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Investing can be confusing, involves lot of attention to keep on track and is usually associated with rich and wealthy people who like to make lots of money. Therefore, it can be difficult for newcomers and especially for the younger generation to start investing in the stock market as they often lack the necessary education and face high entry barriers like high commission fees or minimum investment amounts (Chen, 2018).

However, the times are changing. Fintech start-ups recently developed investment platforms to overcome these difficulties and make it affordable for millennials to save and invest small amounts of their money (Investopedia). This type of investing is called micro- investing and experiences a growth especially in the US. There are several Apps like Acorns, Stash, Robinhood, Betterment or Wealthfront that guide the savings and invest the money for the users (Chen, 2018).

How it works exactly?

After downloading the respective app, you connect your debit and/or credit card to the App. After everything is approved you can start saving your money. With every purchase you make you round up to the nearest dollar and the app automatically invests your spare money (Investopedia). Micro-investing Apps are a “set-it-and-forget-it approach”, it is very easy to use and you do not have to keep track on the fluctuations in the stock market. Of course, as always when you are investing money in the stock exchange, returns are not guaranteed (Pavia, 2018).

However, for example Acorns invests the money in ETFs (Exchange-Traded Funds) which are flexible, transparent, diversified and face low costs which makes them very attractive to invest in. ETFs are investment funds that replicate an index e.g. DAX or S&P500 and therefore they are also called index funds. They consist of a diversified portfolio of stocks, bonds and other investment categories as commodities (Acorns, 2018).

What are the costs?

Investing via the mentioned apps also comes at a cost. For most of the applications you have to pay a small monthly fee e.g. $1 dollar and an annually fee in terms of a flat fee of 0.25% of the invested amount if your account reaches more than $5,000 (Acorns, 2018).

 

Conclusively, it can be said that micro-investing apps are a good opportunity for people with low-income to start investing at low cost. However, the user should be aware that this kind of investing does not generate lots of money in short term. According to Sokolin, global director Fintech Strategy at Autonomous Research, micro-investing is “much more for the regular investor who just wants to take control of their life and improve it a little bit” (Pavia, 2018).

 

Connie Chen, (2018). The 5 best apps to start investing with little money. [online] Business insider. Available at: https://www.businessinsider.com/best-investing-apps-for-beginners-2018-1?international=true&r=US&IR=T

Acorns, (2018). Invest for your future. [online] Acorns. Available at: https://www.acorns.com/invest/

Investopedia (2018). Micro-Investing Platform. [online] Investopedia. Available at: https://www.investopedia.com/terms/m/microinvesting-platform.asp

Pavia, J. (2018). Micro-Investing lets you build wealth a few dollars a time. [online] Available at: https://www.cnbc.com/2018/04/25/micro-investing-lets-you-build-wealth-a-few-dollars-at-a-time.html

Sokolin, L. (2018). Microinvesting builds wealth a few dollars at a time [online] CNBC. Available at: https://www.cnbc.com/video/2018/04/25/microinvesting-builds-wealth-a-few-dollars-at-a-time.html