IN 2013, when I opened my first taxable account, you generally needed to have at least a few thousand dollars saved in order to open up an index fund or ETF with a traditional brokerage. That’s only five years prior to my writing the words on this page, and yet micro-investing apps weren’t available at the time. It’s amazing how quickly technology is changing the way we’re able to enter the markets. By 2014, the landscape of investing had already started changing. Suddenly, there were options for people to invest with only a few bucks via an app on their smartphones.
Today, there are a variety of ways to invest with minimal sums of money. Some are gamified, while others adhere to the old principles of investing, but they all democratize the process to make it accessible to anyone with a bank account and a couple spare dollars a month.
It feels like such a Millennial cliché—of course “there’s an app for that” when it comes to investing! Micro-investing apps solved a common problem for young, rookie investors: investment minimums. Not only can it be cost-prohibitive to purchase a single share of some stocks, but some mutual funds can also require a minimum investment of $1,000 to $3,000 to even as high as $10,000 in some cases.
As the name implies, micro-investing only requires you to deposit little bits of money at a time into your investment. This is often done in an automated or similarly simple manner for you, the user, in order to both reduce stress and actually encourage you to keep investing.
Just like robo-advisors, micro-investing apps offer a variety of tools and ways in which you can be investing. You could be doing individual stock picking or build a portfolio out of ETFs. You generally create a portfolio by answering a few questions about your goals and risk tolerance, and then the app will recommend investments.
Micro-investing apps are not the same as your brokerage firm’s app. These are companies built around the idea of helping people get into investing with as little as a few dollars, but ultimately you can level up, too.
Just like signing up with a brokerage, you’ll need to fill out some information in order to invest via an app. Here are some of the things you need to be prepared to provide:
Email address
Full, legal name
Date of birth
You must be eighteen or older to have an account in your name. Otherwise, a parent or guardian may be able to open a custodial account for you.
Social Security number
Phone number and address
Your citizenship status:
Some apps are only available to US citizens.
Other information:
When filling out the investor profile, you’ll be asked some basic questions like: employment status, annual income, perceived risk tolerance level (conservative, moderate, aggressive), and net worth.
How will you fund the account?
You’ll need to link a bank account and/or credit or debit card to your app. This is how you’ll add money to your investments. You’ll also need to verify that you’re the owner of the checking account. Typically, this is done by the app making two small deposits in your account. (They later take the money back.) You log in to the app and enter what those deposit amounts were.
It’s important to actually overview some micro-investing apps in order to best help you understand what they have to offer. However, these apps and their services tend to evolve rather quickly. The information that follows is from the summer of 2018.
Before using any of this information to actually select and use a micro-investing app, it’s important to research the company yourself and check current functionality and fees. This overview is just to give you a sense of how these apps work.
As always, make sure anything you use to invest is SIPC protected.
Acorns is a perfect match for the true beginner looking to get help building a well-diversified portfolio. Seasoned investors can get plenty of value from Acorns, but its simplicity makes it great for the true rookie.
Investment options: You can invest in one of five available portfolios.
Invest your spare change: Acorn’s tagline is “Invest your spare change. Anyone can grow wealth.” The invest-your-spare-change philosophy manifests in the “Round-Ups.” You can set the app to round up your purchases to the next dollar and invest the difference. If you bought a coffee for $1.65, then it can round up your purchase to $2 and invest the $0.35.
Automatic investments: You can also elect to set up automatic deposits into your investments. This can be done daily, weekly, or monthly.
Found Money™: This works like a cash-back portal. By clicking through Acorns to shop with brand partners, a percentage of your purchase will be credited to your Acorn account. For example, let’s say Barnes & Noble is a brand partner and offers 2 percent back. You need to buy a book. You open your Acorns app and go to the “Found Money” screen. You locate Barnes & Noble and then click on it to be redirected to the Barnes & Noble website. After you place your order, 2 percent of its value will be credited to your Acorns account within a set period of time after purchase.
Education component: “Education goes hand in hand with investing,” says Jennifer Barrett, chief education officer for Acorns, which offers a stand-alone financial education site and integrates education into the tool. “Because we recognize so many people [who] are investing with Acorns have probably never done it before, certainly not outside of a 401(k), we make it very easy to start investing, and we help people along the learning curve. Then you see them start to become more engaged users and put more money in.”
