Let’s talk about how you can start investing using little money. I’m going to do a review of the RAIZ Investment app.
First of all let me just say I love the RAIZ Investment app (previously known as Acorns). I think it’s fantastic. I’ve been using it myself for over 3.5 years now.
How it works
There’s a few different ways that you can invest using the app. You can invest a lump sum, however, it’s not always the best way to invest because you by in at one price in the market. Instead, consider investing a small amount over a long period of time. That’s the safest and most effective way to invest. Plus, it can be an unnoticeable way to really get ahead. So let’s ignore the lump sum investment for now because focusing on starting investing with little money, so you may not necessarily have $5,000 or $10,000 to invest.
The beauty with the RAIZ app and the one thing I absolutely love about this app compared to any other micro investing apps that are available in Australia is a feature called ‘roundups’. The RAIZ motto is to invest your spare change that means if you go and buy a coffee for say $3.50, the RAIZ app will roundup that purchase to the nearest whole dollar ($4.00) and take the extra money (0.50c in this instance) and invest it into your portfolio. Throughout my 20 year career working in financial planning I have never seen another product that can do that. There are some bank accounts now available with a roundup feature for savings accounts which is great, but never have I seen something that invests small amounts of money into the share market. Usually, it’s not practical to invest small amounts in the share market because the brokerage fees. So with RAIZ, the most outstanding feature of that is the roundups. It’s the only micro-investing app that I’ve seen in Australia offering that and it will change the game when it comes to investing. It helps you take advantage of dollar cost averaging! Buying into the sharemarket at different prices.
The way it works is, you link your different bank accounts to the app whichever accounts you use regularly for your transactions the more transactions you have coming out of it the more roundups will occur. So for me, I’ve attached a couple of my different bank accounts that I use regularly for expenses plus also a credit card that I use for the majority of my expenses. Every time I make a purchase, the app rounds up to the nearest dollar clumping all those little bits and pieces together and then once or twice a month it takes money out of my nominated bank account to invest into my RAIZ portfolio. It’s very smart and will round up money from bank accounts and credit cards but only take the actual money from one nominated bank account and never from a credit card (which is a no-go zone because of fees). RAIZ is very smart like that.
You can also nominate to add an additional amount to your portfolio each month (or are the frequency). Whether it’s $5 or $50 or $100, that feature should always be added as well as a savings plan. The roundups feature is amazing to get started but if you really want to grow your wealth quickly you’re going to need to do a little bit more than the roundups. The roundups are there so that you don’t even notice the money coming out of your bank account but if you want to enhance your portfolio speed things up then you need to add an extra amount as well.
I’ve been doing this now for 3.5 years with the RAIZ app. I do my roundups which with all of my expenses during a month usually equates about $40 per month taken from my bank account, plus, I’ve also been adding $200 per month religiously for that entire time.
How it invests
RAIZ invests in portfolios of exchange traded funds (ETFs). ETFs are essentially a group of shares puts together into one portfolio and listed on the stock exchange. You can go and buy the same individual ETFs on the ASX directly for yourself using a Commsec Trading account or a NAB Trade account for example but with RAIZ the point is that you’re investing into a portfolio of ETFs without doing it directly yourself. That’s how you save so much in brokerage fees because RAIZ will group all your money together with other investors and do bulk trading. There are 7 portfolios to choose from ranging from Conservative all the way to the Aggressive portfolio. Plus, there’s also an ethical portfolio (Emerald) and also a new portfolio called Sapphire with some Bitcoin exposure.
This depends on your investment timeframe and tolerance to risk (market fluctuations). If you’re risk adverse, meaning you’re not too comfortable with share market fluctuations then you should stay towards the Conservative or the Moderately Conservative portfolio. If you only want to invest for 2 to 4 years then you need to select shorter term (lower risk portfolios) such as these. A conservative portfolio option will be less influenced by market fluctuations and generally return will be lower.
If you want to invest for longer which means 5 or 7 years (or more) then you could consider the Moderately Aggressive or Aggressive portfolios and aim for higher long-term returns. The difference is that these portfolios will have more exposure to shares. For example, the Aggressive portfolio has 90% exposure to shares whereas the Conservative portfolio has only 23% exposure to shares.
Long-term investing means just that, several years. If you pick the Aggressive portfolio that means that you will experience more fluctuations in your account value on a day-to-day basis so you need to keep the investment for the long term long – 5 – 7 years or more. This is not a short term savings i.e. for an upcoming holiday, or a new computer etc. This is for long long-term wealth creation. Use a bank account or a high interest account for your short-term savings and something like the RAIZ app to get you started in long-term investing (several years before you touch the money).
