Why I started micro-investing
Warning, some jargon in the article below….
I’ve had allot of people ask about investing, now whilst I can’t give any personal advice, my general advice would be to never invest in anything you do not understand.
What I’d love to do though, is share what I have recently done with my money and why.
I have recently set up a direct debit of $10 per week plus round ups into a FirstStep micro-investment account. There are others, like Raiz (AKA Acorns) which are great too. Why? Well, savings account interest rates are so low and I wanted to have a play with investments without breaking the bank.
A micro-investment account gives me access to an exchange traded fund (ETF) in line with my risk profile (balanced!) and allows me to deposit a small amount into it (which it does automatically) each week. They charge a fee of 0.275% on the investment balance subject or $1.25 per month (whichever is greater).
An ETF takes a ‘basket’ of different investments and packages it up into one solution . Some of the products are riskier than others (means not guaranteed to get your money back) and there are therefore three baskets to cater for those that are conservative or risk averse (Defensive), those that have a moderate risk profile (Balanced) and those that are OK with risk (Growth).
As far as investments go, bonds, for example are less risky than shares, and cash (e.g. savings) is less risky than bonds. Packaging up all these different products into one solution is called diversification and all the best investors know not to put all your eggs in one basket.
A bond is a loan you are giving to a company or government in exchange for them paying you a set amount of interest…A share is you owning part of a company, if the market thinks a company is performing above expectations - it’s share price rises and the inverse is also true.
So I’ve chosen a portfolio of medium risk and medium return - which contains hundreds of shares and bonds in my one investment of $10 per week.
The other part which is really cool is called Roundups. This rounds up my purchases putting the difference into my investment account. So, let’s say I buy a coffee for $3.80, the $0.20 will go straight into my investment account. I can set the roundup settings I want.
I’ve been doing this for seven weeks, $10 per week, with $85.61 in my account right now… I’ve set a savings goal and will watch how my investment performs.
So key points:
Micro investment accounts are an ‘easy’ way to get introduced to the world of investing without breaking the bank (and for me has been a great alternative to a savings account)
Diversification (don’t put all your eggs in one basket) is critical in any investment decision
Risk and return are proportional. the greater the risk, the greater the potential return, and the greater the risk.
Don’t invest in anything you don’t understand and own your own decisions :)