The Perils of Micro Investing

Micro Investing is a great way to gain exposure to the stock market with as little as $1. Options for micro investing include acorn, stash, stockpile, M1 Finance and many more. You can use these websites and applications to invest in individual stocks or ETF’s. Some charge fees as little as 1- 2$ a month or a percentage of your portfolio and others like M1 Finance currently have no fees, but they do offer other products that they use to make money like loans and high interest rate savings and checking accounts.

Micro investing is simply investing in fractional shares of a stock, ETF, commodity or cryptocurrency. You can for example buy 0.05 of bitcoin or 0.5 of an apple stock. Micro investing has become popular in the last 5 years or so and it stems mostly from this epic trend setting raging bull market that we are currently in. It has become so easy to make money with everything going up that millennialnials are flocking to this new trend in waves.

I recently read an article on market watch which stated that stock ownership has doubled between 1989 and 2016 for those earning between $24,000 and $42,000 annually. They credited this to more employers offering access to tax advantage retirement accounts such as 401K’s and IRA’s and also to the increasing contribution limits to the 401k with contribution limits of only $10,000 in 2010 and increasing contribution limits to $19,000 in 2019. It has also become much easier to gain access to the market with the advent of the Robinhood platform offering zero fees and free trades. This in turn has forced other brokers to offer lower fees and cost per trade to stay competitive. That’s why E trade commercials are dominating the airways with there ads stating don’t hate your brother-in-law because he makes more money than you, just open an E trade account so that you can keep up with the joneses.

Access to the stock market use to be only available to the privileged few and wealthy populations, but that has since changed and I think it’s wonderful that more of us have access to this wealth building tool. Outside of investing in my 401k, I recently started investing in the short and mid term risky venture of buying individual stocks with Robinhood with the guidance of my brother who is a CPA and was advising me on which stocks to buy. I’ve also started experimenting with micro investing to once again gain access to risky assets like cryptocurrency and expensive stocks like google and amazon, the likes of which I did not feel like paying a premium to sit at the table and invest in.

The peril with opening up an e trade account to keep up with the joneses that are riding the bull market, or investing in individual stocks through Robinhood or micro investing is that no-one is talking about the risk of investing. We may all know that the market alway goes up, but how prepared are you for those dips on the way up. There have been countless market corrections and crashes where investor have sold their shirts at the bottom of the market. The problem is no-one is ever sure how they will react to their portfolio dropping 60 or 75% until it does. What are you really going to do when the media is yelling in your ears that you need to get out of the market now before your portfolio goes to zero. 

The problem is it’s that same FOMO induced peer pressure tactics that the media is using to get everyone into the market that they will also use to rush everyone out. Except this time the Joneses are going to be bailing out of the market in drones and the media is going to be screaming saying no one is stupid enough to stay in this volatile market, get out while you still can.

It’s like the media entices you in but then pushes you out and it can be hard to say no. That’s the exact reason why a lot of investors didn’t even watch the news during the 2008 market crash. Sometime it can be too hard to resist the temptation to keep up with the Joneses.

Now don’t get me wrong. I love investing in Robin Hood and micro-investing just like the next guy. I too am a millennial  and part of the FIRE community. I just don’t want to see young and new investors make an unwise decision like selling at the bottom of a bear market. Now it is much more easier to resist the temptation to sell when you are an index fund investor, but if you are investing in individual stocks you are going to have to pay close attention to those companies in a crash to make sure they truly are not going belly up. That’s why I truly believe the majority of your wealth should be in those long term strategies; and of course you can buy ETF’s through micro-investing. 

The wisest investing advice I have received was someone who told me “only invest in the stock market with money you are willing to loose. If you have this investment philosophy you will be less likely to loose in the long run.”

Once again. Happy Investing!!!

Addendum: Please check out his article from market watch which shares the same sentiment. 


I am not a licensed accountant or financial advisor or hold any type of professional financial certifications. This content is general information on investment strategy and does not constitute official or personalized investing advice. It is not a solicitation to buy or sell stocks or any security.  Invest at your own risk. The views of this blog are my opinion alone unless stated otherwise. Any type of historical financial success does not guarantee future returns.

Published by The Fire Investor

Financial Independence hobbyist offering practical wealth building advice for all income levels with a focus on achieving early financial independence.

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