What is Micro Investing?
Many investors, especially those who are young and have just started to save, are adopting the practice of micro investing. They sign up with an investment platform that offers the micro-investing feature, and link their debit card or their bank account to that investment platform. Whenever they make a purchase, then the spare change calculated by rounding up that transaction amount to the nearest dollar is deposited automatically from their bank account to an investment portfolio that is managed by the micro investing service. Because of the smalls amounts of money involved, this is also referred to as micro saving.
Our view on Spare Change Investing
We at QuietGrowth opine that micro-investing can be a good temporary option for first-time investors who are starting to understand the world of investing. It is also a good temporary option for those who are having a difficulty in inculcating the habit of saving, and investing those savings. Assuming that the round-up amount per bank transaction is $0.50, you can save about $100 only every month through micro investment, if you do 200 bank transactions in a month. This is a good amount to invest every month, however it might not be life-changing for you. We opine that every Australian should save and invest much more than that amount every month.
We encourage you to act beyond Micro Investing
You should develop the discipline to set aside a meaningful amount from your after-tax income every month for saving and investing. You should come up with a plan as you strive to save enough towards fulfilling your goals.
We at QuietGrowth are aiming to serve clients who are investing for the long-term AFTER they have set up their rainy-day fund in term deposits, low-risk fixed-income instruments or cash. If the rainy-day fund comprises of a small portion of higher-risk equity exposure, then such instruments should be highly-diversified. This ‘rainy-day fund’ is supposed to cover at least six months of expenses to deal with any unexpected emergencies (such as unemployment, illness) that might arise in your life as well as in your dependent family members’ lives. The rainy-day fund would also include six-month’s worth of any monthly payment commitments that you might be having towards mortgages, loans or insurance premiums.
Practices to avoid while Micro Investing
We notice that some investors link their credit card to their micro-investing service. Please do not use your credit card for investing purposes if you are having difficulty in repaying the credit card monthly account balance amount in full. We do not encourage investors to pay exorbitant interest rates on the due amount in their credit card, and use that borrowed money for investing.
At QuietGrowth, act beyond the spare change
We at QuietGrowth do not provide the micro-investing service. However, a client can deposit any amount, any number of times, to their QuietGrowth portfolio, as they strive to fulfill their long-term goals.