For share market novices, micro-investing apps like Raiz and Spaceship Voyager are great for making your first foray into the investing world, without any of the complexity attached to it.
Arguably the most well-known micro-investing app, Raiz (formerly Acorns), rounds up your purchases to the nearest dollar and invests those tiny amounts for you into the stock market via the app.
You can even make additional lump sum investments into the app, or set up monthly recurring deposits.
Spaceship Voyager is similar, and lets you transfer small amounts into an investment portfolio via the app without the need to pay for a financial advisor.
But given the amounts you deposit are so little, is it really worth the trouble? Or are you better off with a term deposit, or your regular savings account?
According to investments expert at Finder.com.au, Kylie Purcell, there are a few factors to consider when looking at using a micro-investing app.
1. They’re cheap
“Micro-investment apps are a great first step if you’re new to investing because they allow you to get into the stock market without needing to risk thousands of dollars,” Purcell said.
“When you buy shares through a broker, there’s typically a minimum $500 investment, which is a lot to risk if you’re just starting out.”
On the other hand, you can invest in micro-investing apps with just a few dollars at a time.
2. You’re diversified
Another great thing about micro-investing apps is that you’re invested across a diverse range of stocks, because they usually invest via ETFs.
“Micro-investment apps usually give you a portfolio of shares or exchange traded funds (ETFs) that have been selected for you based on your investment preferences,” Purcell said.
“So instead of buying shares from one or two companies, you’re investing in hundreds or thousands of companies at a time.”
3. Watch your fees
If you’re thinking of investing via Raiz, that app charges a monthly investment fee, which is unlikely to cover what you’re profiting if you aren’t investing a whole lot.
CommSec Pocket allows you to invest $50 at a time with a broker fee of $2 per transaction, so if you’re making a few deposits during the year, the fees can definitely start to add up.
“It pays to be careful about the fees you’re being charged when you’re investing such small amounts,” Purcell said.
“As a rule of thumb, the less you invest, the less likely any profit you make is going to cover the fees you’re charged…So you should check whether the amount you’re investing and the returns you can expect will cover the fees you’re charged. ”
4. They’re easy to forget
Sometimes a set-and-forget type of investment is good, because, after all, investing should be a long game.
However, it can be a little too easy to forget about your micro-investing accounts, because so much of it goes on in the background.
“While this can be a good thing for those investors who might be tempted to ‘over-manage’ their savings, it’s still important to regularly review the performance of your investments to ensure that they are meeting your expectations,” Finder stated.
Ultimately, micro-investing is a simple, low-cost way of getting into the stock market. But, if you’re not keeping an eye on your fees, these can eat up and dig into your profits.
It can also take a really long time to build up significant wealth via the apps, so investing this way might be more suited to younger Aussies.