We tend to think of investing as requiring big bucks. But micro investing makes it possible to start even if you only have a few dollars to spare.
What is micro investing?
As you may have guessed, it’s investing in super small increments by buying fractions of shares. And it’s been gaining in popularity in recent years, allowing people to invest through micro-investing apps like (ahem) Acorns with just $5.
The concept is basically the answer to our “I can’t afford to invest” problem, which a lot of us seem to suffer from. In a survey by credit bureau Experian, only 30 percent of respondents reported investing in stocks and bonds—among those who were not investing, more than half said they didn’t think they had enough money to do it.
But investing a few dollars at a time isn’t going to make me rich, right?
True, even with the magic of compounding and decades of saving, only investing your spare change may not add up to enough to fund your major long-term goals, like retiring.
But let’s say you invest even $70 a month. Assuming an average annual return of 7 percent, you could accumulate more than $100,000 in under 34 years—e.g. when you might want a little extra cash to fund your post-work life.
It also works for smaller goals. Invest that same amount monthly and, assuming the same average rate of return, you could set aside nearly $5,000 after five years.
“Micro investing is a great way to save up for shorter-term goals,” says Justin Chidester, financial advisor at Wealth Mode Financial Planning in Logan, Utah.
Why not just wait and invest bigger sums?
The real power of micro investing is to nudge us into the markets. With an entry point as low as $5, more of us can feel comfortable investing—and once we get started, we can understand that it really isn’t so hard or scary.
As Chidester points out, we all “need stepping stones to get up to where (we) need to be.”
January 3, 2017