As the financial technology industry continues to expand, new wealth management tools, budgeting platforms and investment vehicles like robo-advisors have democratized access to financial products and services. Micro-investing makes owning stock possible for everyone.
In the past, beginning investors without a lot of capital didn’t have many choices if they wanted to get a better return on their money than what a savings account provided. In the 1980s the average cost to place a stock trade was $45 (and could be a lot more if you had a “full-service” broker). Oftentimes, you had to have several thousand dollars minimum deposit before you could even open a brokerage account.
Even after online brokers dropped trading fees to under $10 per trade at the beginning of this decade, you can’t buy a single share of Amazon.com Inc. or Alphabet Inc. (parent of Google) unless you have a cool grand lying around. That’s why the invention of the “micro-investing” platform has been so good for the everyday saver.
|App||Monthly Cost||Management Fees||Minimum Deposit||Learn More|
|Basic Account: $1||0.25% for accounts over $5,000||$5||Learn More|
|Basic Account: $1||0.25% for accounts over $5,000||$5||Learn More|
|Basic Account: $0||0.25% for accounts over $100K||$0||Learn More|
|Set your own||$0||$0||Learn More|
Micro-Investing Gives You Stock Market Returns With Banking Simplicity
Micro-investing offers people a way to capitalize on superior returns offered by financial markets in a convenient and low-stress way.
Since 2010, several firms have opened that offer accounts with low- or no- minimum-deposit requirements and fractional investing where you can by $5 of Amazon stock (if that’s what you’re into).
The best part is, in the long run you’ll end up with much more money than if you put the same cash in the bank.
Even the best savings account returns only 2.5% per year, which means if you put in $1,000, you’ll earn $25. On the other hand, the Invesco QQQ ETF that tracks stocks on the tech-heavy Nasdaq returns nearly 20% on average, so your $1,000 gets you $200 by the end of the year. (Of course, stocks can go down as well as up, like the when the Dotcom Bubble burst and the QQQ lost 80% of its value over 18 months. But in the long run, stocks have historically outperformed savings accounts.)
How Micro-Investing Works
Easy-to-download apps like Stash and Acorns typically leverage exchange-traded funds (ETFs), a diversified fund which trades like a stock on an exchange, and is comprised of a basket of securities which track an underlying index.
Most of the platforms below offer personalized portfolios based on an individual’s risk tolerance, which can be calculated by a series of questions regarding age, life plans and aversion to taking a loss on your investment.
Some apps, like Robinhood, hook up to users’ bank accounts and allow them to transfer money on a one-time basis or as a recurring deposit. Other apps like Acorns automatically invest extra money in the form of spare change, syncing up with users’ debit or credit cards and taking the difference between the purchase price and the next full dollar amount to invest.
All that taken into consideration, micro-investing serves as a gateway to the stock market for individuals with little in savings or not much income. For those that remain skeptical of investing, who lack experience or are just starting out, micro-investing serves as a simple way to start setting aside a small amount of money on a regular basis with minimal commitment.
Who Are Micro-investors (Hint: Millennials)
It’s no surprise then, that Millennials are behind the booming micro-investing space. As tech-savvy, commitment-averse Millennials seek to optimize and automate their financial lives, they have become the biggest users of trading apps and robo-advisors.
Millennials are set to overtake baby boomers in 2019 as the largest U.S. generational group, according to population projections from the U.S. Census Bureau. Soon Millennials’ choices about investing will set the standards as industry strives to accommodate them, and they have demonstrated a preference for technology stocks, as well as growth stocks across “riskier” markets like the emerging marijuana industry.
As Millennials enter their prime investing and earnings years, the micro-investing industry is likely to maintain its momentum, and evolve with the trends. But micro-investing is for everyone, no matter how old you are. Just like it’s never too late to start saving for retirement, it’s never too late to learn fresh investing strategies from new generations.
What to Look for in a Micro-investing App
In light of the growing options available to those choosing a micro-investing platform, it’s important to look at a few differentiating factors to figure out what’s right for each individual investor.
What Micro-Investing Apps Cost
Look out for cost above all else. While some services offer no-fee trading and no-fee bank transfers, some may have hidden costs and fees. Additionally, while many platforms boast that they waive minimum account balances, others may require them.
