8 Minute Read
Micro investing apps appear to be the latest trend in the investing world. And it makes sense why so many people use them.
With a savvy investing app, you can round up your purchases to the dollar, tucking away the extra change into an investing account. If you can start your day off with a latte and a contribution to your future, why not?
It feels good – you’re saving money without even thinking about it! – but how much of an impact will that pocket change make in the long run?
Let’s take a closer look at what micro investing is, why it’s become a popular investing option, and whether or not I recommend it as part of your investing strategy.
What are micro investing apps?
Micro investing apps allow users to save and invest money in small amounts. Usually the app makes saving easy. When you connect a debit card, a micro investing app can round up your purchases to the dollar or make automatic transfers for you.
Micro investing apps allow you to invest that extra cash in stocks. Most either charge fees on trades or offer free trades until your account reaches a certain amount, like $5,000. Some examples of investing apps are platforms like Acorn, Stash, and Robinhood.
Why do people like micro investing?
Micro investing makes saving a few dollars here and there pretty easy. It’s a set-it-and-forget-it approach. It doesn’t require strategic saving; instead it makes use of spare change you might throw on your counter after work. That’s definitely low effort.
You also don’t have to have a lot to get started. You can start by investing the change leftover from your morning latte! It doesn’t get much easier than that, if easy is what you’re looking for.
Do I recommend micro investing?
You can round up your Starbuck’s purchase by a nickel for the rest of your life, and then you’ll have a handful of nickels. If you want to do that, that’s okay. But if that’s your only plan, you should prepare to be hungry at retirement.
Micro investing produces micro results.
That’s why I don't recommend it as a large part of your investing strategy.
Related: Listen to Dave’s full response
Investing for the long-haul takes intentionality and work, but starting small by investing enough to get the match in your company 401(k) will get you way further than saving handfuls of change on a micro investing app.
So if you want a retirement strategy that actually produces results, what do I recommend?
Step 1: Begin with a Firm Foundation
Instead of dabbling in micro investing with your extra dollars, channel your extra money into saving a $1,000 starter emergency fund, paying off your debt, and then building a bigger emergency fund to cover 3-6 months of expenses.
You’re not ready to invest until you’ve taken care of these first three baby steps. How can you expect to save toward your future when you’re still paying for things you purchased months or years ago? Paying off debt frees up your biggest wealth-building tool: your income! Instead of squirreling away your loose change, you can actually work toward saving 15% of your income toward your future.
And why is having a healthy emergency fund so important? Consider this: 69% of Americans have less than $1,000 in savings.(1) Surprise expenses, like a car repair or a broken water heater, happen to all of us. Having an emergency fund means that you can cover those emergencies without having to dip into your investments or go into debt.
Step 2: Stick with a Simple Investing Plan that Works
I recommend investing 15% of your income toward retirement savings. Here’s how to get started:
- Start with your workplace investing options. If you get a company match on your 401(k), take full advantage of it! Invest up to the match. That means that if your company offers a 100% on your contributions up to 3%, invest at least 3%.
- If you have a Roth 401(k) option with good mutual fund options, you can keep increasing your retirement contributions until your reach your full 15% in your Roth 401(k). With a Roth 401(k), you can take advantage of your company match, if available, as well as tax-free withdrawals after you retire.
- If you have a traditional 401(k), invest up to the match and then talk to your financial advisor about opening a Roth IRA. A Roth IRA is a great addition to your 401(k) because you have more mutual fund options and won’t owe taxes on the money you withdraw in retirement.
Step 3: Keep a Long-Term Perspective
Micro investing may be a sprint for short-term savings, but you can’t count on it for long-term investments. According to a study by the Transamerica Center for Retirement Studies, American workers across the generations have a variety of retirement dreams. Sixty-five percent of workers cite dreams of “traveling” – the most popular choice -- followed by “spending more time with family and friends” and “pursuing hobbies.”(2)
If you want to bring your retirement dreams to life, you need a nest egg. And not a micro-nest egg.
The great news is that the earlier you get started, the more time you have to put your money to work. That’s the power of compound growth! Here’s what that could look like for you:
Let’s say you’re 30 years old, making the average household income of around $59,000.(3) You decide to invest $500 per month in your retirement accounts. That comes out to just over 10% of your income every year. If you retire at age 67, you could have over $2.1 million in your retirement savings.
That sounds pretty great, right? But it gets even better. Of that total $2.1 million, your contributions only make up around $220,000. That means that 90% of that total didn’t even come from your own pocket – it came from compound growth!
Check out this video to see how Jason from San Antonio, Texas, became a millionaire from consistently investing year after year.
That should get you excited about investing for the long haul!
Step 4: Get Involved in Your Investment Plan
Micro investing may be fun, but it won’t get you any more than chump change. If you want a confident retirement future, you need a plan.
It’s normal to feel a little overwhelmed when it comes to planning and saving for your future. In fact, a Fidelity study of their NetBenefits participants found that 77% say they do not have the time or investment knowledge to feel confident in their investment decisions.(4) That’s why we always recommend partnering with a pro. It doesn’t matter if you’re new to investing or if you’ve been doing it on your own for years; it’s never too late to benefit from the guidance of an expert.
You want a future you can count on, and working with an investing pro is the first step toward setting your wealth-building goals and reaching them. Even I work with a financial advisor!
You’re looking for a true expert who takes the time to help you understand your options so that you’re empowered to make confident investing decisions. An investing professional can help you make smart investing decisions over the long haul, whether the market is good or bad.
Wondering where to start? Our SmartVestor program connects you with recommended financial advisors in your area. Your future deserves more than a strategy with micro results. Work with a pro who can help you learn about your investments and reach your financial goals.
Find an investing pro today!
About Chris Hogan
Chris Hogan is the #1 national best-selling author of Retire Inspired: It’s Not an Age. It’s a Financial Number and host of the Retire Inspired Podcast. A popular and dynamic speaker on the topics of personal finance, retirement and leadership, Hogan helps people across the country develop successful strategies to manage their money in both their personal lives and businesses. You can follow Hogan on Twitter and Instagram at @ChrisHogan360 and online at chrishogan360.com or facebook.com/chrishogan360.
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