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4 min read

Modern Micro Investing Can't Compete with Tried-and-True Investment Strategies

Fri, Aug 14, 2020

microinvesting-robinhood-daytrading-turnkeyinvestingAs technology progresses, we see people looking to innovate the investment game. Technology, after all, offers some unique advantages and conveniences that we once didn’t have. Even just the internet and its ability to connect people around the globe have revolutionized how we invest. 

In the past several years, we’ve seen a surge in investment apps — specifically, micro-investing apps that encourage using small amounts of money to invest within your budget. They tout that new investors need no experience and only a minuscule contribution to grow wealth over time.

We understand why these platforms are appealing, particularly to millennials and Gen Z, who are historically cash-strapped. Between the burden of student loans and faltering job prospects and wages, it’s no small wonder that these effort-free investing platforms have taken off.

But do they really lead to successful investing? Let’s talk.

Why Micro-Investing Appeals

First of all, what is micro-investing? 

Micro-investing is the idea that you can shave off your spare change or a small portion of a paycheck and put it towards investing. Different apps boast different types of investments, but all of the major players (Stash, Acorns, Robinhood) in the micro-investing game rely on investing in stock portfolios. Robinhood is a bit more complex, as it allows investors to trade stocks commission-free and with no minimums. It’s less robo-investing and more accessible day-trading.

Micro-investing seems like the best solution for millennials and other young, inexperienced investors due to a lack of barriers to entry. After all, one of the major perks that they claim is that you can invest within your budget.

With so many Americans unable to make significant financial commitments but lacking retirement savings, it’s no wonder this idea of investing piecemeal appeals.

But there are some big problems with this model.

3 Ways Micro-Investing Platforms Fail Their Investors

No Real Wealth-Building

The primary problem with micro-investing platforms is that it simply isn’t enough. When the experts recommend a retirement account of a minimum of $1 million, throwing spare change into investments just doesn’t cut it. This is one of the cons highlighted by Entrepreneur. In the end, this “risk-free” approach to investing won’t reap the rewards of more reliable long-term investments. Not only that, but many of these platforms limit your ability to diversify your portfolio. 

While accessible and low-risk, these qualities ultimately trade away the opportunity to build real wealth over time.

Be sure to check out: How Your Investment Properties Transform Into Long-Term Wealth

Preying on Inexperience

Robinhood has been criticized in particular for leading inexperienced investors to lose a lot of money through day-trading. According to the New York Times, the average investor on the platform is 31 and lacks any experience in investing. Inexperience doesn’t have to be a barrier to wealth-building through investments. After all, we all have to start somewhere.

Part of the problem with these apps, however, is that they are infinitely accessible to anyone with a smartphone. You can sign up and hit the ground running. However, a lack of investor experience can lead to some big losses, especially when the platform doesn’t prep you in adequate know-how. Some experts have even likened it to “trying to beat the casino.”

Trading firms see these users as easy targets for making money with little regard to investor losses.

Deceptive Charm

Apps are designed with the user experience in mind. However, when it comes to investing, that ease-of-use can pose some threats. With attractive graphics and slick design (as well as unlimited access), it’s possible to become glued to one’s smartphone — constantly busying oneself with trades and numbers.

First things first, the faster one trades stocks, the less money they tend to make. In fact, a lot of people lose money. While ease-of-access is a big selling point in these apps, it can make the process seem deceptively risk-free. A lack of real, tangible risk — no minimums, no brokerage fees — means that investors may not take their monetary contribution as seriously.

So little is demanded of the investor that they are not prompted to examine and fine-tune their money management skills, never really learning about how to invest wisely. Because it seems so easy, so much like a sure thing, it’s also easy to take on a lot of unexpected risk.

The Turnkey Alternative

Turnkey real estate investment is known to build lasting, long-term wealth while also remaining accessible to the inexperienced. These real estate investors absolutely take their portfolios seriously — the cost, after all, is premium compared to other methods. But this is where turnkey real estate shines.

That cost is well worth it because investors not only receive properties with cash flow and growing equity, but they can take advantage of the experience of their turnkey provider. At REI Nation, we’re not about throwing investors to the wolves for profit. No, we strive to build long-term, mutually beneficial partnerships.

Our investors come from all over the world and have vastly different levels of experience. We give our investors what they need — allowing them to leverage our knowledge and experience so that they can make the best possible decisions for a long-term, wealth-building investment portfolio.

Don’t fall prey to investment platforms that promise minimal risk and commitment. Real, successful investments demand both.

 

Start building your passive investment portfolio today!

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Chris Clothier
Written by Chris Clothier

Entrepreneur, writer, speaker, ultra-endurance athlete, husband & father of five beautiful children. Chris puts these natural talents on display every day. As a partner at Memphis Invest, Chris addresses small and large audiences of real estate investors and business professionals nationwide several times each year. Chris is also an active writer, weekly publishing real estate, leadership, and endurance training articles.

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