Pro’s and con’s of micro-investing apps

Micro-investing apps are an easy, accessible way to invest your money, so it’s no surprise they’ve become popular among experienced and beginner investors.

Micro-investing apps allow you to put small amounts of money toward different investment options, which is convenient if you’re on a budget or don’t know much about investing. While micro-investing apps might be a good choice for you, it’s important to understand some of the pros and cons before you move forward.

Pros of micro-investing apps

Accessibility:  Micro-investing apps are accessible to anyone with a smartphone. Depending on the app, you’ll essentially create a profile, answer some questions and link a bank account to start your investment portfolio. With mobile investing, you have everything at your fingertips no matter where you are.

Low investment amount:  One of the most significant advantages of micro-investing apps is that they allow users to start investing with little money. Two common ways of doing this are:

• Contributing a set dollar amount regularly – say, $5 per week.
• Rounding up the leftover change from your day-to-day debit transactions. For example, if you buy a latte for $3.75, the leftover $0.25 would be invested automatically.

Tip:  If you’re unsure how much money you can afford to invest, learn how to create a budget and build your savings first.

Ease of use and automation:  Micro-investing apps are easy to use and often utilize robo-advisors that invest your money for you, saving you time and reducing guesswork.

Education:  Some micro-investment apps offer educational resources and financial articles to help you make informed decisions.

Cons of micro-investing apps

Fees:  Some micro-investing apps charge fees that can eat into your investment returns (not to say traditional investment firms don’t), so you’ll want to be on the lookout for low-cost options.

Limited investment options:  While micro-investing apps offer a range of investment options, they may not offer the same range as traditional investment firms. This could limit the diversification of your portfolio.

Lack of personalized advice:  While mobile investing is convenient, it also limits the control you have over your investment decisions, specifically if the app uses robo-advisors. When you invest with a human advisor, they’ll be able to help you build a portfolio – and make changes when necessary – based on your unique circumstances and goals.

Loss potential:  Like any investment, there’s always some level of risk involved. Before you put your money into any investment app, keep in mind that there’s potential for loss. If you have any questions or concerns about this, it’s a good idea to consult with a financial advisor – and keep in mind that some advisors require you to have a minimum amount of investable assets in order to utilize their services.

Lack of scalability:  If you want to invest large amounts of money or you’re planning on sticking with one app for the long haul, some micro-investment apps may not be worth it for you. Look for apps that are designed to accommodate your growth, with a wide range of account types, reasonable fees and all the investment education you need to succeed.

Tips before choosing a micro-investing app

Are micro-investing apps a good choice? It depends on where you are on your investment journey and what you want to get out of investing. Here are a few tips to help you decide what’s right for you.

Consider your investment goals. A micro-investing app could be a great choice if you have a tight budget or flexible investment goals, or if you just want to dip your toes in the water of investing. It could also work as an addition to your existing investment portfolio with an advisor. However, you might want to stay away from micro-investing apps if you’d like to invest large amounts of money or you’re expecting a more personalized experience.

Research the app's fees and charges. At the end of the day, you’re using an investment platform to potentially make money. If there’s an app you’re considering, be sure to research their fees and charges so you know how they’ll affect your bottom line. Or better yet, cast a wide net and research the most affordable apps available.

Evaluate the app's investment options. Not every app offers the same investment options. Some offer only exchange-traded funds (ETFs), for example, while others offer individual stocks, mutual funds, ETFs, bonds and even cryptocurrency options. Whether you talk to a financial advisor or do your own research, decide on the types of investments you’d like to have available to you before you sign up for any apps.

Assess the app's interface and ease of use. One of the advantages of mobile investing is the ease of use, so if you find an app that’s difficult to understand or navigate, it probably defeats the purpose. Again, do some research on the most user-friendly apps and go with the one that you think will offer you the best experience.

Do investment management your way

Micro-investing apps have brought a new level of accessibility and convenience to investing. While it could be a great choice for new and even experienced investors, it’s important to be aware of the potential drawbacks, such as fees, limited investment options and less control over investment decisions. Ultimately, the decision to use one depends on your personal investment goals, risk tolerance and preferences.