What Exactly Is Meant by the Phrase “Micro Investing”?
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What Exactly Is Meant by the Phrase “Micro Investing”?

Micro Investing

We think that investing is only for rich people, so we often say, “I can’t afford to invest,” to avoid getting into the market. In fact, in a recent survey from the personal finance site GOBankingRates, 48 percent of people who don’t invest said that they don’t because they don’t have enough money.

But the realism is that you don’t need a lot of money to start investing, and you should start as soon as possible. Investing is an important money move that can help you reach all your financial goals. And you can get started with micro-investing even if you only have a few dollars.

What is meant by the term “micro-investing”?

As the name suggests, micro-investing is investing in very small amounts by buying small parts of shares. It has become more celebrated in recent years because apps like Acorns make it easy for people to initiate investing with as little as $5.

How does it differ from regular investing?

The exciting news is that it’s not all that different. You can get the most out of your money’s growth potential and give your savings a chance to beat inflation when you invest in small amounts. It just makes that chance easier to get.

Traditional investing platforms usually have high minimum investments, high fees, or both, making it hard for people who are just starting to invest. For example, the first investment in many actively managed mutual funds costs at least $1,000. And while you might be able to buy some stocks for $5, most brokerage firms charge between $5 and $7 per trade, which makes such small investments not worth it. Also, a portfolio is not well-diversified if it only has one stock.

On the other hand, micro-investing lets you invest your spare change for as little as $3 a month through Acorns. You set up an account and link it to a source of money, like your checking account. Then you link it to the debit or credit cards you use to buy things every day. If you use the Acorns Round-Up feature, the charge will be rounded up to the next dollar every time you use a linked card to buy something.

Once that change adds up to at least $5, it is taken from your funding source and put into a mix of exchange-traded funds through your Acorns account. This is a customized portfolio that fits your financial situation and goals. Recurring Investments can be set up for as little as $5 a day, week, or month.

Why not wait and then invest more money?

That’s possible. But for every second you wait to invest, your money has one less second to grow on the market. And being in the market for a long time is the key to investing well. One reason for this is compounding, which means that your money can grow by making money on top of money, and so on.

Not that much money

Even if you save for a long time and let your money grow, investing your spare change won’t help you reach long-term goals like retiring. Even so, it can add up to a good sum. At a 6 percent rate of return, just $10 a week invested for 10 years can grow to $7,072. That can be enough for short-term goals like a nice vacation or a down payment on a car. Or, it can just mean getting a little more money for not much more work than you would have done otherwise. There’s no problem with that.

And anyway, microinvesting’s real power is to get you to invest in markets for the first time or help people who don’t have a large lump sum reach their financial goals through investing. With an entrance door as low as $5, you can forget about the idea that you can’t provide to invest and get initiated as soon as possible. Once you’re in, micro-investing can show you how easy investing can be and make you want to do it more and more. Before you know it, you’ll have saved and invested at least 20% of your income, which is the amount that experts recommend.

What are some additional benefits of micro-investing?

The average amount you spend per share can decrease if you invest regularly. This is called “dollar-cost averaging,” but it doesn’t just mean investing small amounts. Because you induct the same amount of money no matter the share price, you buy more stocks when the price goes down and fewer stocks when it goes up.

A regular plan for investing can also help you get over any anxiety you might feel when the market goes up and down. In the past, stocks have gone up a lot over the long term, but it’s perfectly normal for them to go down. Keeping your investments small and steady can help soften the blow of natural drops and reduce the chance you’ll sell out of fear and lock in your losses. If you set up automatic contributions, you might not even need to watch the market every day. You could check in a few times a year instead.

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Written by Finance Guru

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