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Intro to Micro-Investing: Small Investments Made Easy

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

If you’re new to the world of investing, it can be intimidating and kind of scary. The word “investing” may conjure up images of wealthy people in suits managing millions (or billions) of dollars. When you have just a few dollars (or less!), joining that world might seem impossible.Micro-investing can help level the playing field. Rather than needing to come up with a fortune, you can get started by investing with just your spare change. Sound too good to be true? Learn how micro-investing works and determine whether or not it’s a smart bet for you.

What is micro-investing?

Many banks and financial institutions offer a number of ways to invest. However, their accounts often have high minimums to get started. For example, if you want to open an IRA with Vanguard, you’ll need at least $1,000 in cash. A number of Vanguard mutual funds actually require a minimum initial investment of $3,000. For many, coming up with that kind of money in one lump sum isn’t realistic.

For people with a small income or who don’t have much money in savings, micro-investing is a gateway to the stock market. Micro-investing is when you invest tiny sums of money on a regular basis, rather than investing hundreds — or even thousands — of dollars at once.

Micro-investing apps typically work by investing your extra money, often in the form of spare change. Your app account is synced with your debit or credit cards. Every time you make a purchase, such as groceries or your morning coffee, the app rounds the purchase price up to the next full dollar and invests the difference.

For example, if you bought $36.15 worth of groceries, micro-investing apps would round your purchase up to $37 and invest the extra 85 cents for you. While the invested amounts are negligible — you may not even notice the difference — these small amounts can add up over time, helping you build a nest egg.

Why micro-investing is so popular

It’s easy to see the appeal of micro-investing. According to Karl Kaufman, founder and CEO of American Dream Investing, micro-investing is an easy way for young investors to get started.

“A lot of self-starting millennials know they need to get started investing somehow,” he said. “Micro-investing apps are very easy, the apps are right on your phone, and you can check on your account at any time.”

And for beginning investors who are overwhelmed by the stock market, micro-investing apps can make it simple and effective.

“[Most apps use] good exchange-traded funds (ETFs) that are set up by professionals,” says Kaufman. “There are different portfolios available based on risk assessments that are helpful for first-time investors.”

Micro-investing apps often allow you to buy a fractional (or partial) share, rather than needing to save enough to buy a whole share on your own. That allows you to start investing — and start earning — sooner. Plus, you can set it and forget it. Once you sign up for an account and sync it with your bank or credit cards, the app will automatically invest your money for you.

5 popular micro-investing apps

If you’re interested in getting started with micro-investing, there are several options available to you. Here are five of the most popular micro-investing apps and services.

Acorns

With Acorns, the app links to your debit or credit card. Whenever you complete a transaction, the app rounds up the amount and deposits your change into a portfolio (of ETFs).

Depending on your risk tolerance, there are different portfolios available, from conservative to aggressive. If you don’t know which portfolio is right for you, Acorns will provide recommendations based on your age, target retirement date, and risk tolerance.

There are no minimum account balances or commission fees, and you can start investing with as little as $5. However, there is a monthly $1 fee and a management fee of 0.5%.

Robin Hood

Robin Hood is an app that offers zero-commission stock trading. It has a simple and easy to use design that allows you to sync it with your bank account and make recurring deposits.

You can shop for stocks and sell shares directly through the app. Each day, the app will show you how much your investments have grown or decreased. When you’re ready to withdraw money from your investment account, you can easily transfer the funds to your bank.

Stash

Like Acorns, Stash allows you to start investing with just $5. You can set up regular transfers, and the app will even track your spending habits, helping you find extra money to invest.

Stash guides you through a series of questions about your financial goals and risk tolerance to determine what ETFs might make sense for you.

However, you should know that Stash charges a $1 monthly fee for regular investment accounts and $2 per month for retirement accounts with balances under $5,000.

If your account has over $5,000 on it, you’ll be charged a fee that is 0.25% of your monthly average balance.

