Micro investing apps are financial platforms that help people invest small amounts of money, often automatically.
In this in-depth guide on micro-investing, you’ll learn:
- What exactly micro investing is
- When micro investing makes sense
- Micro-investing pros and cons
- The best micro-investing apps
This guide is unique in that I’m writing it from the perspective of a financial planner. While I spent time digging into the specific features and benefits of each of these apps, I’m more concerned with showing you how and when to utilize these services to help reach your financial goals.
What Is a Micro Investing App?
Before we take a deep dive into micro investing, let’s get on the same page by defining what micro investing is.
In the simplest terms, a micro investment app allows you to invest very small amounts of money in the stock market.
Where it gets confusing is that micro investing can be done in a number of ways. One of the most popular micro investing apps is Acorns (available on the web, as well as for both iOS and Android), which allows you to round up your purchases to the nearest quarter, half-dollar or dollar, and then automatically invests that “spare change” in the stock market.
Then there’s Betterment, which is best known as a robo-advisor but allows you to start investing with just $1. As such, it fits our definition of micro investing.
Who Benefits From Micro Investing?
While it’s easy to talk about the features and benefits of all the different apps, the more important question is:
How can micro investing help you reach your financial goals?
Again, if you’re interested in micro-investing, the idea is to invest small amounts of money in the stock market. So it’s important to understand where in personal finance doing something like this can be beneficial.
From my perspective, there are three scenarios in which using a micro investing app makes sense:
#1. To Take Advantage of Forced Savings
When people have to actively think about saving and investing, they often don’t do it. From a psychological perspective, it’s difficult to consciously move money out of your checking account and set it aside — especially if you’re on a tight budget.
You have to think about how much to transfer, consider how it will affect your budget, and then actually press the button. And you have to do it over and over. That’s where a forced savings feature, which not every app has, can be extremely beneficial in helping you reach your financial goals.
The most well-known example of forced savings is a 401(k), through which a person automatically invests a portion of their paycheck. After the account is set up, the investment is involuntary — the agreed percentage gets pulled out of your pay and set aside for retirement, whether you like it or not. And while you can usually access those funds in an emergency, there are severe penalties for doing so.
Two examples of apps that have a forced savings feature include Chime (read my review) and the above-mentioned Acorns, both of which can round up your spare change. After you sign up and sync your financial accounts, the app automatically invests small amounts every time you make a purchase, without requiring any additional work on your part.
Forced savings can help you achieve both short-term and long-term financial goals. For example, you can use forced savings to save for a car purchase in a few years, or to start a Roth IRA.
#2. Beginner Investors Looking to Save for Retirement
The advantage of micro investment apps is that they come without the traditional hurdles often associated with brokerage accounts, like minimum initial investments, complex asset allocation selection, and trading fees.
That makes micro investment services especially valuable to beginner investors. For many, saving up the $1,000 it takes to meet the account minimum at a brokerage like Vanguard is a tall order, and a micro investment app eliminates that barrier.
#3. Investing Small Sums in Individual Stocks
Some micro investing apps offer the ability to trade stocks for free. In addition, you can invest in fractional shares of companies.
This is helpful for beginner investors for a few reasons:
- They can learn to invest in stocks without fees (which often run around $10 per trade) eating up their returns.
- They can invest in some of their favorite companies with high share prices, such as Amazon or Tesla.
Keep in mind, investing in a few random individual stocks from companies you like isn’t a financial plan. It’s more of a fun way to test and learn the market, while (hopefully) making a few dollars in the process. But it doesn’t replace a well-balanced portfolio for retirement.
Tip: A rule of thumb we talk about a lot around here is investing no more than 10% of your investable assets in individual stocks. The rest should be put in index funds.
Micro Investing “Pros”
Micro investing apps make it easy for anyone to get started. There are a lot of people who simply can’t comprehend investing in their current situation, but these services allow you get started with almost any amount of money — even if it’s just a few dollars. Taking even small steps like that are an important part of building financial momentum.
Forced savings. A great feature of many of these apps is automation; you can save or invest money without having to think about it. Yet, at the same time, it’s still being done responsibly and in small amounts, so it won’t drain your checking account.
Low barriers to entry. Investing through traditional brokerage accounts can be intimidating if you’ve never done it before. Micro investing apps have user-friendly interfaces that simplify the process, have low (or no) minimum deposits and investment minimums, and low (or no) user fees.
