Micro investing can be a great way to start investing when you don’t have much savings. We’ll help you understand the basics of micro investing and show you how to turn your spare change into thousands of dollars over time.
Many people think of investing and the stock market as activities for the rich. The old adage “it takes money to make money” reinforces this idea, but you may be pleasantly surprised to learn that you can start investing with just a few dollars a week.
Micro investing involves saving small amounts of money, like spare change, and consistently investing it in the markets through ETFs or fractional shares. Over the long term, even small amounts of money can turn into tens of thousands of dollars if invested wisely.
Here’s how to get started with micro investing.
Basically, micro investing allows you to invest your savings even if you don’t have much savings to speak of. Skipping small purchases that have become a habit or rounding up your expenses to the nearest dollar can help you get started. Personal finance apps even offer debit cards that automatically round up your purchases and invest the extra money in ETFs or fractional shares.
With some well-known companies selling for over $2,500 a share, it can take time to save enough to buy just one share. Fractional shares allow you to invest before you can afford a full share.
This approach of consistently investing your savings in the stock market over time has proven profitable in the long run. Investing a fixed amount each week or month is known as dollar-cost averaging, which eliminates the decision of timing the market. Consistent purchases mean you’ll buy more shares when prices are low and fewer shares when prices are high. With dollar-cost averaging, you’ll buy over time and average out your purchase prices.
Low Minimum Investments: Micro investing allows you to start investing even if you don’t have a lot of money to invest. For just a few dollars, you can start investing in ETFs and fractional shares, which is not possible with more traditional investments like mutual funds, which typically require a minimum investment of several thousand dollars.
Diversification: If you choose to invest in low-cost ETFs that are tied to broad market indices, you can build a diversified portfolio for just a few dollars a month.
Small Amounts Add Up: Consistently contributing even small amounts of money to an investment account can add up over time, potentially turning your extra change each week into tens of thousands of dollars over decades.
Automated Investing: Micro investing helps automate the investing process, allowing people to stick to their plan in good times and bad.
Makes saving a habit: It also helps to develop the habit of saving money early in your investing life, even if you can only put aside a little extra money.
Won’t Get You to Your Retirement Goals: While microinvesting can be a great way to start investing, especially if you’re young, it’s unlikely to result in the kind of savings that will lead to an easy retirement. You’ll also need to save more to reach that goal through your employer’s retirement plans and tax-advantaged contributions.
You need to save more than just change: Most experts recommend setting aside 10 to 20 percent of your income for retirement planning and an emergency fund, so if you can only put aside a few dollars a month, you may need to rethink your budget.
Fees: Microinvesting platforms charge users a monthly fee. Fees vary between plans, but the average plan charges users $3 a month. That’s not much, but if you can only put $5 or $10 a month into your account, a $3 fee will eat into your income.
Micro-investing can be a great way to start investing when you don’t have much saved. Small amounts invested consistently can add up over time if invested correctly, but you’ll need to contribute significantly more to fund your future retirement.
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