Microinvesting

The average pair of birkenstocks retails at around $120 (I think). Let me forward a value proposition. You could go all out on a pair of sandals so aesthetically offensive they inspired a not-so-humble smashed avo enthusiast to start a blog. You could roam around the inner-western suburbs of Sydney wielding a $7 crappuccino and sporting a fashion statement that screams “I’m basic”. Or you could direct your hard-earned dollarydoos towards investing in a very, very valuable educational experience.

A few weeks ago a good friend of mine told me that as an observer, the world of finance is unfathomably boring (or words to that effect). I firmly disagree. He went on to say that as soon as you have skin in the game, it suddenly becomes super interesting. I firmly agree. We touched on microinvesting in Diversification and ETFs. The idea is to encourage as many people as possible to get some sort of dollar exposure to the finance world and to focus less on real dollar return and more on education. The truth is you’re already exposed to the this exciting world of finance through your superannuation fund but let’s be honest – when was the last time you checked your super balance?

If you have skin in the game in the form of easily deposited and withdraw-able funds, you suddenly become interested in how your investment fluctuates. You start to query why your investments have shot up in value or plummeted over the course of 20 minutes. And importantly you do it all without emotion because (in the case of microinvesting) the size of your investment is so small that even a total loss shouldn’t be breaking the bank. You read articles, you research trends, you watch the news, and you learn all the jargon. All this chatter gets millennials excited about investment and it gets me excited about financial literacy.

How to get started

I have no affiliation with any of the below products and I encourage you to do your own DD before starting anything. I also fully encourage you to read all the boring legal bits of information these guys publish – they tend to sneak in little fees that aren’t so obvious on the surface:

  • CommSec Pocket allows you to invest with as little as $50. You can choose from 7 different ETFs ranging from tech to sustainability to the ASX200. Trades up to $1,000 incur a brokerage fee of just $2. Read the PDS.
  • Raiz takes those hard-earned dollarydoos and similarly invests them across your choice of 5 different funds depending on risk profile and 1 additional sustainability fund. Raiz lets you invest with as little as $5 and lets you round up your spending to the nearest dollar to invest your ‘spare change’. Fees are as little as $2.50 per month but a quick look at those boring legal bits I mentioned highlighted some additional fees that aren’t so front and centre. Read the PDS.
  • Spaceship takes your super money and invests it in a portfolio of assets mostly from the tech space – a historically volatile but highly successful sector. Investment fees are for the most part a proportion of the dollar figure you have invested in your super but like most superannuation accounts may quickly erode your balance if you’re not regularly topping it up. Read the PDS.
  • Stake gives Aussies access to over 3,500 US securities. Trading securities on Stake is brokerage fee-free but they earn money by charging you a fee when your Aussie dollars are converted to US dollars. Read the PDS.

Prepare not to make money

We mention above that the goal of microinvesting isn’t to make money. If you happen to make money then we can consider that a fortunate byproduct of the real objective – to learn something. If you’re playing with the money you had initially planned to invest in a pair of unfashionable sandals, you’re very unlikely to make much money at all. The fees alone (despite being negligible on a dollar basis) will eat up any returns you make. For example, for investments under $10,000, Raiz charges a monthly fee of $2.50 (there are more fees, again – look closer). 2.50/120 expressed as a percentage is ~2.1% which is a very high monthly management fee to be paying for access to a fund. As you become more confident with how much money you’re willing to risk, this may quickly change – depending of course on how your nominated investments are performing.

The more money you have invested in any of these products, the higher your exposure to the underlying assets. Fees also tend to become more negligible the higher your exposure and the higher your returns. For example, if you had $5,000 invested in Raiz, the monthly fee of $2.50 becomes 0.05% – a much better value proposition than the ~2.1% figure I quoted above.

ETFs vs individual securities

Individual securities don’t give you the full picture – you’re not as likely to develop a thorough understanding of how the market works if you’re dealing with a single stock. In fact, you may even get a painful lesson in inflated share prices and short-selling. An ETF on the other hand gives you exposure to certain sectors or the market as a whole. ETFs are a saf-er bet and they’re much more directly impacted by real-world events and macroeconomic factors.

For example, the Australian share market generally responds positively to good employment numbers. If the Australian Bureau of Statistics reports an unexpected improvement in Australia’s unemployment rate for any given quarter, ceteris paribus (fancy economic term for “all other things being equal”), the ASX200 should rally (not-so-fancy finance term for “go up”). If on the other hand we receive news of a sharp and unexpected increase in unemployment, the ASX200 should drop (common synonym for “go down”).

When should I start?

Whenever you’re most comfortable really. The investment world has recently braved through one of the most volatile times in history. We’re bombarded with good or bad unemployment numbers, disappointing or better-than-expected GDP growth, political kerfuffles, and so much scaremongering that we’re beginning to feel jaded by the fact that there’s a pandemic going on. I personally have a fairly large amount of skin in the game, spanning across a few different asset classes (diversification is important, friends). However, my very first investment was a stock that cost me just under $1,000. Before this investment, I had a general interest in what made the finance world tick, but it wasn’t until I started to see a real dollar impact on my own money that I started pouncing on news articles like a hawk.