Micro-Investing In Your Future

Higher costs of living, increasing demand for metropolitan housing and subsequent increasing house prices have seen the so called ‘Great Australian Dream’ slip further from millennials’ grasp. The dream of one day owning our own home without the dreaded mortgage lingering over our heads is becoming more distant as each year passes. Simply putting every penny we earn into savings might no longer be enough. But don’t give up all hope just yet – there is another way to help decrease that gap between your current income and the one you actually need to be earning to buy a house. The solution: shares.

For those who are unfamiliar, the stock market is a place where shares are bought and sold. By buying shares, you are purchasing a portion of a company. As the company’s profits go up, so do your shares in those profits (commonly referred to as dividends). With limited funds necessary to get your foot in the door, shares have one of the highest rates of return out of all investment types.

According to the 2017 ASX Investor Study, the proportion of 18-24 year olds investing in shares has doubled from 10% to 20% and 25-34 year olds from 24% to 39% in the last 5 years alone. From this, it is clear that more and more young Australians are looking to invest outside of their superannuation funds.

I know what you’re probably thinking – how can someone who has absolutely no knowledge of the stock market be expected to invest their hard earned savings in it? I must confess that I have the same doubts… I know very little about the stock market, nor am I overly interested in it. It’s a method most who do not study economics or follow market trends immediately classify as ‘too difficult’ or requiring ‘too much effort’. Until two weeks ago, the extent of my knowledge was limited to Hollywood blockbusters’ Wall Street and Wolf of Wall Street – not exactly a great starting platform. However, my interest was piqued when my brother mentioned he had invested in the share market and made $4 in the first month by simply using a mobile app, Acorns. That’s the equivalent to a free coffee!

Acorns – What is it and how does it work?

Acorns is an automated, entry-level financial service designed to help people save and invest their money. Its primary purpose is to help people start early, invest frequently and ultimately to meet their financial goals. Launched in Australia for the first time last year, it already has over 250,000 sign ups – myself recently adding to that number. I decided to test the market and see for myself how easy this investment process could be.

Firstly, I created an account by linking my bank details and debit card. I was then asked to select an investment portfolio from a choice of five, ranging from conservative (least risky) to aggressive (most risky). You can expect a different rate of return depending on the risk factor, with conservative having the lowest return rate but more stability. I chose moderately aggressive to start with as I was only investing a relatively small sum of $1,000. But if that’s too much, you only need $5 to start.

The idea is for users to proactively invest without it affecting their everyday lives. How is this done? Acorns uses a method they call ‘round-ups’ whereby they automatically round up your credit or debit card transactions to the nearest dollar and invest this into your portfolio. I recently spent $3.50 on a coffee. Acorns rounded this up to $4 and will place that extra 50c into my account when I’ve accumulated enough ‘round-ups’ to meet the $5 threshold. You may think that it’s not much, but trust me, it all adds up. In my first month, I’ve invested $27.57 just from round-ups alone. So it’s not just good for investing, but also for saving!

Not only does it help you save, but it also shows you how to by providing a detailed overview of your spending habits. A bit confronting at times, but definitely helpful!

Where’s my money going?

Your portfolio is comprised of seven Exchange Traded Funds (ETF’s). EFT’s are tradeable securities that can be bought and sold like ordinary stock. They’re highly diversified and flexible, meaning poor performance of a single company will have an insignificant effect on the overall performance of your chosen portfolio. However, you do not get the option of opting out of any of the EFT’s in Acorns’ portfolios. There is neither flexibility nor options to invest in other stocks, bonds etc.

What’s the catch?

Acorns only charge $1.25 per month for accounts with a balance under $5000 and 0.257% per year for accounts with over that. There are no investment or withdrawal fees either. This is pretty reasonable when compared to a professional stockbroker, where you can expect to pay around a $30 fee each time you wish to buy or sell a parcel of shares.

However, this is a long-term investment opportunity. Don’t expect to be rolling in it straight away. In my first month, my market return was negative $1.40… not exactly a great start. The market fluctuates often and you need to take this into account – it’s not a ‘get rich quick’ approach. But so you get an idea, based on my monthly investments of approximately $30, in ten years time I’ll have a projected value of $3,457. Winning!

Risky Business?

Don’t forget that investing in shares is a long-term investment and like any form of investment, there are risks (mainly to do with market fluctuations). Do your research prior to investing, way up the pros and cons and determine whether it’s a risk you’re willing to take. It might also be useful to compare returns of investment between different kinds of investments such as Property vs. Shares, or Shares vs. Long term deposits (especially if you’re investing a smaller amount of money).

Don’t think that investing in shares is beyond your capability. Regardless of your knowledge of the market, there are ways (or apps) to get your foot in the door. Be sure to test the water; otherwise you may just exclude yourself from a vast ocean of saving and investment opportunities.

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