Micro-investing is becoming a popular way to start investing with small amounts. Some see it as a game-changer, while others aren’t convinced.

It’s an easy way to enter the market, but is micro-investing the best approach for building wealth over time? That depends on your goals, risk tolerance, and how you prefer to invest. Like any investment tool, micro-investing has pros and cons.

This article covers how micro-investing works, who it suits, and when it may not be the best fit. As we always say, investing involves risk, so it’s worth doing your research first.

What is micro-investing?

Micro-investing lets you start investing with small amounts, sometimes just spare change. It’s designed for simplicity and ease of use.

Most micro-investing apps invest your money in managed funds which track exchange-traded funds (ETFs), shares, or other portfolios. Some platforms round up purchases from your bank account, automatically investing the difference.

With micro-investing, you don’t need to buy full shares. Many apps offer fractional shares , so you can own a portion of a fund tracking a stock or ETF.

Fees also vary. Some apps charge a small monthly fee, while others take a percentage of your balance. It’s worth checking the cost before signing up.

For beginners or hands-off investors, micro-investing can be an easy way to get started. But is it the right fit for you? Let’s explore it further.

Who is micro-investing best suited for?

Micro-investing can be an easy entry point for some new investors. Here are a few investor types who might find it useful.

First-time investors who want to responsibly start investing

If you’re new to investing and unsure where to begin, micro-investing apps offer a simple, low-commitment way to start. You can invest small amounts, see how investing works, and gain confidence before deciding whether to invest larger sums. Since many platforms invest in diversified portfolios , you don’t need to pick stocks or worry about market trends.

People who struggle to save or invest consistently

If you have good intentions but never quite get around to investing, micro-investing can help. As mentioned, many apps let you round up your everyday purchases, automatically investing your spare change. Others allow you to set up small recurring investments, making it effortless to build an investing habit without thinking about it.

Investors with limited capital

Most traditional brokerage accounts require at least $500 to buy shares or ETFs . Some even charge fees if your balance is too low. Micro-investing removes this barrier by letting you start with just a few dollars. The ability to buy fractional shares also means you don’t need to wait until you can afford a full share of a company .

Long-term investors who prefer a hands-off approach

If you like the idea of set-and-forget investing, micro-investing might suit you. Many apps invest in managed funds that track ETF portfolios, which spread your money across different companies and industries. This can help with diversification and means you don’t have to actively manage your investments.

Those looking to build good financial habits

Investing regularly, even in small amounts, helps build discipline. Over time, these small contributions can add up. For some, micro-investing is a stepping stone toward managing larger investments in the future. It’s a way to get comfortable with investing as part of everyday life.

When might micro-investing not be worth it?

Micro-investing has its benefits, but it may not be the right choice for everyone. Here are some cases where it may not be the right fit and why it matters.

You have a small balance (under $100)

Most micro-investing apps charge fees, which can take a big chunk out of small balances. For example, a $2 monthly fee on a $50 portfolio equals 4% per month – a relatively high cost compared to other passive investment options.

Why it matters: Fees reduce your overall returns. If your investments grow 5% per year, but fees take away 4% per month, it’s harder to build wealth. With a small balance, you may potentially be paying more in fees than you’re earning in returns.

You want CHESS-sponsored investments

As mentioned, most micro-investing apps use a custodial model. This means you don’t directly own shares in your name – the broker holds them on your behalf.

Why it matters: When you invest through CHESS-sponsored brokerage accounts, shares are registered under your name. This gives you direct ownership, meaning you can transfer them between brokers, vote in company decisions, and track them under your individual investor number. So if you prefer full control, micro-investing might not suit you.

You invest large amounts infrequently

If you want to invest a lump sum once or twice a year, micro-investing may not be cost-effective. A standard brokerage account may offer lower overall costs for this approach.

Why it matters: Many micro-investing platforms charge flat monthly fees. If you invest a large amount only a few times a year, you might be paying for a service you rarely use. A traditional brokerage may allow you to invest without ongoing fees – just a one-time transaction cost.

You prefer more control over your portfolio

Micro-investing platforms typically offer pre-set portfolios, meaning you don’t choose individual stocks or ETFs. Your money is spread across a pre-designed mix of investments.

Why it matters: If you want to choose specific shares based on factors like industry trends, company performance, or personal interests , micro-investing apps might feel restrictive. Some investors prefer to hand-pick their investments instead of following an automated strategy.

You want access to advanced investing tools

Many micro-investing platforms lack features like detailed research, real-time analytics, and order types available in full-service brokerage accounts.

Why it matters: If you enjoy analysing market trends, tracking company performance, or using advanced tools to fine-tune your strategy, micro-investing apps might not offer enough flexibility. Traditional brokers often provide deeper insights and more control over buying and selling investments.

Investing is a journey – is micro-investing part of yours?

Micro-investing can make it easy to start investing, especially if you prefer automation or have a small budget. It’s accessible, low-cost, and helps build good habits.

But it’s not for everyone. Fees, limited investment options, and indirect ownership can be drawbacks. For more control, a traditional brokerage account might suit you better.

The best approach depends on your financial goals and risk tolerance. Whatever you choose, take the time to do your research and understand how your investment fits into your long-term strategy.

At the end of the day, the most important step is getting started. Every investment – big or small – can move you closer to your goals.