Are Micro-Investing Apps For You?
Micro-investing apps such as Qapital and Acorn have gained a lot of popularity and media lately. In short, most of these apps use techniques to automate the transfer of money into some sort of investment vehicle.
Micro Amounts
This post is not intended to be a detailed review of these apps, there are many of them and I’m not interested in that. And lord knows I have zero interest in downloading all of them and giving an honest review of each.
Additionally, this post is not referring to investment tracking apps such as Mint or Personal Capitol. What I’m writing about here are apps that help you automate the process of actually putting money away in an investment, and usually in small amounts. For the sake of clarity in what were talking about, I’ll discuss the two popular ones I already mentioned and the techniques they use.
Qapital is a popular app that has you set up “goals” and “rules” and then automatically stashes away money when you hit those things. For instance you can tell it to stash away $10 every time you go to the grocery store.
Qapital also gamifies things by allowing all sorts of crazy rules. You could tell it to move $5 to your account every time you drink a beer, or every time some celebrity mouths off about something they know nothing about. Needless to say, lots can be invested with the latter.
Acorns uses a different approach in that you simply link it to your cards and spending apps. Then when you make any normal purchase on anything it will round the amount to the nearest dollar and invest the difference into whatever investment vehicle you have it set to.
For instance if you buy something for $7.80, it’ll invest 20 cents into your fund of choice to make it an even $8.
So are these apps good for your situation?
Know Thy Behavior
More Micro Amounts
Are you the kind of person who just can’t save money no matter how hard you try? Do you lend Uncle Sam money every year interest free so you can try to save it when you get your “refund”? Are you stuck in a loop of spending all of your paycheck every month, wishing you could stop?
Well then these apps might be able to help you get started in investing. I don’t, however, believe they’re your answer for the long term. If you can use them to get a modest amount of money in a mutual fund or investment vehicle of some sort, then you’re setting yourself up to at least start. For that I think they’re a neat solution.
If you do this you’ll see your “starter account” balance grow, and hopefully this experience will open you eyes and change your behavior so that you’ll start investing the right way. And by the right way I mean by expanding far beyond these apps.
Micro Macro Investing
Macro Baby
The right way means getting “macro”, especially if your goal is to attain financial independence. It means maxing out your 401k and IRA options first and foremost. If you can’t max those out, then at least start with your 401k and contribute enough to get the company match. That’s free money that you just can’t let sit there.
If you don’t have a 401k at your job then you should max out your IRA contributions annually. Ideally you do both.
Next, if you can save more you should set up automatic transfers from your checking account to your investment vehicles every month or every paycheck.
These micro-investing apps are all about automating savings, but they’re focused on small amounts of money. My advice is to do bigger amounts of automatic transfers, as much as you can.
Once you’ve optimized that setup for your situation, then I see no harm in these apps at all. Actually they can help you stash additional small amounts away, or even curb your spending behavior.
But first and foremost your investing strategy should be macro, not micro.
How about you? Have you tried any of these micro-investing apps? Chime in!
You can count me out on these apps.
I believe they are best for absolute beginner investors, who need help saving and investing their money. The bottom line though is that you are only socking away small amounts of money. If you want to make real money investing over the long-term, then you need to add some 0’s to the end of your contributions.
I do think they are most beneficial for high school and college students though. It gets them in the habit of socking money away, and investing the money in mutual funds/ETF’s.
Good point Sean, these could be a great way to get teenagers into saving money. Thanks!
I don’t think they are very useful either. It’s an interesting idea, but doesn’t add up to much. I guess you have to start somewhere. Sean is probably right. It’s best for students.
That kind of micro saving is best done mindfully.
Macro > micro. Thanks Joe!
One evening I was invited to dinner with an older Italian multi-millionaire who owned the winery where my brother-in-law worked. He said “Watch the pennies and the big dollars take care of themselves”. Maybe he wrote one of these apps.
Now you’re hanging out with Italian millionaires? Man, you live the life!!
I’ve always been a big fan of these microsaving apps because they’re just working in the background for me – I use Qapital’s roundup feature to save a little extra into my emergency fund, and then have been using another app called Albert which saves extra money for me periodically. For people like me who tend to run a surplus most months, these microsaving apps basically help me to keep some extra money for things. Otherwise, I know myself – it would sit in my checking account. I don’t think they have to be for beginners or advanced people either – they can be for anyone. You just run them on top of your money system that you already have. Never hurts to push a little extra savings.