The trading fees associated with traditional brokerages can also make small-scale investing cost prohibitive. If one share of a stock or an exchange-traded index fund is $30 per share and you only have $30 to invest, paying a $5 trading fee (which is what E-trade, a traditional online brokerage charges) means you’d be down 16% on your investment the second you click “buy.”
Great for those with inconsistent income. You should be investing and preparing for the future, regardless of the source of your income. But that’s often easier said than done. If you’re someone whose income fluctuates — such as a freelancer who has more clients and projects in one month and fewer in the next — these services are a solid option because they allow you to save or invest what you can at a particular time.
Micro Saving and Investing “Cons”
While micro investing apps can work well for one person, they’re not the right fit for everyone.
Micro means small. By its very definition, micro investing is investing done on a small scale. It’s designed to help you get started with saving or investing when you’re not accustomed to the practice. However, you’re investing small amounts of money — certainly not enough to prepare yourself for retirement. The best long-term solution is to still take a large portion of your paycheck (preferably at least 15%) and invest it in an employer-sponsored 401(k) or an IRA.
That being said, you need to start with where you are today. If you don’t have a lot of money to invest, and you can only envision yourself investing spare change in your current financial situation, that’s how you should begin.
Third-party investing. Some apps are “third parties,” meaning that they are not financial institutions themselves. Rather, they’re service providers that connect you to financial institutions while providing extra features, like an easy-to-navigate platform or automated investments.
Financial institutions typically charge a small fee based on the value of the assets in your portfolio, which means you’ll pay less if you invest less. On the other hand, third parties often charge a set monthly or annual fee for the use of their products. This can make investing small amounts of money costly. A $3 per month fee on a $1,000 investment account comes out to about 4% annually — far higher than the 0.25% to 0.50% percent you might pay at a typical brokerage.
Currently in the startup phase. Startups that are trying to snag market share from existing businesses often offer consumers great benefits, such as innovative tools, modern user interfaces, and artificial intelligence that helps you invest more effectively. But there will also be drawbacks.
For example, Vanguard’s fees will likely be the same or less 10 years from now, because of the fact that it’s owned by its investors. It’s sole purpose to provide the best possible investment results — not to make a profit off of the people utilizing its services.
Startups, which are often backed by venture capital, are fundamentally different. You’re a customer when you use these services, which means that one way or another you’re generating the profit the company passes on to its shareholders.
In the past, some startups have launched with free or ultra-low-cost services, only to change their terms of service and/or raise their fees a couple of years down the road.
If your money is held in cash or an IRA, this isn’t a big deal because the funds are easy to move. However, there are situations — such as investing in a taxable account — where you could have to deal with capital gains taxes in order to switch providers to avoid the newly-assessed fees.
How Do Micro Investing Apps Make Money?
Micro investing apps need to make money. How do they do this? Some apps’ revenue may be tied to an investment institution, such as Betterment, which charges an annual fee of .25% of the assets in your portfolio.
Other apps serve as middlemen or third-parties rather than as investing institutions. The product they offer is the technological innovation or convenience they provide — the artificial intelligence that pulls money from your bank account into investment or savings accounts, the roundup feature that helps you stash away your spare change, or the tech that helps you stick to your investment strategy. These apps generally charge a small monthly fee of a few dollars or less.
Best Micro Investing Apps
It’s finally time to get to the best micro investing apps. And as we learned above, there are three primary ways that micro investing can help you achieve your financial goals:
- By taking advantage of forced savings
- By helping beginning investors start saving for retirement
- By investing small sums in individual stocks
With that said, here are the best apps, broken down into the above three categories:
Best Forced Saving Micro Investing Apps: Acorns
The first is a feature called Rounds Up. We’ve all heard about the practice of saving loose change in a jar or piggy bank, and Rounds Ups essentially automates that practice. After linking your debit card and/or credit card to your account, Acorns will “round up” any purchases made with those cards to the nearest dollar, half-dollar or quarter (depending on your preferences).
Acorns also has a feature called Found Money, which offers a percentage back for shopping at participating stores through its portal and app, and then deposits those funds into a mutual fund account. The company has partnered with hundreds of retailers, so you won’t have trouble finding brands you shop with. Acorns’ Found Money percentages usually range from 2% to 10% — a nice bonus for buying items you were going to purchase anyway. Just make sure you don’t use this as an excuse for unnecessary spending.
Both Round Ups and Found Money go into your investment portfolio. Acorns gives you an automated system to begin investing right away, regardless of your income or experience.