Stockpile

Stockpile allows you to choose from more than 1,000 stocks and ETFs. There’s no minimum contributions or monthly fees, and each trade is just $0.99. Stockpile allows you to buy fractional shares, so you can get high-priced stocks like Amazon without having to save enough to buy a whole share. That perk allows you to own pieces of valuable stocks with only a small cost.

Clink

With Clink, the app sets aside a fixed percentage of your recreational expenses by tracking your credit card transactions. The extra money it identifies is invested in low-risk portfolios. You can also decide to contribute a certain amount of money each month to boost your investments.

If your balance is under $5,000, it costs $1 a month to use Clink. Balances over $5,000 cost 0.25% a month, so make sure you account for those fees before you sign up.

Is micro-investing worth it?

Micro-investing can be a good way for beginners to enter the stock market.

“It’s better than nothing,” said Kaufman. “If you’re going to leave cash in a savings account getting 0.01% interest or if you haven’t invested at all, micro-investing is a good place to start. It’s a good way to teach people and get them excited about investing money.”

However, Kaufman doesn’t think micro-investing should make up your long-term investing plans. Once you’re comfortable with the basics of investing and the ebbs and flows of the stock market, Kaufman recommends working with a brokerage account or other investment vehicle.

“Investing just your spare change in ETFs, you’re not going to get the returns you want,” he said. “Save your money in a more traditional fashion and then buy shares as appropriate.”

By switching to a brokerage account, you can get more control over your investments, and get higher returns. Plus, most micro-investing apps are individual investment accounts, rather than retirement plans. That means you miss out on the benefits that many tax-advantaged plans, like a 401(k), offer.

Investing for your future

If you’re overwhelmed by investing or crave convenience, micro-investing can be a smart way to learn about the process and start building up your investments. Over time, as you become more knowledgeable and comfortable with the stock market, you can graduate to the next step and open a separate investing account with a brokerage firm, many of which offer the same user-friendly features of micro-investing apps.

If you’re not sure how to get started with investing, check out these 10 ways to invest outside of your 401(k).

Any fee information mentioned is accurate as of the date of publishing. Be sure to visit the company’s website for up-to-date fee information.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kat Tretina
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Kat Tretina is a writer at MagnifyMoney. You can email Kat here

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Should You Pay Off Debt or Save Your Money?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

You have a regular source of income, you’re paying your bills on time and you have some extra dollars left over each month. What should you do with that extra cash?

If you don’t have debt (lucky you!), then the choice is simple — save or invest as much as possible. If you have debt, however, the choice can be a bit murkier: Should you pay off your debt first or save? Here are some things to consider when asking yourself that question.

Three times that saving your money might be smarter

1. If you don’t have an emergency savings fund

Just when you’re cruising along, life can throw some unexpected and expensive curves your way. A sudden job loss, medical bills or car repairs can pop up out of the blue, and if you don’t have the funds to pay for them, you can end up seriously in the red. To cover unexpected costs, some may resort to high-interest credit cards and loans. Those kinds of moves can dig you into a financial hole that can take years to pay your way out of.

Saving up a healthy emergency fund can protect you in instances like these. How much should you save? Experts generally suggest that you should save an amount equal to between three and six months of living expenses. Depending on your individual circumstances, however, you may need more than that. (Check out this article to figure out how much to save and where to keep it.)

2. Your employer offers matching retirement contributions

If you’re fortunate enough to work for a company that offers a retirement plan with matching contributions, then consider making that method of saving a priority.

For example, if your employer offers to match your contributions dollar-for-dollar up to 6% of your salary in a 401(k) plan, then contribute at least that much, if possible. The money can then grow in a tax-free or tax-deferred 401(k) until you withdraw it in retirement — all that compound interest can really add up over the years. If you don’t contribute up to that amount, you’re leaving free money on the table.

Note, however, that If you need to withdraw these funds early (before the age of 59 and a half and before the account is five years old) there will be penalties to pay. That makes this a better tool for long-term savings rather than for the short-term or as an emergency savings fund.

