Micro investing 101: Growing wealth from small change

Most things worth doing take time and consistency. Whether it's getting in great shape, improving a skill, or building lasting friendships, doing a little bit consistently over time is usually a winning strategy.

When it comes to investing, it’s no different. By adding a small amount of money on a regular basis to your investing account, you will learn a lot about investing. You will also create the foundational habits required to build wealth as an investor. Even just your spare change is enough to get started if you have the right tools. 

In this blog, we’re going to introduce you to the power of micro investing. We’ll tell you what it is, how to take advantage of it, and what some of the advantages are with this strategy. 

How does micro investing work?

Micro investing is an investing strategy that encourages regular, small contributions to your investing account. The money you invest could come from many sources. 

For example, you could invest your change after you make a purchase. You could also find a way to save a few dollars on a regular basis, like making lunch at home, and then earmark what you saved to invest in the stock market. Or, you could just regularly push a few dollars from your bank account (e.g., your checking account or savings account) into your brokerage account.  

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Greenlight tip: Round Ups lets kids and teens round their debit card purchases up to the nearest dollar and sweep the change to their savings account automatically. They could then request to invest those savings. 

Micro investing is a great strategy for people who are younger, don’t have a lot of money to invest, or are beginners who need to build strong investing habits. But really, it works for anyone who wants to reach their investing goals faster without making major lifestyle changes to pay for it. 

Micro investing is a pretty new concept and has become more popular with the advent of micro-investing apps and robo-advisors. Buying and selling stocks, exchange-traded funds (ETFs), mutual funds, and other investments used to come with hefty brokerage service fees. That made small investments hard because you needed to buy enough to justify the fee.

Did you know? Kids and teens under 18 can also be micro investors! The Greenlight Max and Infinity subscriptions allow kids and teens to place trades for fractional shares of stock with a minimum investment as low as $1. Parents — you approve every trade!

What are fractional shares?

Buying a whole share of a company can cost hundreds or even thousands of dollars. This can make it hard for smaller investors to buy shares in some well-known companies like Amazon or Alphabet (aka Google). Fractional shares let you buy a dollar amount of a stock or ETF instead of a number of shares. 

For instance, let’s say an individual stock like Apple or Tesla has a share price of $200. Instead of saving up to buy a full share and hoping it doesn’t go up while you’re saving, fractional share investing lets you buy as little as one dollar worth of the stock right now. 

The ability to buy a fraction of a share can supercharge your micro investing strategy because it means many more stocks are available to you. It can also make portfolio diversification easier because you can use fractional share trading to buy a few dollars of several stocks. 

What are the advantages of micro investing?

When thinking about investing a few dollars or even cents here and there, it can be hard to imagine how this can help you reach your financial goals. But the strategy is far more powerful than it sounds. If you wait until you have a lot of money to invest before you open an account to invest with, it may take a long time to feel ready. That is time you aren’t reaping the rewards of investing or building strong habits. 

Micro Investing allows you to invest small amounts early and often. Frequently making small allocations to your investing account helps your account balance grow in three ways. 

1. The power of compounding 

Any time you can take advantage of compounding, it's worth considering. Compounding is when growth builds on growth. For instance, if you have $100 in Apple stock and that stock goes up 10% per year, the first year you’d make $10. The second year your stock would start out worth $110 though. That means if it added another 10% the return of your stock would go up to $11 the second year. 

This may not sound exciting, but over a longer time period, this can add up. In this example, if your stock grew 10% for 10 years, it would be worth almost $260. Now imagine that building up for 30 or 40 years in a retirement account. 

Of course, this is just an example. Past performance of a stock, fund, or other investment product doesn’t mean it's going to keep doing the same thing every year. But historically, stock indexes like the S&P 500 or the Nasdaq 100 have had consistent average gains. 

2. Dollar cost averaging (DCA)

Dollar cost averaging is when you buy a certain dollar amount of a stock, ETF, cryptocurrency, or other investment at regular intervals no matter what the price. This strategy helps remove  the guesswork out of investing because you just set yourself up to buy a little no matter what. If your investment is going up, it’s great because you’re making money. But if it's going down, that’s also good because it means you get to buy more while it’s cheaper. 

While this isn’t a direct way to grow your account like compounding, it removes the need to time the market. Many investors who try to time the market — or buy when they think the price is cheap and sell when the price goes up — find that they would have been better off if they’d just used a dollar cost averaging strategy. 

Because micro investing allows you to make small investments often, it lends itself very well to a DCA strategy. 

3. Strong investing habits and knowledge 

Good investing habits are crucial to your personal finance journey. Repetition helps you both build habits and gain knowledge so you can make smart investing decisions throughout your life. As you build your investment portfolio over time, you’ll begin to pick up skills and knowledge that will help you when you have more money to invest later on. 

Skills like building a well-diversified portfolio, learning your risk tolerance, and researching investment options will all help you become a better self-directed investor. Even if you choose to hire a financial advisor to give you investment advice, this experience will help you to understand if the plan they make for you is the right one. 

Micro investing is a low-cost way to grow your future.

Micro investing is a great way to grow your investment portfolio. Your kids and teens can even get in on the benefits of micro investing so they can build their stock-trading chops before they leave the nest. 

Greenlight gives parents the tools to teach kids and teens to budget, save, and invest money wisely. Through the micro-investing platform, your kids get the tools to research 4,000+ stocks and ETFs. They can then propose investments, which you can approve and buy right through the app. Plus, our investment plans have no hidden fees and no account minimums.

Learn more about how Greenlight’s investing app can help your kids build financial literacy.