Pros: The Acorns app gives you the ability to adjust your investment portfolio to meet your specific financial goals. You can choose your acceptable level of risk, timeline, and a few other criteria.
Fees: Acorns fees are $1 to $3 per month, depending on the plan you select.
Minimums: There is no minimum to open an account, but $5 is required to start investing.
Runner Up for Best Forced Savings App: Qapital
How it works: Qapital is a micro saving and investing app that allows you to save money through various “rules” and “goals.” In Qapital parlance, goals are what you’re trying to save for. At the same time, Qapital allows you to create virtually any rule to save toward those goals, and it then triggers an action when that event happens. Some of the preconfigured rules include round-ups, which (similarly to Acorns) sends change to your savings account, and the “set and forget it” rule, where money automatically transfers toward your goal at predetermined intervals. If you don’t like the preset rules, you can customize your own.
Qapital also offers the ability to invest in a selection of preconfigured portfolios, which are based on Modern Portfolio Theory (mean-variance analysis) — a mathematical way to match your investment goals (i.e., your timeline and desired return) with your risk tolerance level. The minimum initial investment is $10, and as with the savings functionality, you can automate transfers to make sure you’re consistently building your portfolio over time.
Pros: Qapital has an “If this, then that” rule which allows you to get even more creative with your goals, and which might provide the extra motivation you need to get started. For example, you might create a rule that says, “Every time I tweet, make a $1 deposit into my savings account.” Or it could be something practical, like “Every time I deposit a check, put aside 5% for taxes.” There are few limitations to the IFTTT rule.
Here are just a few examples Qapital suggests:
Cons: Fees are a bit higher, especially for those not taking advantage of every feature they have to offer.
Fees: Qapital has three pricing tiers. Plans begin at $3 for Basic, $6 for Complete, and $12 for Master.
Minimums: There is no minimum balance requirement to use Qapital.
Best Micro-Investing App For Long-Term Retirement Investing: Betterment
How it works: Betterment is a robo-advisor that offers the ability to invest your money in a selection of curated portfolios — comprised of a mix of exchange traded funds (ETFs) and bonds — based on your investing goals.
You can get started with as little as $1, and the fees are low — just 0.25% annually for the basic (“Digital”) plan, which gives you access to all of the platform’s core investment tools. They also offer a “Premium” plan, which costs 0.40% annually and requires a minimum account balance of $100,000; Premium gives large-scale investors access to advice and recommendations from their team of financial advisors.
Getting started with Betterment is quick and exceptionally easy, even if you’re a beginning investor with zero knowledge of how markets work. Utilizing Betterment’s recommendations will have you invested in a professionally-designed and diversified portfolio within minutes, regardless of your initial investment amount. And because the fee is based on a percentage of your portfolio (rather than a set monthly fee, as with Acorns), you can grow on the platform without having to worry about account expenses eating up your returns.
Currently, there are four pre-configured portfolios, which are designed to meet specific personal finance goals:
Safety Net — A conservative allocation that holds a high proportion of bonds. This portfolio is designed to grow faster than the rate of inflation and is built to weather market declines, but it will likely appreciate in value slower than a portfolio that utilizes a more aggressive approach.
Smart Saver — A low-risk, high-yield investment account that’s designed to look and function like a savings account. Smart Saver has a 100% bond allocation split between 80% U.S. Government bonds and 20% low-volatility corporate bonds, making it a relatively safe place to hold cash. Smart Saver also features an automated savings function that analyzes your spending habits and expenses and automatically moves funds from your checking account. This is the account I’d choose for saving for goals such as a home downpayment a few years out.
General Investing — Betterment labels this goal as its “utility” portfolio, because it doesn’t have a specific age marker or withdrawal date baked into the allocation (as does the Retirement plan discussed below). Depending on your age, the portfolio starts out with a relatively high proportion of stocks that tapers off over time. This portfolio is designed to build wealth over the long term, but not necessarily to produce a source of withdrawable income at a specific date in the future.
Retirement — Betterment’s retirement portfolio takes your age into consideration when determining your asset allocations. For a 35-year-old, that allocation would start out at 90% stocks and 10% bonds in order to maximize growth potential. As you get older, the robo-advisor continuously adjusts that allocation to reduce your risk. By the age of 65, your proportion of stock holdings would be tapered all the way down to 56%.
The logic behind this is that a person who is 20 or 30 years away from retirement is in a position to withstand a loss of portfolio value that might result from a short-term economic downturn (like a recession). On the other hand, someone closer to retirement needs certainty that they’ll be able to draw funds from their investment account to live off of in the near future, and thus has less tolerance for risk.