3. Your debt has a very low interest rate

Debt gets a bad rap — often for good reason — but in some cases, carrying your low-interest debt and investing or saving your funds instead may be more beneficial. For example, the current fixed interest rate for direct subsidized and unsubsidized student loans is 5.05%, and the average 30-year fixed mortgage rate is about 4.3%. The stock market, on the other hand, has gone up an average of 10% a year since 1926.

Beyond comparing interest rates, however, you also need to assess how much risk you’re willing to take and how much access to your savings that you’ll need. Of course, there are no guarantees that your investments will perform well, and paying down debt comes with zero risk. Savings accounts are a less risky saving option, but the average interest rate is often less than 1 or 2%. Other options, such as individual retirement accounts (IRAs), have restrictions on how the funds can be used outside of retirement.

Four times debt repayment may be more beneficial

1. You have high-interest debt

It’s hard to get ahead of high-interest debt, because compound interest is working against you. Credit card interest rates, for example, average between 15 and 20% — an amount which adds up quickly. If you make the minimum payment, you may not even be making a dent in the principal amount owed, and you can spend years just paying interest. Calculators like this one can help you figure out just how much interest you’ll pay and how long it will take to pay off.

If you have high-interest debt, make sure you explore all the options for paying it down, including consolidating your debt and researching balance transfer cards.

2. Your debt doesn’t offer any benefits

Though your debt is costing you in interest, you might find that some loans may offer useful perks. For example, federal student loans may offer tax benefits and even loan forgiveness programs for eligible borrowers. Similarly, there are tax write-offs for mortgages and in many cases, the money you invest in a home will pay off down the line when you sell your property.

On the other hand, the debt on the credit card you maxed out to pay for that trip to Cabo comes with no benefits — just a bunch of interest. High-interest debt with no benefits should be at the top of your pay-off priority list.

3. You want to raise your credit score

While there are many factors that go into determining your credit score, the amount of debt you carry is an important component. If you plan to buy a home or secure a loan in the near future, take a look at your debt-to-income ratio (DTI), which many lenders consider before approving you for a loan. If your DTI is high, you may want to consider paying off some debt before applying for that new loan, which may result in lower interest rates for you later.

4. Your debt stresses you out

Debt can take an emotional and physical toll on people, ranging from depression to insomnia and more. When it feels like a black cloud hanging over your head and it’s affecting your life in negative ways, it may be in your best interest to prioritize paying debt off first.

Should you pay off debt or save?

Of course, saving vs. paying off debt early doesn’t have to be an either/or situation — ideally, you can do both at the same time. If, however, a choice must be made between the two, there are many factors to consider. As with most financial moves, there are no cut-and-dry rules, and the best one for you will depend on your individual circumstances.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Julie Ryan Evans
Julie Ryan Evans |

Julie Ryan Evans is a writer at MagnifyMoney. You can email Julie here

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How to Make Money in Stocks

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Putting money in the market is well-worn financial advice for a reason: Investing in stocks is one of the best steps you can take toward building wealth.But how, exactly, is that wealth built? How is money earned by purchasing stock market holdings, and what can you do to maximize the gains you make from your own portfolio?

How to make money in stocks: 5 best practices

The way the stock market works — and works for you — is as simple as a high school economics class. It’s all about supply and demand, and the way those factors affect value.

Investors purchase market assets like stocks (shares of companies), which increase in value when the company does well. As the company in question makes financial progress, more investors want a piece of the action, and they’re willing to pay more for an individual share.

That means that the share you paid for has now increased in price, thanks to higher demand — which in turn means you can earn something when it comes time to sell it. (Of course, it’s also possible for stocks and other market holdings to decrease in value, which is why there’s no such thing as a risk-free investment.)

