Microinvesting & Microfinance – Go on, get your feet wet!

Microinvesting and microfinance can sound complex and scary. But remember, it's 'Micro', which means small. So this generally means small investment, small risk, and small return. But hey, it’s a start…get your feet wet! It’s not going to solve the problem of interest rates and home ownership. But with a bit of maths and budgeting, it will allow you to dabble and learn the ropes of investing to warm up and build your confidence to potentially get in the share market in a bigger way down the track.

So, what is Micro investing you ask? It’s super small amounts of money invested over time. It makes the barrier to entering the investment industry extremely low with the idea that anyone should be able to invest, you don’t have to be a millionaire. You don’t have to have $1000s or even $100s, a few dollars can accumulate and give you a great taste of investing. A little trick is to be consistent, and invest $15 a week or $20 a month, the return isn’t great initially but will compound over time. There are so many apps out there now that make micro-investing easy and are very user-friendly. You can keep an eye on your shares in the pockets of your time. You can set up recurring investments, make irregular investments, and even collect your spare change by rounding up your everyday purchases like coffee from $4.5 to $5. That 50 cents will add up over time.

Now, there can be frequent growth due to a high volume of trades, however, it is finding the balance as each trade is small, so is the reward, but there are fees involved. Most micro-investing platforms charge a fixed fee based on the size of your portfolio. (Portfolio, it’s an exciting word to add to your financial toolbox!) So don’t let the fee gobble up your dividends, keep an eye on your investment and make sure it is working to your advantage. Side note: a dividend is the reward; cash or more stocks, even discounted stocks, that a company gives to its shareholders (you). It’s a slice of the profit based on your investment.

There are ample comparison sites to help research which micro-investing app to go with. When deciding, you want to have options, no minimum investment amounts, no brokerage fees or hidden fees, a good reputation, strong security, and low fees for trades or withdrawals.

Most apps will then help narrow down what ETF (exchange-traded funds) best suits you through advanced algorithms. This could be investing in ‘eco-friendly’ projects such as solar farms or carbon-neutral property. But be aware of ‘Green Washing’ where they use terms and phrases that look good but that’s about as ethical as it gets. Side note: ETF are funds that are traded on exchanges. When you invest in an ETF you get assets you can buy and sell.

So what is Microfinance? It’s a banking service offered to lower-income earners or small businesses providing access to financial services safely and ethically. These loans are often called microloans or microcredit and require little to no assets to obtain. It’s a great way to get immediate funds to scale your business. Now of course, this should always come with thorough due diligence and be within your means. These loans and bank accounts can come with higher interest rates and fees when compared to mainstream banks. They are also smaller businesses themselves, so can come with less stability and capabilities.

Do the due diligence. Self-assessment is worth investing your time and effort in. Delve into your own finances. Assess your own capacity to pay back the loan, this is your income and security, the ongoing nature of your work. Assess your capital, how much money do you have to your name, and are willing to invest in a deposit. Then, what is the collateral; what do you own, a house, business, car, or investment property that could act as security? Character is the next one and this really combines your capacity and collateral together where you assess how long-term and consistent your employment is and how long your existing loans have been active for. It’s proof that you can pay back this potential loan. Do the work, be analytical, be critical, and ask yourself if this is really necessary against the potential risk.

So do your financial health check. Research Microfinance banks if you are in need of some cash flow. Research micro-investing apps if you are ready to ease yourself into the investing world. Know the risks (thoroughly read the PDS), know the rewards, and monitor (and enjoy) the process!