Other: The app also offers Acorns Later and Acorns Spend, to help with retirement and day-to-day spending. Acorns Later gives you the option to invest in a Roth, Traditional, or SEP IRA. Acorns helps build your plan based on your lifestyle and goals. Acorns Spend is a checking account and debit card integrated with Acorns that allows roundups to happen in real time.
Acorns keeps this pretty streamlined. You choose from among five portfolios, all of which are invested in ETFs from well-known investment management companies like Vanguard and BlackRock. The portfolio options are: conservative, moderately conservative, moderate, moderately aggressive, and aggressive.
$1 per month for Acorns accounts under $1 million, or free for college students.
$2 per month for Acorns + Acorns Later (the retirement portfolio).
$3 per month for Acorns + Acorns Later + Acorns Spend.
The tongue-in-cheek name for a folk hero who robbed from the rich and gave to the poor perfectly aligns with Robinhood’s slogan: “Investing. Now for the rest of us.” Robinhood can certainly be used by absolute rookies, but it’s better suited for those looking to do individual stock picking and even dabble in cryptocurrency and options trading.
Stocks and ETFs: More than 5,000 stocks and the majority of ETFs listed on the major US exchanges.
Robinhood Crypto: In 2018, Robinhood made cryptocurrency available for buying and selling in eighteen US states. It wasn’t available nationwide due to state regulations. At the time of this writing, it supported buying and selling Bitcoin, Bitcoin Cash, Dogecoin, Ethereum, and Litecoin.
Options trading: This one is a bit more technical to explain, but in short, you’re making a bet on the future price of a commodity and will then have the ability to purchase it at a particular price and sell it for an immediate profit. For example, Fab Five Inc. is currently trading at $23 per share. You’re pretty certain it will increase in value, so you buy a “call option” for 100 shares. The call option costs you $1 per share, so $100, and allows you to buy 100 shares of Fab Five Inc. at $25 per share (also known as the “strike price”) within the next sixty days. Fab Five Inc. does increase in value to $28 per share within the sixty days. You then buy the 100 shares at $25 and immediately sell them for a $3 profit per share (less the $100 you spent on purchasing the call option).
Robinhood Gold: A trading option that allows an investor to buy “on margin,” which, in this case, means buying with money loaned to you by Robinhood Financial. You also get extended trading hours and can trade thirty minutes before the market opens and two hours after it closes.
Trading is commission free, but there are fees charged by the SEC and FINRA. Robinhood doesn’t pocket any of those fees, but you should expect to see them as part of your trade.
At this point, you should be wondering how Robinhood makes money. According to its website,1 it does charge $6 per month for members who opt into Robinhood Gold. The company also earns revenue by collecting interest on the cash and securities held in Robinhood accounts.
Stash is a good fit for a beginner who wants to be a little more hands-on about picking investments or has specific preferences on the type of companies he or she invests in. Of Stash’s customers, 86 percent are first-time or beginner investors, according to Brandon Krieg, CEO and cofounder.
“We started with education and rolled out investing in a taxable account, and then we rolled out retire, and then we rolled out custodial, and now we[’ve] announced we’re building banking services,” says Krieg. “We’re really just trying to holistically give advice and education to better the lives of our customers.”
Investments: You can build your own portfolio by selecting ETFs and/or stocks aligned with your goals. Stash does offer a coach to help with your selection if you need. There is also a gamification aspect in which you earn points, which are kind of like gold stars, for achieving certain steps, like making a deposit, setting up Auto-Stash (automatic deposits into your investments), and then for selecting certain stocks, bonds, and ETFs that align with creating a diversified portfolio.
Stash Retire: You can invest in a traditional or Roth IRA for a minimum of $5. The requirements are the same as investing in an IRA through a brokerage, as specified by IRS income restrictions and contribution limits.
StashLearn: Stash’s education component is free to all on the app’s website. You can find articles on topics varying from basic personal finance to more technical investing advice.
Banking: Stash also moved into the banking business with Stash Checking, a checking account powered by Green Dot.
