In early 2018, I fell in love. Every morning, the first thing I’d do was to check my phone. I spent a large part of the day thinking about the object of my affections, and I experienced a feeling of ridiculous happiness when things started to go well.
I’m talking, of course, about microinvesting.
Microinvesting is a fantastic way to build wealth and learn the stock market with little financial risk. It allows you to invest on your terms and literally invest your spare change into big companies. In time, those pennies add up.
Few things excited me as much as watching my earnings climb, climb, climb as the Dow did. Of course, I and the whole community of Stashers I joined on Facebook were sorely disappointed when the market plunged in late 2018. And yet, I’d learned three valuable lessons.
- As Warren Buffet says, “Our favorite holding period is forever.” He means to not sell the moment a stock plunges, and to not invest in companies you’re not comfortable with. Like many newbie investors, I got emotional at times, but I never sold, until a major life change required me to do so in order to obtain the cash. I made a small profit, but still, I cried at having to let go of my portfolio.
- I learned to not put all my eggs in one basket. Whenever I had a lump sum of money, I was tempted to splurge on one company. But slow and steady wins the race (more on that below).
- Because I knew that I could save that amount, it completely changed my relationship to my money. After struggling for years in dead-end, underpaid jobs, I was used to living paycheck-to-paycheck and not thinking about the future. And even though I’m in a rough patch again, I have money invested, money saved, and money for retirement, and I feel confident about my ability to put myself first financially. Circling back to point #1: I felt so positive about my investments that I was sad to let them go.
If I’ve convinced you that you need to start microinvesting, here are some basic things to know:
Where to Start
The two most popular microinvesting apps are Acorns and Stash. They’re very similar and offer services such as “rounding up” your spare change to invest, customizing your investment portfolio based on your age and goals, and, most importantly for broke millennials, allowing you to regularly invest small amounts of money in stocks, bonds, and ETFs (exchange-traded funds). Recently, they both launched debit card accounts that integrate with their other services and offer cashback or “stockback” options.
Setting a Schedule
Whichever option you choose, the key is to invest regularly. I have both my Acorns and Stash set to deduct money from my bank account every payday. Here’s why: if you invest irregularly, you’re more likely to make my past mistake and pick up some shares (or partial shares, in this case) at a higher-than-usual price. Stock values fluctuate: by investing small amounts regularly, you do what’s called dollar-cost averaging. That means that as the stock grows in value (which traditionally they do over time), you’ll have averaged down the cost you paid for it.
If you want to get a taste of day trading, you can keep some cash in your Stash and watch the market for “dip days”: by buying a stock when it’s low, you’ll turn a greater profit when it goes back up (and it usually does). We Stashers refer to a stock as being “on sale” when it’s down, and cries of “buy, buy, buy!” ring out around the Facebook group.
An important thing to note is that Stash has set trading windows, so it’s not intended to “time the market,” i.e. buy or sell in order to maximize your gains. That’s called “day trading,” for obvious reasons, and you’ll be better served by an app like Robinhood for that.
The Difference Between Acorns and Stash
Acorns is like having a stockbroker in your pocket. You can let Acorns select a portfolio based on your age, goals, and risk tolerance, and it will handle the investing for you as long as you keep feeding it. Meanwhile, Stash generally encourages you to learn how to invest on your own. Unlike Acorns, it allows you to select your own stocks and ETFs, although it will point you to certain ones based on your portfolio.
Both encourage you to hold for the long run, and according to Warren Buffett, that’s a good strategy.
An Important Note
Because I follow Buffett’s advice, I invest even though I have debt. As many financial advisors rightfully note, the math isn’t on my side for this: my rate of return isn’t likely to overcome what I’m spending in interest. However, everyone’s situation is different, and I’m more interested in holding stocks for 30 years than trying to get rich quick. If you’re struggling to pay down debt, however, it’s best to tackle that.
All the same, microinvesting is a great way to teach you the value of saving and can instill a mindset that can help you reduce debt. For debt-burdened people interested in micro-investing, I would recommend skipping that meal out and put $15 toward debt and $5 in your Stash or Acorns account.
Indeed, the best thing about microinvesting is that it motivates you to cut back on unnecessary spending, e.g. that $7 latte, and instead chase the high of seeing your meager amounts of money grow. As a plus, you’ll find inspiration in the Facebook groups that are organized around microinvesting. People share stories of how they turned their lives around by changing their financial habits. I’m one of them: I lifted myself out of a paycheck-to-paycheck lifestyle by prioritizing my saving, and the encouragement I got not only from my rate of return but also from the microinvesting community kept me on track. Ultimately, my — and your — financial success rests on our attitudes toward money. Make sure yours is a good relationship.
Rachel Wayne is a writer and artist based in Orlando, FL. She earned her master’s in visual anthropology from the University of Florida and runs the production company DreamQuilt. She is an avid aerial dancer and performance artist, and also dabbles in mixed-media. She writes nonfiction stories about herself and other awesome people, as well as essays on feminism, societal violence, mental health, politics, entrepreneurship, and whatever cultural topic strikes her fancy.