Along with the profit you can make by selling stocks, you can also earn shareholder dividends, or portions of the company’s earnings. Cash dividends are usually paid on a quarterly basis, but you might also earn dividends in the form of additional shares of stock.

Micro-mechanics of how stocks earn money aside, you likely won’t see serious growth without heeding some basic market principles and best practices. Here’s how to ensure your portfolio will do as much work for you as possible.

1. Take advantage of time

Although it’s possible to make money on the stock market in the short term, the real earning potential comes from the compound interest you earn on long-term holdings. As your assets increase in value, the total amount of money in your account grows, making room for even more capital gains. That’s how stock market earnings increase over time exponentially.

But in order to best take advantage of that exponential growth, you need to start building your portfolio as early as possible. Ideally, you’ll want to start investing as soon as you’re earning an income — perhaps by taking advantage of a company-sponsored 401(k) plan.

To see exactly how much time can affect your nest egg, let’s look at an example. Say you stashed $1,000 in your retirement account at age 20, with plans to hang up your working hat at age 70. Even if you put nothing else into the account, you’d have over $18,000 to look forward to after 50 years of growth, assuming a relatively modest 6% interest rate. But if you waited until you were 60 to make that initial deposit, you’d earn less than $800 through compound interest — which is why it’s so much harder to save for retirement if you don’t start early. Plus, all that extra cash comes at no additional effort on your part. It just requires time — so go ahead and get started!

2. Continue to invest regularly

Time is an important component of your overall portfolio growth. But even decades of compounding returns can only do so much if you don’t continue to save.

Let’s go back to our retirement example above. Only this time, instead of making a $1,000 deposit and forgetting about it, let’s say you contributed $1,000 a year — which comes out to less than $20 per week.

If you started making those annual contributions at age 20, you’d have saved about $325,000 by the time you celebrated your 70th birthday. Even if you waited until 60 to start saving, you’d wind up with about $15,000 — a far cry from the measly $1,800 you’d take out if you only made the initial deposit.

Making regular contributions doesn’t have to take much effort; you can easily automate the process through your 401(k) or brokerage account, depositing a set amount each week or pay period.

3. Set it and forget it — mostly

If you’re looking to see healthy returns on your stock market investments, just remember — you’re playing the long game.

For one thing, short-term trading lacks the tax benefits you can glean from holding onto your investments for longer. If you sell a stock before owning it for a full year, you’ll pay a higher tax rate than you would on long-term capital gains — that is, stocks you’ve held for more than a year.

While there are certain situations that do call for taking a look at your holdings, for the most part, even serious market dips reverse themselves in time. In fact, these bearish blips are regular, expected events, according to Malik S. Lee, CFP® and founder of Atlanta-based Felton & Peel Wealth Management.

So-called market corrections are healthy, he said. “It shows that the market is alive and well.” And even taking major recessions into account, the market’s performance has had an overall upward trend over the past hundred years.

4. Maintain a diverse portfolio

All investing carries risk; it’s possible for some of the companies you invest in to underperform or even fold entirely. But if you diversify your portfolio, you’ll be safeguarded against losing all of your assets when investments don’t go as planned.

By ensuring you’re invested in many different types of securities, you’ll be better prepared to weather stock market corrections. It’s unlikely that all industries and companies will suffer equally or succeed at the same level, so you can hedge your bets by buying some of everything.

5. Consider hiring professional help

Although the internet makes it relatively easy to create a well-researched DIY stock portfolio, if you’re still hesitant to put your money in the market, hiring an investment advisor can help. Even though the use of a professional can’t mitigate all risk of losses, you might feel more comfortable knowing you have an expert in your corner.

How the stock market can grow your wealth

Given the right combination of time, contribution regularity and a little bit of luck, the stock market has the potential to turn even a modest savings into an appreciable nest egg.

Ready to get started investing for yourself? Check out the following MagnifyMoney articles:

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Jamie Cattanach
Jamie Cattanach |

Jamie Cattanach is a writer at MagnifyMoney. You can email Jamie here

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