a favorite for investors who favor buying partial shares of companies.
“Micro-investing is all about investing a small amount of money,” said William Taylor, a career development manager at a job recruitment agency and a frequent mobile app investor. “You may want to use micro-investing apps to automatically invest small amounts of money in stocks, even if you know absolutely nothing about the stock market.”
Stockpile fits the bill for that type of investor, Taylor said. “Stockpile is is a great app that allows you to buy fractional shares of companies,” he explained. “If you don’t have $300 to buy that one expensive tech stock, you can buy a half or a third of it, instead.”
Stockpile charges 99 cents a trade and there’s no monthly fee. “You can also give a gift card that’s redeemable for stock,” Taylor said.
This mobile micro-finance app is as much about saving money, like a bank, as much as it is investing money, like a brokerage firm.
Acorn balances both key personal financial initiatives in a unique way. You can link your bank account to Acorn’s mobile platform and have the leftover coins from any purchase you make steered into your bank account. Or, you can link a credit or debit card and do the same thing.
The money in your account can be saved for future needs (like an emergency fund) or you can invest the cash in a low-cost ETF, with Acorn helping you establish an appropriate investment risk model that’s unique to your personal financial needs.
Like Stash, Acorn offers multiple product pricing tiers, with $1 for the basic Acorns Core service; $2 for its Acorn Later service (with access to retirement accounts); and $3 for Acorns later+, which gets you all the bells and whistles, plus access to a bank checking account.
The takeaway on micro-investing apps
As the old adage goes, good things can come in small packages.
So it goes with micro-investing apps, which gives investors access to the financial markets for a small price, but with the capacity to learn more about the markets and expand your investment portfolio strategy as you grow more comfortable with your investment skills.
That’s an especially a good deal for younger and more inexperienced investors, who can get a taste of engaging with Wall Street, but at a price and a pace they can shape on their own.