Thanks for the input FP and glad to hear they’re working for you! You’re a sophisticated investor and big saver, so yeah, these apps can add some icing on the cake for folks who already have their house in order like you do.
Thanks for stopping by!
I would never have the patience for micro investing. I think it leads to a whole lot of nothing in the end. Automated macro investing, though, is the way to go!
Yes, pissing in the wind is futile, not to mention messy.
So I’m actually a HUGE fan of Qapital, partially because it’s microsavings instead of an investment app. I love that it’s so customizable, and I’ve got it set for some pretty aggressive savings. For me a big part of it is gamification, especially since I’ve got it set up to automatically save when I hit my step and mileage goals with my Fitbit. So on nights I get up and pace around just to get that extra 1000 steps in to hit my goal so I can save, it’s a win-win for my savings and my health! That said, it’s best for small goals. It’s definitely not the best way for me to go about saving up a $1000 fund for my car (although hey, I’m at $700 of that $1000, and that’s after I pulled $300 out not that long ago), but I’m also on more solid financial ground now than I was when I set up that goal last summer. I’m mostly using it for saving-to-spend goals these days, which also makes it more fun; who doesn’t love a travel fund?? Sure, I could pull $300 out of my savings for plane tickets (I just bought plane tickets, can you tell?) but there’s also some satisfaction in knowing I’ve saved up that amount little by little.
I’m neutral on Acorns these days, partly because I have zero control over it and I do like being able to control my investments right before I set it and forget it. I keep thinking about pulling out my money and sending it to Vanguard, but then again it’s $1500 I wouldn’t normally have invested. So I leave it alone until I think about it again. Maybe one day I’ll liquidate that account haha.
I think these are good, non-scary ways for people to start out doing seemingly impossible things like saving for a goal or investing. Once you get that confidence it IS time to move on to bigger efforts. But they also have a place as a bonus for people who are doing well. I’m saving and/or investing extra with these with literally zero effort on my part, and I sure wouldn’t be rounding up to the nearest dollar on my own. That said, I’ll probably quit the microinvesting way before I give up on the microsaving. Vanguard just makes more sense!
/essay
Wow, I appreciate the essay Erin! Looks like Qapital works really well for you in your situation and that’s awesome. I like your point about the satisfaction of knowing that you got to “amount x” incrementally, little by little. Those kinds of achievements resonate with me as well – that’s really what FI is all about. If you’re targeting a million dollars in net worth you’re going to have to get to it little by little.
You’ve given me something to think about with these for my situation. I’m FI and have what I need, but there would be a certain neat satisfaction in watching a specific account grow to say – $200, if it were solely created by round-offs. Even though that $200 would in reality have no effect on my overall financial status, it would be mentally satisfying and a way to remind myself that I’m still on the right path.
I can’t say this for sure because I’m not there, but because such a large part of the path to FI is automation and sitting back to let time work its magic, it seems like building in continuous gamification would be a way to make that largely hands-off process more fun/hands-on.
If you do decide to check out Qapital for fun, I’ve got signup link that’ll get us both $5 😉
If we could create more cool apps that would gamify the entire path to FI we’d get rich for sure!
There’s a relatively new company here in Australia that has a similar concept to Acorns – FirstStep investing. Haven’t personally used it, as similar to many comments above it seems a better product for beginners, but I absolutely love the concept!
That’s a good name for these kind of apps and I’m sure there will be plenty more of them coming before the market gets saturated and they start to either go away or consolidate.
Thanks for the comment!
I’ve tried Acorns, but just couldn’t stomach the idea of yet another account to manage. Instead I do my darndest to plunk my loose change back into the bank account when the jar gets full. Needs me a lot of loose change for down payments on rental houses!
I hear ya man, it’s kinda why I keep procrastinating travel hacking. More new accounts, more usernames and passwords. It can sounds silly but it kinda stresses me out to complicate my “digital life”
We are pretty disciplined in our macro investing (multiple automatic savings and investments per month), so I haven’t bothered with these apps. Our older son is very good with savings, but our younger son could use some work. Something like Acorns may be a good start for him.
Yea, Acorns could be good for a kid to get started. If I had kids I’d give it a go!