Often the biggest fee is for assets under management. Some platforms charge a management fee for the amount of money in your account, so if you have $5,000 and they have a 0.25% management fee, you pay $12.50 per year.
Depending on what the app invests in, you might pay an additional fee. For example, mutual funds often charge fees, including management fees, that can eat into your returns. This is called the fund’s “expense ratio,” and the average expense ratio for a hybrid mutual fund that invests in stocks and other assets (like bonds or real estate) is 0.74% or $74 for every $1,000 you have invested.
ETFs also have expense ratios that average around 0.44%, according to the Wall Street Journal. And if you sell the assets in your account, depending on what type of account it is, you might be on the hook for capital gains taxes.
What Kind of Services You Get From Micro-Investing Apps
A key principle of investing, particularly for beginners, is portfolio diversification where funds are allocated across a wide range of investment opportunities to hedge against the risk that a single stock or even industry might get hit by a drop in price.
Most micro-investing apps achieve diversification by putting your money into mutual funds and ETFs. But some apps, like Robinhood which is primarily for trading stocks and ETFs, put the responsibility on you to keep your portfolio diversified.
Some apps allow for custodial accounts, or accounts set up for minors. With these accounts, you can start saving for college or give shares as a gift for holidays or birthdays.
For those seeking financial insights and educational materials, not all apps are created the same. Some apps like Acorns have blogs with educational materials to help you understand the concepts behind how the apps work. Robinhood’s help page also gives basics for investing in cryptocurrencies.and
The Best Micro-Investing Platforms
Smart Wallet has hashed out exactly what you need to know before you decide. Eight of the most popular micro-investing platforms are below.
New York City-based Stash had roughly 2.4 million users as of July 2018, about five years after launch. Stash allows users to choose from over 200 stocks and thematic ETFs, so they can invest according to their values. Stash also allows users to set up regular transfers and tracks spending habits to help find extra money to invest. (Read the full review: Stash Review: Start Investing With Just $5.)
- Transaction costs and fees: No add-on trading fees.* Pricing starts at $1 a month for personal investment accounts and 0.25% fee for accounts of $5,000 and over
- Minimum account balance: $5
- Investments: Over 200 stocks and ETFs
- Education: Educational guides, investing tips, financial news, personalized Stash Coach
*Clients may incur ancillary fees charged by Stash and/or it’s custodian that are not included in the monthly Wrap-Fee.
Founded in 2012, Acorns helps users save money without even noticing it. The app links to users’ debit or credit cards, and whenever they make a purchase, it rounds up the amount and deposits the change in a portfolio of ETFs. The company says their investing strategy was built with the help of Nobel Laureate Harry Markowitz, and Acorns says it has invested more than $1 billion for its users. (Read the full review: Acorns Review: Invest Spare Change for a Big Change.)
Acorns has expanded its core product with an Acorns Later service for an additional $1 per month, which recommends retirement accounts and sets up an automatic recurring contribution, as well as Acorns Spend for an additional $1 per month, marketed as “a checking account that works much harder.”
Spend is still in “early access stages” however, so the top rate is still $2 per month.
- Transaction costs and fees: No commission fees. Monthly $1 fee for its Core investment accounts, $2 for Core and Later and (coming soon) $3 for the bundle Core, Later and Spend
- Minimum account balance: $0, but to start investing your Round-Ups or one-time investments must add up to at least $5
- Investments: A diversified ETF portfolio
- Education: Acorns’s blog Grow offers tips, explainers, an exclusive investor advice
Rize, founded in 2015, is an automatic “intelligent savings” and investment app where users create goals and deadlines for themselves. For short-term goals, like saving for a specific trip or loan payment, Rize will set aside part of your paycheck into a separate savings account, offering a 2.15% APY. For longer-term goals, Rize will build users a broad ETF-based portfolio. In 2019, the platform is launching joint and individual checking, savings and investing in one place. (Read the full review: Rize Review: Save and Invest With Round-Ups.)
- Transaction costs and fees: Rize Saving is a pay what you want model; Rize Invest has an annual management fee of 0.25% and a minimum contribution of $2 per month
- Minimum account balance: $0
- Investments: ETF index fund based portfolio based on risk tolerance
- Education: Company blog, goals-based updates and advice
Menlo Park-based Robinhood is a popular zero-fee equities trading platform. Investors can buy and sell stocks and ETFs on U.S. exchanges after syncing with their bank account. The company also operates a cryptocurrency trading platform.
