DEFINITION of 'Micro-Investing Platform'

An application that allows users to regularly save small sums of money. Micro-investing platforms aim to remove traditional barriers to investing, such as brokerage account minimums, to encourage people to invest even if they have limited incomes and assets. By making investing simple and painless, micro-investing platforms can help people who otherwise wouldn’t accumulate savings for future investment.

Micro-investing platforms are the digital-age equivalent of taking all the spare change from your purchases and saving it in a jar until the jar is full and then taking the full jar of change to the bank.

BREAKING DOWN 'Micro-Investing Platform'

Here’s an example of how a micro-investing platform might work. You sign up for an account with the platform and register your debit card. Each time you make a purchase, the platform rounds up your purchase to the nearest dollar and deposits the difference into an investment account. You are unlikely to notice the extra $0.50 missing from your account when you pay $3.50 for a cappuccino, but over time, you will notice the growing sum in your brokerage account. If you buy that same coffee 20 times a month (basically, every workday), you will have effortlessly invested $10 by the end of the month or $120 by the end of the year. Yes, a better solution would be for you to make your own cappuccinos at home for $0.50 and invest the $3.00 savings per cup and end up with an extra $60 a month and $720 a year to invest, but for individuals who don’t want to change their behavior, micro-investing offers a superior alternative to investing nothing at all.

Micro-investing makes investing sums as low as a few pennies possible by eliminating per transaction fees and investment minimums. Consumers don’t need to save up $100 for one share of a stock or mutual fund, and they don’t need to pay a brokerage fee of $7.95 to purchase that share. Instead, they pay the micro-investing platform a nominal fee, perhaps $1 per month, and it invests their money in fractional shares. Further, because those fractional shares are in exchange-traded funds (ETF), the consumer’s investment is diversified across many different stocks and/or bonds, helping to protect against market swings in a way that investing in a single stock does not.

Even for people who save regularly, micro-investing platforms can improve their situation. Saving $50 a month for 10 years in a savings account with 0% interest rate results in $6,000, which actually has less intrinsic value after 10 years since savings accounts usually pay interest at a lower rate than inflation. Investing $49 a month (after the $1 platform fee) for 10 years with an average annual return of 7%, however, results in $8,580 before taxes and inflation.

Automatic investment is not a required feature of a micro-investing platform; the ability to invest very small amounts of money is. To that end, some micro-investing platforms aim to help users to not only get in the habit of saving and investing but also to learn about investing. The platform might teach them how to choose an ETF based on their goals, risk tolerance, interests and beliefs, for example.

A notable micro-investing platform is Acorns Grow, Inc. which automatically invests a user's spare change through a smartphone app.

Micro-investing platforms must register with the Securities and Exchange Commission (SEC) as a Registered Investment Advisor (RIA) and as a broker-dealer.

  1. Automatic Investment Plan - AIP

    An automatic investment plan is an investment program that allows ...
  2. Trading Platform

    A trading platform is a software through which investors and ...
  3. Savings Account

    A savings account is a deposit account held at a bank or other ...
  4. Automatic Savings Plan

    A type of personal savings system in which the plan contributor ...
  5. Personal Finance

    Personal finance: all financial decisions and activities of an ...
  6. Savings Rate

    The amount of money, expressed as a percentage or ratio, that ...
Related Articles
  1. Tech

    Micro-investing App Acorns Raises $30M (PYPL)

    Micro-investing app Acorns raises $30 million in last round of funding.
  2. Investing

    The Complete Guide to Choosing an Online Stock Broker

    The age of online stock brokers has made the world of high-risk, high-reward investing available to the broader public - for better or for worse.
  3. Investing

    How to Invest on a Budget

    It can seem impossible to start investing if you’re on a budget, but there are several small financial moves that can make boost your savings.
  4. Personal Finance

    Is investing $25 a month worth it?

    Find out how small investments can add up over time and how to avoid the fees that can erode small returns.
  5. Financial Advisor

    5 Ways To Trick Yourself Into Saving Money

    America is saving 6.4 percent of its money -not bad, but we would all like to do better. Here are five simple ways to trick yourself into saving money.
  6. Financial Advisor

    10 Ways to Effectively Save for the Future

    Savings is as crucial as ever, as we deal with life changes and our needs for the future. Here are some essential steps to get started, now.
  7. Retirement

    Saving vs. Investing: Understanding the Key Differences

    The terms saving and investing are sometimes used interchangeably, but they are very different and extremely important to understand in order to achieve security and prosperity.
  8. Personal Finance

    4 Painless Ways to Save

    Taking these four steps can make saving money easy and painless.
  9. Retirement

    Saving $100 Now Is Better Than Saving $1,000 In 10 Years

    Learn why it is better to save $100 every year starting right now rather than $1,000 in 10 years, and find out the benefits of early saving and investing.
Hot Definitions
  1. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  2. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  3. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
  4. Leverage Ratio

    A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt, or ...
  5. Annuity

    An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income ...
  6. Restricted Stock Unit - RSU

    A restricted stock unit is a compensation issued by an employer to an employee in the form of company stock.
Trading Center