What is Micro Investing?
Many investors, especially those who are young and have just started to save, are adopting the practice of micro investing or spare change 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
Micro-investing can be a temporary option to those young, first-time investors who face difficulty in inculcating the habit of saving because it automatically deducts spare change from that person's bank account for investing. However, a micro-investing service might not consider your personal circumstances while suggesting suitable investment portfolios to you. Also, it might not provide personal financial advice to you.
So, we encourage you to start investing with a digital investment management service such as QuietGrowth that offers the MDA structure.
Investment size through Spare Change
Assuming that the round-up amount per bank transaction is $0.50, you can save about $50 only every month through micro investment, if you do 100 bank transactions in a month. Though consistent saving is a step in the right direction, an amount of such a size 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.
'Individual HIN' is not offered in micro investing
It is not practical for a micro investing service to ensure that the client securities are held in the individual HIN structure. None of the micro investing services offers individual HIN. This is one of the major disadvantages of micro investing compared to those digital investment management services, such as QuietGrowth, which ensure that the client securities are held in the individual HIN structure.
There are many benefits to the client if her securities are held her own unique Holder Identification Number (HIN). One of them is that you are the legal owner as well as the beneficial owner of the security holdings. So, we suggest you ensure that your security holdings are held in the individual HIN structure.
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. We provide our investment management service through the Managed Discretionary Account (MDA) structure.