If you have a normal job and want to get rich in Australia, investing is the key to making it happen. But if you’re early on in your investment journey, getting started can seem overwhelming (not to mention expensive).
It can also be confusing to figure out what platform or tool you should be using to invest your hard-earned money. Thankfully there are more and more apps and technology solutions that can help. Enter micro-investing.
What are micro-investing apps?
Micro-investing ‘platforms’ such as Raiz, Stake, Stocklight or eToro are investment accounts that allow investors to purchase fractions of traditional investments like shares, exchange traded funds (ETFs), and even property. The advantage is that you can invest with smaller amounts of money than what’s normally needed to buy an entire share, ETF, or property.
For example, buying a share in the tech giant Amazon will cost you a whopping $US3349 ($A4319), but with a micro-investing app like Stake you can purchase as little as $1 worth of Amazon shares. This can help you get started, and it also means you don’t need to ‘tie up’ a heap of cash into just one investment.
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What are the benefits of micro-investing?
Micro-investing platforms allow you to get started investing without huge sums of money, so it’s no wonder they’re gaining so much traction. Most people think you need a high-paying job to get rich, but the truth is that you don’t. The power of compound interest was quoted by Einstein as the eighth wonder of the word, and he wasn’t far off.
I’ve included an example below showing how an investment portfolio can grow over time, assuming only the long-term average market returns (20-year return on Australian shares of 8.7 per cent via the ASX long-term investing report). In this example, I’ve used an investment amount of $10 per day, or $70 per week. This is only around the cost of a couple of coffees per day, and less than the cost of your weekend smashed avo on toast.
If you had followed this investment strategy for the last 10 years, you’d have invested $36,500 but your investment would have grown to $54,666. Over 20 years, your investment would have grown to $180,564. For only the cost of a couple of cups of coffee per day, this is a pretty good result, right?
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But, if you could have started 10 years sooner (30 years total) your investment would be worth $470,506. But, if you started another 10 years earlier (40 years total), you’d be looking at an investment account worth over $1,138,245.
The power of time makes a massive difference in the results you’ll get. This is why it’s so important to get started ASAP. The best time to take action was 10 years ago. The second best time is today.
How do micro-investing apps invest money?
There are a range of different micro-investing options. Some allow you to purchase regular share investments, such as a share of a company like Commonwealth Bank or Apple. Others allow you to purchase ETFs, and some even give you access to property. Each micro-investing platform has its own approach and range of investments.
What other investing options are available?
The alternative to micro-investing is using traditional investments like direct shares, ETFs, managed funds, or buying property directly. These investments have been around for decades and are tried and tested, but the challenge for investors just starting out is that you need a relatively larger amount of cash savings to purchase them.
How good is the performance and fees of micro-investing apps?
The performance of micro-investing apps is generally exactly the same as the traditional investments, with the exception of the fees that are charged by the platform you choose to use. These fees on some platforms are low, and in some cases even lower than they would be if you were to purchase the investments in the more traditional way. But others can be more expensive, so do your research to make sure you’re getting a good deal.
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How do you choose whether micro-investing is right for you?
Whether micro-investing is right for you comes down to your financial position, how much money you’re looking to invest, and your investing goals and objectives.
If you decide that micro-investing is for you, the first decision to make is deciding what type of investments you want to buy, i.e. shares, ETFs, or property. Your choice will come down to what you’re trying to get out of your investment. Each option has its own advantages and downsides, and they all charge fees in different ways.
The wrap
Micro-investing can be a great way to build a second income stream and grow your asset at the same time, but you need to get it right. Take the time to do your research before you jump in so you end up with the best deal and the best returns.
Written by Ben Nash, finance expert commentator, podcaster, financial adviser and founder of Pivot Wealth, Author of the Amazon Best Selling Book ‘Get Unstuck: Your guide to creating a life not limited by money’.
Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.