When you first join the platform, you’ll be asked a series of simple questions:
- Are you currently retired?
- How old are you?
- What is your annual pre-tax income?
Betterment will then suggest one or more of these four portfolios based on your answers.
While all of them are decent options, Betterment truly shines as a retirement platform, as it offers both a taxable account and three different IRAs:
Betterment also offers a handful of other portfolio options:
Socially Responsible Investing — Avoids investing in companies that earn profit by degrading the environment, harming the health of people or animals, or exploiting poor labor standards in developing nations.
Goldman Sachs Smart Beta — An aggressive portfolio that aims for strong growth but accepts a greater degree of risk that the other options.
BlackRock Target Income — A 100% bond allocation that’s designed to provide a source of cashflow during retirement while limiting exposure to market volatility.
Flexible Portfolios — Rather than sticking to Betterment’s exact asset allocations, you have the option to adjust your allocations based on your personal preferences.
Keep in mind that it’s possible to split your total investment over multiple goals. For example, you could choose to invest 20% in a Smart Saver portfolio, 60% in a Retirement portfolio, and the remaining 20% in a Flexible portfolio.
Pros: A wide variety of pre-configured options to choose from, including a high-yield forced-savings account and a smart retirement-planning algorithm that takes your age into consideration when determining your asset allocation.
Cons: You aren’t able to invest in individual stocks… although you’re better off utilizing Betterment’s portfolios anyway, as beating the market is next to impossible.
Fees: 0.25% annually for the basic plan and 0.40% annually for the premium plan, which provides access to human financial advisors.
Minimums: No deposit or account balance minimum for the basic plan, but you need at least $100,000 to qualify for the premium offering.
Best Micro Investing App For Investing In Individual Stocks: M1 Finance
Summary: M1 Finance is a combination of a robo-advisor and a low-cost brokerage. Like Betterment, M1 gives you the ability to invest in pre-configured portfolios (called “pies”) based on your personal finance goals. There are over 80 hands-off “expert pies” to choose from, but you also have the ability to build your own custom pies.
Pies are broken down into “slices,” and if you’re using a custom pie M1 allows you invest in individual stocks — unlike Betterment, which only allows you to adjust your asset allocation based on criteria like risk and industry.
M1 also allows for the purchase of fractional shares, which means you don’t need to buy a full share of each company you want to invest in: you can buy $1 worth of Amazon, $1 worth of Berkshire Hathaway, and so on. That makes it much easier for beginning investors with limited funds to diversify their portfolios.
Of course, as I’ve noted in this article and throughout The Ways To Wealth, you’re unlikely to beat the market as an individual investor. At least 90% of your investments should be placed in index funds. So while it’s OK to invest 10% or less of your portfolio in a custom pie — which can be a fun way to learn about the market — your best bet is to keep it simple and follow the experts.
See Also: In-Depth M1 Finance Review
Pros: Offers more flexibility than some other options. Unlike Betterment, you can invest in individual shares. And unlike Robinhood — a competing online brokerage that offers commission-free stock trading — M1 offers an IRA option.
IRAs are especially important for younger investors because they’re essentially a use-it-or-lose tax advantage. You only have so many years, and so much money, you can contribute to an IRA. Every year that passes in which you don’t invest in an IRA or a 401(k) is a missed opportunity. Furthermore, many of these tax advantages go away in retirement. So, younger investors really want to take advantage of an IRA.
Cons: That flexibility comes at the cost of simplicity. While getting started with M1 is still easy (even for beginners), the wealth of investment options can make it more difficult to know whether you’re making the absolute best choice for your particular financial situation. Additionally, with more options comes more risk —especially if you’re buying individual stocks on your own.
Fees: There’s no fee for investing on the platform, or for trading stocks. However, there are two “miscellaneous” fees you should be aware of:
- Inactivity fee: $20. Kicks in if you have less than $20 in your account and have been inactive for 90 consecutive days.
- IRA termination fee: $100.
Minimums: $100 minimum initial deposit (and $500 for retirement accounts). All deposits after the first one must be $10 or greater.
Best Micro Investing Apps Summary
Anything that gets younger investors saving more money is arguably a good thing. But there are both smart and not-so-smart ways to use micro investing apps to help you save and invest more.
These four apps, in the right situations, make a lot of sense. And keep in mind, because you’re investing small amounts of money, the most important thing is to get started, which all these apps make it easy to do.