With any investment there are fees attached. Usually, an administration fee or brokerage (to place a buy/sell trades) or an investment management fee (for the investment manager to manage the portfolio) or a combination. With RAIZ, if your account balance is less than $10,000 – which most accounts will be if just starting out – the fees are $2.50 per month ($30 p.a.) plus an investment fee – varies depending on which portfolio you pick i.e. 0.196% p.a. for the Conservative portfolio or 0.418% for the Aggressive portfolio, which is moderate in the scheme of things when you compare some of different managed investments that are available.
Once your portfolio grows to over $10,000 the $2.50 per month fee disappears and is replaced with a 0.275% p.a. admin fee. Again, for the features this app offers I believe these fees are very reasonable. When comparing different investment apps, RAIZ was one of the first but now there are several others (although none with a roundups feature), don’t just compare the fees, you must also compare the features you get.
Investing is a trade off between risk and return. All investments have a risk. Share markets go up and down. That’s not a risk of RAIZ as such, it’s a risk with all investing in shares. Long-term investing is a safety net so that you can ride out market fluctuations.
Another downside of the app is that you don’t get to choose the ETFs you invest in. You can go online and do this yourself and actually be in control of what investments you pick however the point of the RAIZ app is to get you started with investing, so when starting most people won’t have the time or knowledge to pick their own investments. Using an app such as this means you don’t need to worry about investment selection, that’s not the point. If you want to do it yourself open up your own online trading account such as a Commsec or NAB Trade account and do it that way.
Another benefit of the app is a rewards feature. If you’re going to be shopping online anyway you may as well get some cash back from the retailer by using the RAIZ app. Whenever you shop online, do it through your RAIZ app via your phone or desktop. The available retailers are not no-name shops, you’ve got Dan Murphy’s, The Iconic, Myers, Lorna Jane etc plus a whole bunch of different companies, even airlines! I’ve booked airline tickets via my RAIZ app and gotten some money back into my portfolio. We are putting an online shopping order through the RAIZ app the prices don’t change and you get a few dollars add to your portfolio. It all adds up over time.
My experience with the RAIZ Invest app
I started with $0 and after 3.5 years of roundups and a $200 per month savings plan, my account balance has grown to $11,500 (as at 5/10/2020). When I view my portfolio using the app (on my smart phone) I click “Past” and it shows me exactly how much money I’ve invested and also how much money I have earned. As at the time of writing, I had invested $10,588 (over 3.5 years) and made market gains about $800 which includes some dividends and I had received RAIZ Rewards of close to $100.
How to get started
As an overall review of the RAIZ Invest app the benefits are:
- Get started with little money. The minimum deposit is just $5.
- Investing knowledge is not needed. Select one portfolio based on your timeframe and RAIZ will do the rest.
- Roundups – investing in the background of life. This is the superstar!
- Savings Plan – add a small amount over a long time with no brokerage fees!
- Low fees for the features available.
- RAIZ Rewards.
When you start investing you need to have a long-term mentality because if you only do this for a year or so or even a few months or less you’re going to find there is a lot of volatility in the market. If you put money in and then take it out at a short-term notice you could find that the market has actually dipped and your portfolio may be worth less than what you’ve invested. You could lose money. Over the long-term risks reduce and you have a greater chance of making money.
Once you start your portfolio leave it alone and just keep adding to it for many years. Set it and forget about it. Don’t watch it, don’t worry about the share market so much.
I think the fees are very reasonable for the features available. Remember, the idea is to grow your portfolio. If you only have $100 in your account and then you stop adding any money, the small admin fee will be more noticeable (as a %). You can buy ETFs cheaper on the ASX than by using the RAIZ app, but the idea with a micro-investing app is that you keep going, keep adding to it for several years.
A bonus for you!
Get $5 in your RAIZ account when you make your first deposit (code T9MMSK)! Click here to get started today!
Or go to – https://app.raizinvest.com.au/invite/T9MMSK
This is my honest opinion and a review of the RAIZ Invest app, but it’s not financial advice. I’m not your financial adviser and haven’t taken into account your personal situation so you need to read the terms and conditions when looking into these to determine what one is best for you and your money.
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Disclaimer: This information provided is general in nature. It is based on the knowledge and experiences of the author and not intended to be taken as financial advice. It does not take into account the objectives, financial situation or needs of you or any other particular person. You need to consider your financial situation and needs before making any decisions based on the information. You may have to modify the information and do further research, for it to suit your personal financial situation. Therefore, before acting on the information, it is recommended that you consider its appropriateness to your circumstances or consult a financial adviser, tax advisers or legal professional to assist you in doing this