The Rise of ‘Micro Investing’ Means Anyone Can Now Get a Slice of the Stock Market
While the barriers to entry for online investing have dropped significantly in recent years, beginners to investing with little money have still been a market that online stock brokers have not catered to directly. However, that is now changing and ‘micro investing’ services are on the rise that specifically target millennials. A number of online stock brokers and other investment services such as ‘robo advisors’ have launched offers over the past several months that mean beginner investors that have limited funds can invest from as little as £1 at a time with no fees attached.
With very few individual company shares listed on the London Stock Exchange, or any other stock exchange for that matter, coming in at a price of £1 or less, being able to offer investments in shares and funds from £1 involves an alternative approach to stockbroking. Fractional investing allows investors to own a part of a single share. This involves the broker holding the share or fund unit as nominee on behalf of several investors who each own the rights to a part of that share. It’s a work around solution that is extra work for the broker, and one that they will usually lose money on providing, but works. The incentive for the broker is that encouraging investing for beginners with little money, these individuals will get into the investment habit and with time become customers the company will earn a profit on. It’s a long term business strategy but one that some companies are willing to take a calculated risk on.
Investment managers BlackRock, a huge international company and the world’s largest asset manager, is a big advocate of micro investing. Recent research led by BlackRock found that around 80% of the UK’s population don’t save consistently as they feel they have little or no disposable income from which to do so. The Tax Incentivised Savings Association (Tisa) a UK lobby group that includes many of the big names in banking and investments, including Lloyds, RBS, Nationwide, Aviva, Threadneedle and Schroders, believes that the answer to this problem lies in the facilitation and popularization of micro investing.
One idea is that micro investing apps could be used to help individuals with low disposable income regularly make tiny investments by rounding up purchases as smart phones start to be used to make payments. For example, if someone buys a coffee for £1.85, the £0.15 that would round that purchase up to £2 would be automatically transferred into savings. Every time those savings hit £1, £5 or £10, they could be transferred into investments employing fractional ownership. Some banks have already released apps that do the first part, funneling ‘digital change’ into a savings account.
An app called Moneybox was launched in 2016 that makes the next step and puts the money into shares and low cost index-tracking funds. It links to an online bank account and rounds up purchases made by debit card. The change can then be automatically invested in chunks of a £1 minimum. Wealthify, a ‘robo advisor’ that matches clients with an investment portfolio that fits their personal profile like a human financial advisor would, also accepts minimum payments of as low as £1 to start a portfolio and for subsequent instalments. The start-up, launched just last year, was recently acquired by Aviva.
An app-only stockbroker called Dabl, that charges users £1.49 a month and then provides fee free share dealing and no annual charges on portfolios with values up to £10,000 is also set to launch within the next few weeks, again catering to the millennials market. Dabbl joins Trading 212, which launched a no fee stockbroking platform over the summer and Freetrade, another no fee stockbroker offering fractional share ownership is also due to launch this month.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
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