Should You Try Micro-Investing? How to Start

Micro-investing means using small amounts of money to build your investments. Learn how it works and how you can get in on it.
By Anna Baluch

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A woman uses an ATM to withdraw money from her account

By investing, you can build wealth and put your money to work. It’s the key to long-term financial security.

If you’d like to invest but don’t have a lot of money at your disposal, micro-investing is certainly worth considering. It can allow you to invest small amounts of money that may eventually turn into thousands or even tens of thousands of dollars.

Micro-Investing Explained

Often, traditional investing platforms come with high investment requirements and hefty fees. With a micro-investing app, however, you can round up your purchases (typically to the nearest dollar) and use the spare change to build up a diversified portfolio.

While micro-investing apps vary, most of them allow you to set up recurring transfers from your bank account to your investment account. Most of them also charge a flat monthly fee or a percentage of your account balance and offer a variety of educational resources about personal finance.

Let’s say you spend $2.54 on your morning coffee every morning. A micro-investing app can automatically round up this purchase to the nearest dollar and transfer $0.46 to your portfolio. If you happen to have extra money on hand because of a birthday or an unexpected bonus, for example, you can contribute more to your portfolio.

You may use a micro-investing app to get in the swing of investing and save up some money until you have more disposable cash available. Or it can serve as an account to help you save for a smaller financial goal like a new car or vacation.

Learn about and compare some of the top robo advising and brokerage apps for investing.

How to Start Micro-Investing

If you’re ready to pursue micro-investing, follow these steps.

Do your research

Not all micro-investing apps are created equal. While many of them are similar, there are slight differences among them. Shop around to find out about the various apps out there. Compare the features and pricing of each so you can determine the best one for your unique situation. Don’t hesitate to reach out to the app directly for more information and read reviews before you make your decision.

Create an account

Once you decide which app you’d like to use, download it to your smartphone or other mobile device and create an account. You’ll likely need to share some basic information such as your name and email. You might also be required to complete a short survey that reveals your financial situation and micro-investing goals.

Link to a debit card or bank account

Next, the app will ask you to link your account to a valid debit card or bank account. This way it will know which purchases to automatically deposit into your investment fund. It’s important to note that some apps will use a fractional investing strategy and let you buy affordable, fractional shares of stock instead.

Let the app do the work

Most apps act like robo-advisors or online brokers and invest your money in a predetermined portfolio. If you don’t agree with it, you can typically choose a different option. But keep in mind that you might not be able to choose individual stocks or other assets.

Is Micro-Investing Safe?

You may be wondering whether it’s safe to link your accounts and personal information in an app. Fortunately, most micro-investing apps are safe. To ensure an app is safe to use, be on the lookout for these features.

  • SSL Encryption: The app (and the website) should be secured with 256-bit encryption. This level of encryption means that your personal and financial details can only be accessed by you and the app itself.
  • Account Alerts: Account alerts will notify you in the event of suspicious or unusual activity in your account. These alerts can give you some much-needed peace of mind.
  • Account Security: Ideally, the app will log you out automatically when you’re done using it. It may also have an ID verification feature to prevent unauthorized access.
  • FDIC-Insurance: Many reputable apps offer Federal Deposit Insurance Corporation or FDIC insurance for up to $250,000. This means the FDIC will protect your money in the event of bank failure.
  • Bank-Level Security: Bank-level security means your personal information is protected with the same technology banks use. A micro-investing app should include this high level of security.

Dos and Don’ts of Micro-Investing

Before you move forward with your micro-investing journey, it’s a good idea to familiarize yourself with these dos and don’ts.

Dos

Do Build an Emergency Fund First: Before you start micro-investing, make sure you have an adequate emergency fund saved up. It should be enough to cover three to six months’ worth of expenses. With an emergency fund, you’ll be prepared for unexpected expenses like car repairs or medical bills.

Do Use Other Investing Strategies: If possible, do more than micro-invest. You may want to contribute some money to a 401(k) or a Roth IRA, for example. This way you can really make some serious headway with your investing goals.

Do Be Patient: With micro-investing, you won’t see results overnight. That’s why it’s important to be patient and wait for your money to slowly but surely go to work for you.

Do Explore Additional Services: Many micro-investing apps offer add-on services for an extra cost that you might find helpful. You might be able to work with a financial advisor or get access to a tax-advantaged retirement account.

Don’ts

  • Don’t Expect Significant Income: Micro-investing is not an easy way to get rich. Since it depends on investing small amounts of money, you should expect your returns to be small as well.
  • Don’t Forget the Fees: Unfortunately, micro-investing comes with fees that you should consider. These are typically monthly fees that may defeat the purpose of using the app, especially if you’re only able to contribute a few bucks to your account each month.
  • Don’t Rely on Micro-Investing for Large Goals: Since micro-investing probably won’t leave you with large returns, understand that this strategy won’t help you retire or pay for your child’s college. It should be reserved for smaller financial goals.
  • Don’t Be Afraid to Move On: Once you get the hang of investing and earn more money, you may want to allocate your funds elsewhere instead. You don’t have to continue with a micro-investing app forever.
About Author
Anna Baluch
Anna Baluch has been writing about personal finance for more than seven years. She has written extensively on personal and student loans, mortgages, debt relief, auto financing, budgeting, banking, and more. Anna was featured on the "Burn Your Mortgage" podcast in July 2019, where she discussed how she paid off her mortgage in just 16 months. Anna's work has appeared on well-known personal finance websites including LendingTree, Business Insider, Credit Karma, Experian, Freedom Debt Relief, Rocket Mortgage, Policygenius, U.S. News & World Report, American Express, and more.