When compared to traditional brokers, which typically charge $4 to $10 per trade, the no-commission, bare-bones platform has less customer support, no access to mutual funds or bonds, and no retirement accounts. For friends who want to join together, users who refer a friend both earn themselves and the new user a free stock. (Read the full review: Robinhood Review: Stock Trades for Zero Commission.)
- Transaction costs and fees: Zero trading fees, or sliding monthly fee for the premium service Robinhood Gold, $75 ACAT transfer out fee
- Minimum account balance: None for basic accounts; $2,000 for Robinhood Gold
- Investments: Users build their own portfolios
- Education: Limited research and data
Wisebanyan, which calls itself “the world’s first free financial advisor,” offers free account management and goal-based planning tools. Last year, the company was acquired by Axos, the holding company for Axos Bank, a tech-driven financial services provider.
Anyone with $1 is able to open an account on WiseBanyan, which invests the funds in a core ETF portfolio similar to that of other robo-advisors. For $3 a month, WiseBanyan Portfolio Plus offers access to dozens of additional ETFs, and allows investors to choose from an expanded list of pre-existing portfolios or develop custom portfolios. (Read the full review: WiseBanyan Review: Free, Automatic Investing.)
- Transaction costs and fees: $0 management, trading and rebalancing fees; $3 for Portfolio Plus, and other add-ons like tax-loss harvesting, $0.24% annual IRA fee (capped at $20 a month) $75 ACAT transfer out fee, $10 IRA closing fee
- Minimum account balance: $1 for taxable accounts, $25 for IRAs
- Investments: ETF index based portfolio based on “risk score,” expanded list of ETFs with premium subscription
- Education: Interactive app, educational blog
Vimvest is a goals-based savings app which offers unique features like a “goals marketplace,” automatic savings, and charitable giving. Savings accommodates shorter-term goals, while longer-term goals, such as retirement savings or children’s education are established through “Nobel Prize based scientific investing features.” (Read the full review: Vimvest Review: Inveshttps://www.vimvest.com/t, Save, Give With One Deposit.)
- Transaction costs and fees: No management fee for accounts under $100K, (0.25% when above $100K). Vimvest covers all charitable donation fees as well
- Minimum account balance: $0
- Investments: Personalized ETF index based portfolios, tailored to individual goals and risk tolerance
- Education: Vimvest Learn blog, and interactive in-app education
Haven Money is an automatic savings, budgeting and investing app which allows users to pick their monthly fee. The platform boasts that while other companies “bury their fee” they “ask you to set it.”
Haven Money donates ten percent of its earnings to charity. Haven Money’s banking service offers 2.35% APY with zero fees in an FDIC insured account. Users who invite friends can earn up to 40x the industry average on their cash with 4% APY. (Read the full review: Haven Money Review: A Robo-advisor With a Personal Touch.)
- Transaction costs and fees: Users set their own monthly fee per each product opened with Haven
- Minimum account balances: None
- Investments: Personalized portfolios include low-cost ETFs
- Education: Haven Money Financial Education
Motif Investing is a hybrid robo-advisor/broker service for investors that would like trade stocks and ETFs, and choose thematically based pre-built portfolios called motifs. The platform is well suited for socially conscious investors or those who are seeking to buy fractional shares. It is, however, less optimal for beginners.
Motif offers two automated investing options. There’s Motif Impact Portfolios, giving access to socially and environmentally conscious companies and industries, and Motif Blue, a $19.95 subscription service that offers three monthly commission free real-time trades and real-time quotes. (Read the full review: Motif Review: Technology-Driven Thematic Investing.)
- Transaction costs and fees: Stocks and ETFs- $4.95 per trade or $0 for next-day trades, professional motifs – $9.95 per trade or $0 next-day, personal or community motifs – $19.95 or $9.95 next-day, $95 IRA closure fee, $65 full account securities transfer out fee
- Minimum account balances: $0 for trading account, $300 balance to invest in a motif
- Investments: Motif portfolios comprised of up to 30 stocks or ETFs, automated, personalized investing
- Education: Theme- and values-based guidance, standard quote pages
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