Custodial: Custodial accounts allow parents to open investing accounts for children under the age of eighteen.
Stash offers access to more than one hundred investments, including ETFs and individual stocks. ETFs have been categorized with “Stash-ified” names to make it easier for you to understand what you’d be investing in. For example, “Social Media Mania” provides holdings in social media companies. Stash also offers information about the fund manager and the risk tolerance. For example, the “Blue Chip” fund is made up of some of the biggest companies in the United States (e.g., Apple, Facebook, Microsoft); it’s a conservative fund that’s managed by Vanguard. You can also invest in fractional shares of individual stocks. (Fractional shares are explained in chapter 7.)
$1 per month with no commission on accounts under $5,000 for Stash Invest and $2 per month for Stash Retire.
0.25 percent per year of the portfolio for accounts of $5,000 or more. (Example: a $10,000 account would be charged $25 annually.)
Similar to Robinhood, Stockpile is for investors who want to add individual stocks to their portfolio or to gift stocks to others.
Investments: You can purchase or gift (with gift cards) fractional stocks and you can also purchase ETFs. You can also set up a recurring deposit into your investments to buy more shares and reinvest dividends when applicable.
Custodial accounts: Parents can gift their kids fractional shares in their favorite companies.
There are more than 1,000 stocks and ETFs in which you can invest, but the entire market is not at your disposal. If there’s a small, niche company in which you want to invest, then you may need to go through a larger brokerage.
It costs $0.99 to buy a stock and the same price to sell if you purchased it with cash from your account. There is a 3 percent fee if you use a credit or debit card.
No monthly fees or minimums.
Purchasing a gift card is more expensive because you’re covering the trading commission and fees for the recipient: $2.99 for the first stock + $0.99 for each additional stock + 3 percent for credit or debit card fees (so the recipient doesn’t have to pay anything when redeeming the gift card).
It’s really easy to look at a fee like $1 per month and think, “Pshh, that’s nothing!” In the scheme of what $1 can normally buy you, yeah, it sounds like a great value. However, you still need to consider how fees can eat away at your returns. If you’re only investing a tiny bit of money each month, then $1 can represent a significant portion of your portfolio and diminish or completely negate your actual returns.
For example, if you only invest $5 per month, that’s $60 per year before any compound interest. Even if an 8 percent return is compounded monthly, you would at best add about $2 to your investments. The $12 (i.e., $1 per month) you paid in fees just ate away all your returns. Now, if you put something like $25 into your account per month, you’re going to come out ahead. It doesn’t take a huge chunk of change to reap the rewards, but it needs to be more than just a few bucks a month. Krieg noted that the average person using Auto-Stash puts away $25 a week. That’s $100 a month!
There may not be additional trading fees or commissions, but you’ll still have to pay an expense ratio* on any fund in your portfolio. Your app doesn’t usually cover that cost for you. It’s often already reflected in the price you see when you make the purchase, but it’s important for you to know that you are still paying an expense ratio. Using an app to invest isn’t a way to bypass an expense ratio on an ETF.
As with any relatively new technology, there are always going to be misconceptions about capabilities. Acorns, for instance, was launched in August 2014, and Stash was founded about six months later, in February 2015. Barrett of Acorns and Stash’s Krieg hope to correct some of the misinformation.
Addressing the claim that Acorns is “a starter app,” Barrett concedes that “it’s a very simple interface, but the machinery behind it is quite complex. So, we have five portfolios to keep it simple, but we invest across seven exchange-traded funds that have more than seven thousand stocks and bonds. And we’re always recalibrating based on market movements. It’s based on modern portfolio theory; it’s actually pretty complex. I’ve been investing for a while now, and [I] invest in a lot of different things, and I have a good chunk of change in Acorns because it’s just a smart portfolio, and it’s fractional investing. You’re spreading the risk. We’re not the only app that does fractional investing, and we’re not the only one that rebalances your portfolio or reinvests your dividends, but I think the combination of those three things and the roundups and making it so effortless to continue to put a little more in each month is an unusual combination.”
