Micro-investing is the process of investing small amounts of money regularly. The process of micro-investing involves small and sometimes irregular investments where the individual can set up recurring payments or invest a lump sum as cash becomes available.
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Understanding micro-investing
Before there was such a thing as a digital transaction, consumers looking to save their spare change may have used a piggy bank.
As cash becomes obsolete, however, many consider micro-investing to be a viable modern-day alternative.
Micro-investing is a passive solution designed to make investing simple and accessible for beginners. Most can get started with as little as $5 invested into a diversified portfolio.
The process of micro-investing involves small and sometimes irregular investments.
The individual can set up recurring payments or invest a lump sum as cash becomes available.
Some micro-investing platforms will also allow the user to round up a transaction to the nearest dollar and invest the difference.
For instance, the purchase of a coffee for $3.75 would be rounded up to $4 with the remaining 25 cents invested.
With interest rates at historic lows, micro-investing can generate a better return than if the funds were to sit idle in a standard savings account.
The main micro-investing platforms
There are many micro-investing platforms on the market today, with most removing or at least reducing the barriers to traditional investing such as brokerage fees, management fees, and minimum investment amounts.
Some of the most popular micro-investing platforms include:
Acorns is a fintech platform providing services related to Robo-investing and micro-investing. The company makes money primarily through three subscription tiers: Lite – ($1/month), which gives users access to Acorns Invest, Personal ($3/month) that includes Invest plus the Later (retirement) and Spend (personal checking account) suite of products, Family ($5/month) with features from both the Lite and Personal plans with the addition of Early.
A mobile app that rounds up the spare change from daily purchases and invests the remainder into a diversified portfolio of exchange-traded funds (ETFs), bonds, indexes, and even Bitcoin.
Users can choose a portfolio based on their risk appetite and there is no fee for depositing or withdrawing funds from the platform.
Public.com
A commission-free micro-investing platform for Millennial and Generation Z consumers that incorporates aspects of social media.
Public.com users can own fractional shares in stocks and ETFs, follow popular creators, and discuss strategies with a community of like-minded others.
M1 Finance is a North American online trading platform for common and preferred stocks and exchange-traded funds (ETFs). The company also offers margin lending, cash management, and a checking or debit account service. M1 Finance has a standard assortment of revenue streams for an investment platform. As a market maker earns money on the bid-ask spread, M1 Finance also offers a single premium subscription dubbed M1 Plus, and through interest and interchange fees.
M1 Finance is an automated solution that invests on a user’s behalf and will also rebalance a portfolio based on preconfigured asset allocation targets.
Spaceship Voyager
Another robo-advisor platform that lets the user transfer small amounts into three portfolio options comprised of some of the world’s most innovative and socially responsible companies.
Spaceship Voyager charges a flat monthly fee with no additional charge for a customer holding multiple portfolios.
Robinhood is an app that helps to invest in stocks, ETFs, options, and cryptocurrencies, all commission-free. Robinhood earns money by offering: Robinhood Gold, a margin trading service, which starts at $6 a month, earn interests from customer cash and stocks, and rebates from market makers and trading venues.
One of the first micro-investing platforms launched in 2013. The app was designed to be as intuitive as possible with no bells and whistles or confusing terminology.
For the more hands-on micro- investor, Robinhood provides real-time market data and also allows Bitcoin trading.
Micro investing vs. retail investing
Retail investing is the act of non-professional investors buying and selling securities for their own purposes. Retail investing has become popular with the rise of zero commissions digital platforms enabling anyone with small portfolio to trade.
Throughout the 2020s, retail investing has exploded as liquidity became easily available in the markets, thus making millions of people, especially younger people, enter financial markets.
This also gave rise to another form of retail and micro-investing called meme investing.
Meme stocks are securities that go viral online and attract the attention of the younger generation of retail investors. Meme investing, therefore, is a bottom-up, community-driven approach to investing that positions itself as the antonym to Wall Street investing. Also, meme investing often looks at attractive opportunities with lower liquidity that might be easier to overtake, thus enabling wide speculation, as “meme investors” often look for disproportionate short-term returns.
Meme investing is a phenomenon where thousands or millions of tiny investors come together, creating buzz around a trend, thus propelling these stocks.
The case that got the most attention was the GameStop saga, which saw a group of meme investors play against Wall Street, forcing the liquidation of various hedge funds shorting the stock.
Key takeaways
Micro-investing is the process of investing small amounts of money regularly.
Micro-investing can occur via a recurring or lump sum payment. Many platforms also allow customers to round up day-to-day transactions to the nearest dollar and invest the difference automatically.
Micro-investing platforms include Acorns, Public.com, M1 Finance, Spaceship Voyager, and Robinhood. Most were designed to remove the barriers associated with traditional investing, such as brokerage fees, fund management fees, and minimum investment amounts.
Key Highlights
Definition of Micro-Investing: Micro-investing involves investing small amounts of money regularly, often in irregular increments. It’s a passive investment strategy designed to make investing accessible and simple, particularly for beginners.
Process of Micro-Investing:
Investors can start with as little as $5 invested in a diversified portfolio.
Investments can be made through recurring payments or lump sums as cash becomes available.
Some platforms allow rounding up transactions to the nearest dollar, with the difference automatically invested.
Benefits of Micro-Investing:
Offers a modern alternative to saving spare change, especially in a cashless society.
Provides a better return than traditional savings accounts due to historically low interest rates.
Removes barriers to traditional investing like brokerage fees, minimum investment amounts, and management fees.
Popular Micro-Investing Platforms:
Acorns: Rounds up spare change and invests it in a diversified portfolio. Offers subscription tiers for additional features.
Public.com: Allows users to own fractional shares, follow popular creators, and engage in discussions within a community.
M1 Finance: Offers automated investing and portfolio rebalancing, along with additional financial services.
Spaceship Voyager: A robo-advisor platform with portfolios focusing on innovative and socially responsible companies.
Robinhood: An app that facilitates commission-free investing in stocks, ETFs, options, and cryptocurrencies.
Micro-Investing vs. Retail Investing:
Micro-investing is a form of retail investing where non-professional investors trade securities for personal purposes.
Retail investing has grown with the rise of commission-free digital platforms, attracting younger investors.
Meme investing, a subset of retail investing, involves community-driven approaches and focusing on trends and viral stocks.
Meme investing gained attention during the GameStop saga, where retail investors challenged hedge funds.
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Economic or market moats represent the long-term business defensibility. Or how long a business can retain its competitive advantage in the marketplace over the years. Warren Buffet who popularized the term “moat” referred to it as a share of mind, opposite to market share, as such it is the characteristic that all valuable brands have.
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Micro-investing is the process of investing small amounts of money regularly. The process of micro-investing involves small and sometimes irregular investments where the individual can set up recurring payments or invest a lump sum as cash becomes available.
Meme stocks are securities that go viral online and attract the attention of the younger generation of retail investors. Meme investing, therefore, is a bottom-up, community-driven approach to investing that positions itself as the antonym to Wall Street investing. Also, meme investing often looks at attractive opportunities with lower liquidity that might be easier to overtake, thus enabling wide speculation, as “meme investors” often look for disproportionate short-term returns.
Retail investing is the act of non-professional investors buying and selling securities for their own purposes. Retail investing has become popular with the rise of zero commissions digital platforms enabling anyone with small portfolio to trade.
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Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
