Why Micro Investments Aren’t All They’re Cracked Up To Be

Why Micro Investments Aren't All They're Cracked Up To Be

Once you make the decision to start investing, one question that usually pops up is: how to get started.

Exploring different investment options might lead you to the relatively new concept of micro investments. While investing for your future is a wise choice to make, micro investments might not necessarily take you where you want to go. They sound cool, but they aren’t all they’re cracked up to be.

Alone, They’re Not Enough

Retirement investing is a good thing. However, micro investments alone may not give you enough of an investment to have a substantial impact on your future expenses.

The idea behind micro investments is that by investing small amounts of money on a regular basis, such as spare change with Acorns, you can still invest for the future. You simply link your debit or credit card to an app that rounds your purchase to the nearest dollar and then invests the spare change into a pre-determined diversified portfolio of funds.

Investing in small amounts sounds like a good thing when you don’t have a lot of money to start investing, but if you only end up with $10.00 or so invested each month, you aren’t going to have a large enough investment portfolio to cover your retirement expenses.

Taxable Now or Later?

Acorns is a micro investment company that has become popular amount the younger population. But one drawback to using Acorns is that the investments you make with Acorns are taxable where other investment options, such as 401K’s, are tax-deferred.

The Fees can be High

On the surface, a $1 flat rate monthly fee seems fairly reasonable. However, if your monthly investment is only $10, that’s a 10% fee, which is pretty steep. Of course, as you make more purchases your investment grows and your fee percentage drops, but since the whole idea is to invest in small amounts, those fees are actually quite high.

Fees with robo advisors, like Betterment, are quite a bit lower percentage wise than the fees with micro investments companies. But the best way to save on fees is to take a DIY investing approach.

Limited Investment Choices

The investment portfolios are preset and there are only a few options to choose from with micro investing companies. This limits your flexibility in choosing which funds your investment money is applied to. So, if you wanted to choose the investment funds for yourself, you will be disappointed because that is not an option.

You Can Incur Loses

There is no guarantee your micro investments will grow, and in fact, you might even lose money. The funds your money is invested in can increase and make you money, but sometimes they have losses. On top of that, the money is not usually FDIC insured. Of course, this is a drawback that applies to almost all types of investing.

Before tossing out your piggy bank and throwing all of your loose change into micro investments, research all of your investment options and find out the good points and the bad. Remember, investing is not a get rich quick scheme.

What do you think of micro investments? Are they worth it?

Kayla S

Kayla is a personal finance blogger in her mid-20s who loves to write about money topics of all kinds.

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