New tech makes it easy to invest a little at a time, automatically.
What if you could set aside your change, like the spare dollar or two you have left at the end of the week, and grow it into enough to help you contribute to a college fund? Or pay for a wedding or retirement down the road? That’s the possibility floated by micro investing†, in which an app or web service helps you set aside teensy amounts of money—sometimes less than a dollar—and invests it for you, based on your priorities. And while investing can seem like something only people with tons of extra income do, micro investing starts small—really, really small—making it an option for a way to get started. Even so, there is a lot to consider.
Certainly the small amounts make investing more approachable, and the automatic nature is also appealing: Some apps will round up “change” from your online purchases and invest it, while others have you designate a set amount to be removed from your paycheck. Once set up, you don’t have to think about it.
But micro investing doesn’t replace things like a company 401(k) savings plan, which is more or less automatic, too, once you sign up. If you have one of those, take full advantage. “Your employer takes out your deduction,” says Gerri Walsh, senior vice president of investor education at FINRA, which is the Financial Information Regulatory Authority, a nonprofit, financial industry self-regulatory organization dedicated to protecting investors. “And many employers match generously,” she says, meaning they add more money to your pot‡.
But if you don’t have access to such a plan or you want another investment stream, micro investing lets you tiptoe in.
- Apps vary. “Some are educational in nature, and some are really an automated investment tool,” Walsh says. Make sure you know which kind of app you want and what each one offers§.
- Read before you leap. Make sure any app or service you use is registered with FINRA or the SEC (Securities Exchange Commission), and read the disclosures to see what they charge for.
- Watch out for fees. Even single-digit fees add up, especially if you’re not investing a lot of money. A $1-a-month fee on a $100 account would be $12 a year. That $12 amounts to 12% of your stake, more than you’re likely to earn from a $100 investment. But if you invest $50 a month, which adds up to $600 a year, the percentage drops to a reasonable 2%, something you might realistically make up through investment earnings.
- Pay attention to your investment choices. While many apps limit your investments to Exchange Traded Funds (ETFs), which are low-cost collections of stocks and bonds (see Investing Basics for more), other investments charge a higher fee, which can eat away at your return.
- All investment carries risk. Investments are not insured, meaning you can lose money.
Even with the risks, micro investing is an interesting first step. But keep in mind that automatic investing isn’t the same as informed investing. You should view these baby steps as the start of some important learning. “The notion is that if we can buy a pair of shoes while walking down the street, why can’t we invest as easily?” Walsh says. “But investing takes time, it takes thought.”
If you’re interested in exploring micro investing further, search for micro investing apps to see what might make sense for you. And meet with your Huntington Financial Advisor, who can work with you to discuss investing and how it might work with your overall financial picture.