Got a spare $5? Then you can start micro investing

In an era where entry barriers to financial markets are crumbling, a new kind of investor is emerging – one who can start with the price of a coffee. Micro-investing apps have opened the door to share and ETF ownership with as little as five dollars, reshaping how younger Australians and first-time investors approach wealth building.

Major Points to Learn

• Micro-investing apps allow Australians to invest in diversified portfolios or single ETFs from as little as $5.
• They round up spare change, automate contributions, and remove traditional barriers to entry.
• Fees can erode small balances if not managed carefully, but the platforms have democratised access to financial markets and introduced a new generation to investing fundamentals.

The rise of pocket-sized investing

Micro-investing first gained traction in the United States with Acorns, and the model arrived in Australia in 2016 under the same name, now rebranded as Raiz. The concept was simple: link a debit card, round up everyday purchases to the nearest dollar, and invest the difference into a managed portfolio. Since then, the field has grown quickly, combining behavioural science – like habit formation, nudges, and goal-setting – with smart technology to make saving and investing feel almost effortless.

For many users, the attraction is psychological as much as financial. The idea of investing spare change makes markets feel less intimidating. Instead of deciding to part with a lump sum, investors watch a few cents at a time accumulate into a tangible balance. As the platforms matured, they expanded into recurring investments, themed portfolios, and even superannuation options – quietly transforming financial habits across a generation.

How the apps actually work

At their core, micro-investing apps pool small amounts of money from thousands of users and invest them collectively in exchange-traded funds (ETFs) or managed portfolios. Most use fractional share ownership, allowing investors to own a portion of an ETF unit rather than the whole thing.

Once users link their bank accounts, the apps automatically transfer contributions into their portfolios. Raiz rounds up transactions, while Spaceship Voyager and Sharesies allow manual top-ups and set-and-forget plans. The apps handle rebalancing and reporting, while the underlying investment vehicles – usually diversified ETFs across Australian and international equities, bonds, and cash – provide market exposure that would otherwise be difficult to achieve at small scale.

The entire process relies on sophisticated custodian arrangements to manage fractional holdings securely. In Australia, these custodians are typically licensed under ASIC regulations, which means the investor’s money is held in segregated trust accounts – separate from the company’s own operating money. This means that if the micro-investing platform itself were to go bankrupt or shut down, your invested funds wouldn’t be used to pay its debts or creditors. Instead, the custodian – an independent, regulated entity – holds those assets on your behalf, ensuring they can be returned or transferred safely.

The main players in Australia

The Australian micro-investing landscape is dominated by a few key platforms:

• Raiz Invest: The pioneer, using round-ups and diversified ETF portfolios.
• Spaceship Voyager: Focused on tech-themed and growth portfolios, popular among millennials.
• Sharesies: A New Zealand import that lets users buy fractions of Australian and US shares directly.
• CommSec Pocket: Backed by Commonwealth Bank, offering ETF bundles with a $50 minimum.
• Pearler Micro: Geared toward long-term investors and FIRE (Financial Independence, Retire Early) enthusiasts.

Each platform differs in its fee model. Raiz, for instance, charges a flat monthly fee (currently $3.50 to $4.50), which can impact smaller balances, but will be beneficial for larger balances. Others like Spaceship charge a percentage of assets over a certain threshold, aligning costs more closely with account size. Understanding how these fees accumulate over time is essential – a 1% annual fee on a $1,000 portfolio may seem small, but it compounds into thousands of dollars over decades.

Beyond spare change: education and habit-building

The quiet revolution of micro-investing lies less in returns and more in behaviour. By automating the process, these platforms exploit one of the strongest forces in finance – consistency. Investors who deposit even small amounts regularly are likely to outperform those who delay or over-analyse.

This behavioural angle aligns with findings from behavioural economists: removing friction and simplifying choices leads to higher participation and savings rates. In that sense, micro-investing apps are less about making people rich overnight and more about cultivating long-term financial literacy.

The fine print: fees, risk, and regulation

While accessible, micro-investing is not a free ride. Fees can erode returns when balances are small, and the diversified ETF portfolios on offer often mirror basic index funds that could be bought directly through a broker for less. However, what users gain in simplicity and automation can outweigh the cost for many beginners.

It’s also important to note that market volatility affects these portfolios just as it does larger investments. Investors can lose money, and the convenience of the app doesn’t shield them from that.

Why this matters to the broader market

Micro-investing is shaping a new generation of financially engaged Australians. The number of Australians using micro-investing apps, has doubled from 899,000 to 1.8 million in the year to March 2022. Data from investment administrator Cache shows a 100 per cent annual growth rate, most accounts held by Australians under 40. The collective capital might be small compared to traditional fund flows, but its influence is cultural – it normalises participation in markets.

As these investors mature, many transition into direct trading or superannuation contributions, expanding the base of retail market participants. In time, this shift could increase financial literacy across the economy, potentially narrowing Australia’s persistent gender and generational wealth gaps.

The next wave: from micro to mainstream

For now, though, the message is simple: starting small works. With as little as $5, Australians can learn the rhythms of the market, develop saving habits, and watch their money grow over time. The sums may be modest, but the psychological shift – from consumer to investor – is anything but.