What is Micro Investing?

We tend to think of investing as a rich person’s game and often excuse ourselves from entering the market by saying, “I can’t afford to invest.” In fact, 48 percent of people who don’t invest said exactly that in a 2019 survey from personal finance site GOBankingRates, citing not having enough money as their main reason for not investing.

The truth is you don't need a lot of money to start investing, but it could be worth considering.  After all, investing is often considered a money move that can help you work towards your financial goals. 

What is micro investing?

As the name implies, micro investing is investing in small increments by buying fractions of shares. And it’s been gaining in popularity in recent years with micro-investing apps (like Acorns) allowing people to start investing with as little as $5.

How is it different from regular investing?

The good news is it’s not so different, actually. Micro investing can take place in the background of life and gives your money a chance to grow over time, such as through Acorns.  

The way it works is you set your account up and connect it to a funding source (like your checking account), then link it with the debit or credit cards you use for everyday purchases. If you use the Acorns Round-Ups® feature, each time you spend with a linked card, the charge gets rounded up to the next dollar amount. Once that change adds up to a minimum of $5, the money is pulled from your funding source and invested via your Acorns account into a mix of exchange-traded funds, a diversified portfolio selected for you based on your investment goals. You can also set up Recurring Investments for as little as $5 a day, week or month.

Why not just wait and invest bigger sums?

You could do that but consider the following example. Let's say you save $10 per/week in your piggy bank, where it earns zero interest. After two years, you finally feel like you have “enough” to start investing. So you take your $1,040 and invest it, and you continue to add $10 a week for the next 30 years. That investment grows to $56,659 over that period, assuming a hypothetical 7 percent annual rate of return. Not bad.

If you dove straight into investing using smaller sums, however, starting with $10 and adding another $10 every week, for all 30 years, you could reach $56,873 given the same hypothetical rate of return. That’s an extra $214 for no additional time or money from you, simply from regular investments.

But either way, that’s not a lot of money.

True, even with compounding and decades of saving, only investing your spare change is not going to fund your major long-term goals like retiring. Still, it can add up. Try our compound interest calculator to see for yourself! For example, it might be enough for a vacation or a down payment on a car.  Or it can simply mean having a little more money saved and invested for the future. Ain’t nothing wrong with that.

And anyway, the true power of micro investing is to nudge you into first investing in markets or help people who lack a large lump sum to reach their financial goals via investing. With an entry point as low as $5, you can overcome the notion that you can’t afford to invest and get started as soon as possible. And once you’re in, having a firsthand experience micro investing can help illustrate how simple investing can be and make you feel encouraged to do it more and more. Before you know it, you’ll have worked your way up to saving and investing the expert-recommended amount of 20 percent or more of your income.

What are some other advantages to micro investing?

Investing a fixed dollar amount on a regular basis, regardless of share price—also known as dollar-cost averaging (though the term is not limited to the tiny amounts of micro investing)—can help lower the average amount you spend per share. That’s because you’re investing the same amount of money regardless of what share prices are at the moment, which means you scoop up more shares when prices dip and fewer shares when they spike.

A routine investing strategy can also help you overcome any anxiety you might get due to market volatility. While, historically, stocks have headed up over the long term, it’s totally normal for them to turn downward along the way. Keeping a fixed investment schedule, regardless of market prices, can ease the shock of those natural falls and help minimize the risk that you’ll cut and run out of fear, locking in any losses. If you set up automatic contributions, you might even skip watching the daily market churns altogether and opt to simply check in a few times a year.

This information is for illustrative purposes only and shows hypothetical projections that assume an 7% fixed annual rate of return and a $10 weekly contribution over a 30 year time period, exclusive of fees. 7% annual return was selected as an arbitrary figure to show the potential impact of long-term investing and compound returns.  The illustration is not intended to predict the investment performance of any security or index. Such results do not represent the performance of any Acorns portfolio and do not take into consideration economic or market factors which can impact performance.  Actual clients will achieve investment results materially different from those portrayed.  Please consider your investment objectives, risks, charges and expenses carefully before investing.