Do you have a new piece of technology that you just can't put down? Maybe it's the latest new phone or gaming system. Not only is there new technology for entertainment, but there is also new technology for investing.
One way investing has changed with technology is by the introduction of investment apps. Investment companies have been trying to focus efforts on getting the younger generation to invest. Some think that you can only invest if you have a ton of money. As a result, micro-investing was created with the goal of encouraging people to invest even with limited income. Micro-investing is investing in small increments by buying fractions of shares. There are micro-investing apps that allow you to round up your purchases to the nearest dollar and then the app invests the difference for you. How does micro-investing work?
Micro investing allows you to invest small amounts, including pennies, while eliminating transaction fees and investment minimums. You don't need to save up $100 to buy stock and then pay a brokerage fee. Instead, you pay a nominal fee such as $1 per month and the micro-investing platform invests your money in a partial share of stock with many other investors. Micro-investing relies on regular investments of small amounts over time. The money is invested in an exchange-traded fund. An ETF is a group of single stocks or bonds sold in a single fund. ETFs are like mutual funds, as they offer a way for investors to pool their money in a fund.
If micro-investing is so easy, why doesn't everyone do it? There are advantages and disadvantages to micro-investing. Review the boxes below to learn more.
Advantages
- Investments are diversified in exchange-traded funds (ETFs).
- Micro-investing helps you get started investing with less money.
- There is no account minimum.
- Fees are lower.
- It's easy to use.
Disadvantages
- You have limited account options.
- Micro-investing is not good for those who want to invest large amounts or invest in individual stocks.
- High fees are charged for large accounts.
Use your knowledge of micro-investing to answer the question below.
Your friend Renzo wants to start investing. Would you recommend he use a micro-investing app? Why or why not?
Micro-investing is good for those who have a small amount of money to invest because there are low fees and no account minimum. The disadvantage is that eventually you may be able to afford more and then it would be better to invest in a retirement account or utilize a broker to help with longer-term investment goals.
