A Simple Guide to Microinvesting
Investing – you probably don’t remember too much about this from school because LOL nobody ever taught us anything about it. I know, I know, education is very valuable and teachers work really hard. But right now as a generation of financially buggered millennials, unless the stock market involves trivia about ancient Egypt or a very basic working knowledge of how to use a bunsen burner, we’re pretty bloody screwed.
Well, we were. Until some rad chick started this website called The Broke Generation and we all started learning mad new skillz that got us financially literate… lol hi.
Okay so let’s start at the very beginning, the real basics for those of you who have had you head buried so far into a Netflix shaped pit of sand that you’re not entirely sure.
What is investing?
Investing is any activity that involves buying something with the intention generating income from it. Generally this is by way of selling it for more than you bought it for (realising a capital gain), or by charging a regular fee for someone to utilise the asset while you still own it (this is called cash flow investing and usually applies to property)
It’s kind of a fancy form of gambling. But I suppose legally it’s not great to make that association.
What can you invest in?
Well, when you think of the term ‘investor’, you’re probably conjuring up an image of a suave fella in a sharp suit, perhaps he’s got a briefcase, he’s definitely got a rolex, and he’s probably lookin’ pretty damn fine. In fact, you’re pretty confident you’d swipe right to him on Bumble.
That’s because firstly, systemic and societal discrimination against women has historically implied that high rollers are always men. And secondly, because investing used to be reserved for the already-wealthy. Sure, you’ll hear the odd rags-to-riches story of how some the stock market turned someone’s life around, but in general, people assume that investments are there to make the rich richer. Even if you’re weren’t already wealthy, traditionally you’d still have to have some money that you’re happy to take a punt on with an investment decision.
Tell me more
Oh, I’m gonna.
Nowadays, technology is allowing anyone and everyone to become an investor. All you need is a few dollars/pounds/euros/magic beans and boom – you can invest in shares.
Yep – the thing I said before about ancient Egypt and World War 1. Younger generations don’t understand what investing is or how they can get into it.
We’ve watched Wolf of Wall Street and we’ve heard and hated the term ‘broker’, but we don’t reeeeeally get it.
So, here’s how it goes
In short, the stock market (or share market) has listed on it tiny slices of big business pies. So if you invest in Apple shares, you own a teeny tiny bit of the company. So, when that company makes more money and is worth more, your slice of the pie is, too, worth more. You sell your slice for more than you paid and boom – you’re a winner.
Fun fact: stocks and shares are essentially the same thing. There are some differences, but it’s really to do with the relationship between you as a stock or share holder and the company.
How do you make money from shares?
Great question, and there can be a complicated answer or a simple answer. I’m obviously going to give you the simple one.
You make money from shares by either the share growing in value – like we said before – and by dividends paid out to you.
Dividends are sort of your portion of the profits that company makes, because you own that tiny slice of it.
In theory, if there are 100,000 shares in a company, and you own 5 of them, you own 0.005% of that company. Say that company makes $1m in profit, you could be entitled to 0.005% of that – $5000. That doesn’t mean you’ll actually get that $5k, though.
Unfortunately, a number of factors depend on what dividends are paid out to shareholders, and it comes down to decisions made by the Board of Directors. That’s a bit complicated to go into right, but it ultimately doesn’t matter for a newbie investor.
So how does a clueless millennial like me get into investing?
You’re gonna find out right now, from one clueless millennial to another.
The answer? Micro-investing.
Traditionally, you would buy stocks and shares by calling a broker (yep, like in the Wolf of Wall Street) and he’d sell you some wizzy new stock and you’d take his word for it – and plonk down a hefty sum of money shortly. Like I said, investing used to be for big boys only. Brokers won’t get out of bed for a $100 investment. They want big money – and they get it.
Toady, the world is filled with apps and websites that allow you to invest as much or as little as you like. Got a spare ten dollars/pounds/euros/yen? Stick it in your investment pot.
You don’t need to know what to invest in, either. You can select different portfolios of ETFs (exchange traded funds). Different portfolios carry different risks, and may relate to different industries like tech, innovation, science, retail, etc.
So what you can do is invest incrementally into these funds and watch your balance grow – or drop. That’s the major downside with investing in shares. It’s one of the few asset classes in the world where values can actually drop to zero.
Please don’t freak out.
But by investing small amounts regularly, you’re engaging in a junior version of dollar-cost averaging (DCA).
I won’t bore you with the details but DCA basically means buying a set amount regularly, no matter what the unit prices are. It kinda averages out how much you pay for units, by buying less when the price is high, and more when the price is low.
You can choose to invest as much as you like daily, weekly or monthly. Just like a savings account, you put the money in and leave it. The fund managing techy people take care of the rest. No buying and selling, no watching a dual-screen nightmare erupt before your very eyes, no bell ringing or shouting BUY LOW SELL HIGH (though I welcome you to do this while stabbing at your iPhone on the morning commute).
Where can I start buying shares online?
For this type of micro-investing, it’s worth doing your research and finding a platform you feel comfortable using.
In Australia, Raiz (formerly Acorns) is popular and can even round up your everyday transactions and invest the difference.
Spaceship Voyager is a new innovative investment platform that allows you to invest in future-friendly funds. (If you do sign up use code EEDWARDS9L1 to get $20-$40AUD for free to kick start your investment journey). Just click ‘My Profile’ and ‘Promotions and Rewards’ to enter your code then it takes a few days to clear, and boom – your reward is invested!
How can I get into investing in my twenties?
I know, investing sounds like such a big girl panties game, and if it’s not for you right now, that’s okay. It can be overwhelming and it’s another bloody balance to check and be heartbroken over and like seriously will I even have time to start investing because the new season of Making a Murderer is chewing up all my time?
I feel you.
But if and when you’re ready to give investing a crack, start small and make it a habit – like saving. That’s really all it is, incremental saving, but with a higher risk and potentially higher reward. Kinda like paying for tinder. It *could* swallow all your money OR you could meet your soul mate. We all take gambles.
But on a serious note, it’s really important to remember that investments carry risks. Yes, if you could start investing as little as 1% of your income in a micro-investment app, that would be so SO COOL. Just don’t forget that it’s not quite as black and white as what’s in the bank. One day you could have $200 in your account and the next day it could be $180. But share values recover and onward we go. Have faith!
And look, micro-investing a portion of your savings isn’t going to make you an overnight millionaire. Think of investing as a long term game. When interest rates are low, your money is doing nothing for you sitting in a bank account – and that’s the real benefit of investing. Your money can work harder for you while you sit back and watch Netflix.
Now that’s the dream.
If you have questions, concerns or comments, slide on into my DMs on Instagram @the.brokegeneration.
Over and out.
Please note information and opinions contained in this article are of a general nature only and solely reflect the experience and views of the author. It is always recommended that you seek the advice of a qualified professional before making financial decisions. This post is in no way associated or affiliated with any of the companies mentioned, and The Broke Generation and related parties take no responsibility for action taken as a result of this content.