Micro-investing apps creating electronic piggybanks for the tap-and-go age
Small change used to go into people’s piggybanks, building cents into dollars. But in the tap-and-go age, micro-investing may be the answer.
“They’ve been able to match smart technology within regulatory innovation to allow people to invest literally small change,” financial planner Catherine Robson said.
With no paper bankbook and no plastic card, apps controlled entirely on smartphones like Acorns and First Step are lowering the bar for investing in the stock market.
While First Step has recently launched, Acorns has $160 million under investment for 140,000 clients.
With an average holding of just over $1,100, its client base is much younger than the major banks.
“Millennials are definitely more interested in going outside the large financial institutions for different products that value add to them,” Acorns’ managing director and CEO George Lucas said.
“There’s a bigger understanding with millennials about data — the value of data and the security associated with certain parts of the internet — and so for them, moving outside the large institutions is not necessary such a big step as someone to who is tired and old like myself.”
Investing small change when buying a coffee
The apps work by customers making regular contributions. The money is pooled and invested in different classes of assets, which have varying levels of risk and return.
But the real power of micro-investing is small, irregular investments, called round-ups.
Each time you make a purchase using your card it rounds up to the next dollar, taking what would have been small change and putting it into your account.
It’s a piggybank for electronic money — but, like all investments in shares, it is at the mercy of the market’s rises and falls and there are no guarantees.
“You can buy coffee for $3.50, and First Step will allow you to round that up to $4 and invest that 50 cents, much like … an electronic piggybank,” First Step Investments director Lynne Thornton said.
Or as Mr Lucas puts it, “saving in the background of life”.
Micro-investing apps have different fees, which prospective users should investigate before signing up.
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