Find out if Micro Investing is right for you as we detail its pros and cons.
What is the Concept of Micro Investing?
Micro investing is simply investing very small, or micro, sums of money over time with the goal of growing that money through a slow accumulation of earnings and contributions. Two of the main Micro Investing companies are Acorns and Betterment. Acorns provides a service that rounds up your spending to the next dollar and invests the rounded-up portion into stocks and other investment products. Betterment is a service that robotically invests your money for you and has a minimum starting balance of only $1.
Benefits of Micro Investing
The first benefit of Micro Investing is that you get to build the habit of investing automatically without having to consciously make the choice to do so, which helps those who procrastinate or are hesitant to invest to get in the game and start preparing for their financial future. It also helps those who like to test out the financial markets by not forcing them to invest tremendous sums of capital while testing out their investing strategy. It used to be that these small investors were excluded from the long-term money-making game, but now with these micro investing products these barriers to entry have been eliminated.
Drawbacks of Micro Investing
While there are many unique benefits of micro investing, there are also some drawbacks that potential investors need to consider and plan for before getting into the world of micro investing. The first drawback to it is that it produces small returns due to its “micro” nature. If investors aren’t careful, the simple process of engaging in this style of investing can give them a false sense of security that they’re doing something by participating, when in reality it takes far more than micro investing to build a sustainable retirement portfolio. Investors need to consider what they’ll actually need for retirement, and make a plan that involves more than just micro investing. The next drawback is that you’re outsourcing your wealth management to a third party, which takes control out of your hands. Finally, the micro investing landscape is in its infancy, so it hasn’t yet proven that it will stand the test of time.