Minimalism. Tiny homes. Toy dogs.

Our obsession with miniature things actually has a biological root—but that doesn’t mean all things small are good. Or does it?

In the last decade, “micro-investing” has taken the FinTech world by storm, with new apps that make it possible to invest small sums of money.

Wondering if micro-investing is worth trying out? Below, we explain what exactly it entails, what platforms exist, and what important things you should consider before signing up for micro-investing.

What is micro-investing?

For the uninitiated, micro-investing is the process of investing small sums of money—think $5 or $10—often through ETFs or fractional shares of stock. People often micro-invest using an app. Some apps automate the process, moving funds from your bank account or paycheck to an investment account on a regular schedule.

Micro-investing is a relatively novel concept that’s changed the personal finance game by making investing accessible to more people. For example, people who lack the money to meet a fund’s minimum investment (the smallest amount required when investing in a specific security, fund, etc.) can begin micro-investing asap with just a few dollars.

And for any personal finance beginners intimidated by investing, micro-investing feels a lot more manageable and user-friendly than traditional brokerages. In this way, micro-investing offers a light introduction to principles like compounding growth and long-term returns from investing.

Popular Micro-investing Platforms

Below are a few well-known platforms for micro-investing. Note that some, not all, allow automatic investment.

• Acorns: An app that rounds up your purchases to the nearest dollar and invests the difference in a diversified portfolio of ETFs. For instance, if you spend $5.35 on a coffee, $0.65 will automatically get invested. Besides micro-investing, Acorns now also offers checking account services.
• Stash: An app that allows users to invest in a variety of stocks, ETFs, and bond funds with as little as $1. It also offers educational resources and tools to help users learn about investing.
• Greenlight: Intended for kids, Greenlight is as much of a financial literacy tool as it is an actual investing platform. Users can invest with as little as $1.

Can you make money micro-investing?

Over time, micro-investing could mean investing hundreds, even thousands, of dollars per year—and potentially strong returns as a result of those investments. However, this ultimately depends on the amount of money actually getting invested.

Micro-investing apps that automatically invest spare change give users a sense that they’re investing their extra dollars responsibly. This is true—to an extent. It might be that at the end of the year, your invested spare change totals no more than $300. But then you’ll also have to factor in any fees your micro-investing app of choice charges. A $2 monthly fee brings down your total investment to $276.

In this way, micro-investing may provide a false sense of financial security.

Micro-investing certainly generates returns from compound interest, but in most cases, it won’t be enough to fund retirement. With only small amounts of money getting invested, your micro-investing gains will be fairly limited. For meaningful returns, you’ll need a more proactive saving and investing strategy.

Additional Considerations

Limited investment options

Some micro-investing platforms may offer a limited range of investment options. For instance, the app Acorn does not allow investors to buy or sell individual stocks. This may limit your ability to diversify your portfolio and potentially increase your risk of loss.

Monthly/annual Fees

Micro-investing platforms charge monthly or annual fees. That may be a set amount per month, e.g., $2 or $3, or a small percentage of your investment total, like 0.025%. While these fees seem low, they’re actually quite high if your total balance is low.

Example: A $2 fee for investing $25 amounts to an 8% fee.

If you’re considering a micro-investing platform, be sure to review the fees in comparison with the amount you’d like to invest.

Short-term thinking

Micro-investing may encourage a short-term perspective, as it involves investing small amounts of money on a regular basis. However, it is generally recommended to invest for the long-term in order to give your investments the opportunity to potentially grow and compound over time.

Micro-Investing vs. Traditional Investing

Struggling to imagine the long-term impact of micro-investing? Consider the following scenarios.

Micro-investing:

• You generate about $300 in spare change over the course of a single year and decide to go with an app that automatically invests your spare change. The app charges $2 per month, so at the end of the year, you’ve invested $276. If you continue to use this app while generating the same amount of spare change over 10 years, that’s $2,760 of your money. If your investments saw a 7% return, you’d have around $3,934 after a decade.

Traditional investing:

• Through calculated budgeting, you set aside $250 per month to invest through a brokerage firm, which totals to $3,000 over the course of a year. If you continue to invest this amount over 10 years, that’s $30,000. If your investments saw a 7% return, you’d have around $42,762 after a decade.

Granted, you’ll also see fees with a traditional brokerage firm, but the bottom line is that larger, meaningful investments will general go further than the smaller sums used in micro-investing.

Is micro-investing worth it?

For anyone new to investing or personal finance, micro-investing offers a solid introduction. It’s far less intimidating than traditional brokerages in terms of usability. More importantly, it encourages consistency when it comes to investing.

However, like any other investment strategy, micro-investing carries inherent risks. It’s not guaranteed to be profitable.

In the end, we advise using micro-investing apps if you’re a personal finance beginner. Use these platforms to develop familiarity with investing—but don’t rely on them completely as your main vehicle for retirement savings. Instead, make micro-investing apps just one piece of your larger investment strategy—not its focal point. To reach big financial goals like buying a home or retiring, consider a more thoughtful and proactive investment strategy with more than your spare change.