What Is Micro-Investing?

Micro-investing is regularly investing small amounts to build a stake in financial markets over time. Regular savings can grow to a substantial amount without impacting your lifestyle.

How Micro-Investing Works

Micro-investing lets you invest small sums over time to build your financial portfolio. This process can be a feasible alternative to investing substantial amounts in stocks, bonds, or mutual funds.

Micro-investors generally use mobile apps to invest at regular intervals:

• Micro-investing apps typically have low minimum investment amounts and offer fractional shares of stock.

• Some apps use the investor’s goals, risk tolerance, and financial circumstances to create AI-generated recommendations.

• Micro-investors round up regular debit and/or credit card purchases and direct the additional funds into an investment account to purchase securities.

What to Consider Before Micro-Investing

Consider the following before micro-investing:

Not All Micro-Investing Apps Are the Same

Micro-investing apps vary by ease of use, investment options, and fees. Therefore, you should read the disclosure materials to learn essential information:

• Understand the account details, fees, and data-sharing policies before deciding whether to micro-invest.

• Some apps hold uninvested cash and/or free promotional credits in an affiliated money service business that lacks Federal Deposit Insurance Corporation (FDIC) or Securities Investor Protection Corporation (SIPC) protection.

• Be aware that many micro-investing apps lack phone support to answer questions and resolve issues.

• Read reviews from trusted sources to compare apps and choose the one that best fits your goals and experience.

• Download and navigate the app to ensure comfort using it before opening an account.

Learn Whether the Firm Is Registered

Brokerage firms that buy and sell securities in the United States must be registered with the Securities and Exchange Commission (SEC) and be members of the Financial Industry Regulatory Authority (FINRA):

• Use FINRA’s BrokerCheck tool to research a firm you are considering using.

• Read the firm’s Form CRS, a relationship summary featuring important information about the firm, including disclosures.

Focus on Fees

Micro-investing fee structures vary:

• Some fee structures lack upfront fees or trading commissions.

• Other fee structures charge commissions and/or monthly fees.

• Costs might depend on the services and the trades.

• Some apps charge for premium services.

• Others charge to transfer money, move an account, or mail account statements.

Consider how the micro-investing fees might impact your investment returns:

• Even a small monthly fee can substantially affect returns for a small account.

• Because fractional shares cannot be transferred to another firm, they must be sold before closing an account.

• Moving cash resulting from a sale can have tax implications.

• Talk with a tax professional to understand how you could be impacted.

Watch for Unexpected Charges

Automatic debits from a checking account or credit card to a micro-investing account can result in additional fees:

• Investors must provide the platform access to financial accounts.

• You might have overdraft fees if the app tries to debit your account when the balance is insufficient.

• You might need to turn off overdraft protection for connected accounts to avoid these fees.

• Investments charged to a credit card can create interest charges that exceed any investment gains if the balance is not paid off monthly.

Avoid Over-Trading

Micro-investing apps can encourage making investment choices based on emotion rather than rationale:

• Frequently purchasing and selling investments on impulse or fear of missing out (FOMO) can negatively impact performance.

• Consider talking with a licensed financial professional about personalized investment strategies.

*This information is for educational purposes only.

Let me know in the comments which personal finance topic I should write about next!