How to grow your wealth with micro-investing

Micro-investing is widely thought to be one of the fastest-growing investment markets. Yahoo Finance reports that platforms are expected to reach a market value of more than $36.1 billion and a compound annual growth rate (CAGR) of 9.6% within the next six years.

This investment approach aligns with the modern economic climate and involves small investment values that can be as inconsequential as the cents rounded up from an everyday transaction. Rather than tossing small change into a wallet or drawer, micro-investors capitalise the value of these minimal values by using it to invest.

As a tool to help thousands of younger adults grow their wealth over time and put their finances to good use, the concept has attracted significant traction, particularly with millennials who find the simplicity of investing via their phones a streamlined, pain-free way to improve their long-term financial prospects.

Micro-investing explained

Bankrate explains that micro-investing isn’t for mega-rich investors or affluent fund managers but rather a way for normal people to tap into the power of the financial markets and educate themselves in the process.

The vast majority of people assume that investing isn’t for them, because they don’t have the capital assets or liquid funds to make considerable investments and may presume that precludes them from using even minor amounts of expendable income to invest for the future.

Options for those interested in micro-investing include:

  • Bank debit cards that automatically round up transactions to the next Rand and invest the difference in your chosen funds.
  • Phone-based apps that perform the same function and invest cents into your chosen type of investment product.
  • Subscription services that deduct your specified value from your account for reinvestment each week or month.

Some micro-investing services offer dual functions, providing portfolios that balance your desired risk exposure or offering fixed-rate or minimum interest on cash balances, putting even the smallest amounts of passive income to good use.

A lot depends on the product or provider you choose. Still, you can open a micro-investment account linked to your bank account, round up purchases, or set a defined amount you feel comfortable investing on an ongoing schedule.

Guidelines for micro-investors

Those new to micro-investing often think of it like putting their spare cash into a piggy bank—but one that has the potential to grow without the significant barriers to investment that exist in conventional investment markets. A recently published guide from South African Fintech Wonga defined the benefits of micro-investing as follows:

  • Accessibility: Anyone, even those without extensive financial literacy, can micro-invest with apps available via any mobile or internet-connected device.
  • Low barriers to entry: Minimum investment amounts are low and flexible.
  • Diversification: Investors can diversify by picking asset classes in various markets or locations.
  • Education: Platforms offer educational resources to improve understanding.
  • Automation: Apps with automated features stimulate ongoing savings or investing habits without time pressures.
  • Growth opportunities: Small, invested values can grow significantly due to compound interest.
  • Engagement: Micro-investors can participate in online and real-world communities, adding a social and support aspect.

However, it remains essential that micro-investors are cautious of the risks, which are an inherent part of any investment project, fund or account. While minimum investment values are low, the yields on offer also tend to be fairly small – which means a savings account could potentially be more profitable, depending on the amounts you expect to contribute.

Likewise, micro-investing products normally have low fees but aren’t comparable to large-scale and high-value investment funds, which have numerous account options and structures.

A final word of warning is that, although micro-investing is set to be ground-breaking in opening up the opportunity investment offers to millions of households, fund management fees remain a reality. It is important to keep an eye on the administrative or transactional fees linked to any micro-investment account to be sure the effort and financial contributions you’re making are worth the cost.

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