“I hear people say, ‘Well, if you don’t have a lot of money, you shouldn’t be investing,’” says Stash’s Krieg. “That’s fine for wealthy people to think, but it’s not true. If you consistently make a habit of saving and investing and you do it on a regular basis, over the long run, it works. There are so many people missing out on an opportunity by not doing it. Small amounts of money do add up, and some people just don’t see it. They think you have to be rich to start. The other thing I think about a lot is the data on how the Millennial generation is missing out on such a huge opportunity because they’re afraid of the stock market and afraid of investing. There’s a lot of data on how many millions of dollars they’ll be missing out on in retirement by not saving. You can start when you’re really young.”
We rely on apps for a lot these days. Much of our lives has been streamlined with the use of technology. Everything from transportation to ordering food to documenting our thoughts is all done via our smartphones. But should such a critical piece of your financial life be something you’re doing with the touch of a button?
“I think it’s dope,” says Ashley Fox, financial education specialist and founder of Empify. “People are coming up with a million unique ways to get people to invest, but they’re using the emotional way. Let’s consider the 401(k). People don’t think about the 401(k) because they never [see] the money. They’re still investing, but because they didn’t see the money first, they don’t feel like someone is taking it from them. [Apps] are dope because it unconsciously allows people to build wealth gradually.
“I talked to someone the other day, and he said, ‘I only have a couple dollars, I can’t invest because it won’t make a difference.’ I said, ‘Okay, if I [gave] you a dollar a week, for the next twenty years, would you take it?’ and they say, ‘Yeah!’ I ask why. He said, ‘Because it’s money, and over time, I’ll have a lot of money.’ I said, ‘Okay, but you just told me a dollar was pointless, so now you’re telling me a dollar actually matters to you.’
“We have to remove the ‘Oh, this is only a little bit or it’s not enough.’ Because it’s not as simple as ‘Hey, you need to invest, go do it.’ Sometimes we need to do these emotional things that trick us into unconsciously building wealth, and I think that’s a great way to do it.”
Jill Schlesinger would prefer you to consider investing as just a part of life, like health—and we gamify health with tools like step trackers. “Anything that gets you going, do it! Anything,” she says.
Schlesinger does point out that you need to do more than just opting in to options like rounding up, but acknowledges it can be a helpful first step.
I engage in a really quirky savings strategy: I save $5 bills. Each time I pay for an item in cash and get a $5 bill with my change, I go home and put that bill in a jar. It’s a silly savings strategy I read about once and decided to try. Within a year, I’d saved about $1,000 I probably wouldn’t have had otherwise. Now, this isn’t my main means of saving, of course. It’s just an additional challenge I use to level up my savings goal. All the $5 bills I saved went right into my honeymoon fund.
Just putting a few dollars into a micro-investing app is the same thing as my $5-bill-saving gimmick. It’s a nice addition, but not enough to be your core strategy.
Getting started is important, but eventually you also must put in the effort to level up, which isn’t hard to do with these apps. You could be building genuine wealth using a micro-investing app because most of these apps make it possible for you to do so right in the app with automatic contributions, but you have to take the initiative. Investing your spare change alone or putting aside five to ten dollars a month alone is not going to accomplish your wealth goals.
Now, if an app is something you’re using for that little bit of extra edge, in addition to contributing to your 401(k) and putting automatic contributions into a taxable account at a brokerage—then, by all means, you do you. But if you’re using an investing app as your main means of building your portfolio, then it’s on you to contribute more than a few dollars a week, especially as your financial health gets stronger and stronger. Just like how you’d need to proactively contribute each week or month to a regular brokerage or robo-advisor account.
☐ Research the different app options available and decide which one is the right fit for both your style and your current investing needs.
☐ Take advantage of all the education platforms and tools available to you within the app.
☐ Do the math on costs. If you’re only investing minute amounts of money, then you’ll see even a small fee of $1 can quickly eat away at your returns.
☐ Don’t just rely on gimmicks and gamifications within the apps. Set up recurring deposits to make sure you’re actually starting to build wealth.
☐ Password-protect your smartphone and the app! You have sensitive personal and financial information on your smartphone. Make it at least a little bit more difficult for others to gain access by password-protecting both your phone and the app (using fingerprint identification or whatever new technology allows you to level up protection).