You don’t need to be rich to start investing in Australia

A common misconception about investing is you need a lot of money to start. But the truth is, no matter what your financial situation is, you can start investing into stocks and/or bonds.

In this article I’m going to explain how to start investing, even if all you have is $5. But before I get into the explanation, let me explain why everyone should be investing.

Why you should be investing

Did you know that your money is losing value? That money sitting in your savings account is slowly worth less and less. It’s called inflation. As time moves on, the price of living slowly increases. This increase is known as the inflation rate.

A small amount of inflation is a good thing. But it’s not such a good thing for your money. Because interest rates are so low, even a “high” interest savings account is probably paying less interest than the inflation rate. The inflation rate varies but it’s anywhere between 0.5–3%. So if the interest rate you’re getting from the bank is less than this amount, you’re losing money!

As time marches on, the buying power of your money decreases. It’s why your parents were paid an annual salary of ~$10k when they were young. Back then $10k had a lot more buying power than it does now.

So how do you beat inflation?

Beating Inflation

To beat inflation you need to invest. The first goal for most investors is to beat inflation. If you’re young you’ll probably want to beat inflation + increase wealth. If you’re older, you’re probably just looking to retain the wealth you have.

Investing in shares and bonds is a tried and tested way to beat inflation and increase your wealth.

Investing with just $5

So how do you start investing with such a small amount of money? In the past investing in stocks with just $5 would be impossible. Thanks to brokerage fees and exchange minimums, you’d need to invest hundreds of dollars at a time. To make it really worth while, your best bet would have been to invest $1k+ at a time to offset brokerage fees.

But now thanks to a couple of new platforms, anyone can invest with as little as $5.

Introducing Micro Investing

Micro Investing lets you buy into a portfolio of stocks and bonds with as little as $5. Instead of buying 1 full share, you’re buying little pieces of hundreds of shares (sometimes thousands).

You get access to the same type of portfolio that the top investors in the world use! You no longer need to pay some dodgy finacial advisor or investment fund for stock picks (no one should ever pay for this anymore!). The portfolios put together by micro-investing apps are usually completely automated.

Micro-investing in Australia

I can currently count three micro-investing apps in Australia. Down under we’re a bit late to the game. These apps have been around in the U.S for years. When these apps initially appeared they weren’t warmly received by some so called “personal finance experts” ( aka Mr Barefoot). But the math checks out. If you invest small amounts through micro-investing you will save a fortune compared to using a broker like Commsec. These “experts” are worried people will start using automated tools like these apps, and stop buying their books.

Here are the three apps in Australia:

• Raiz — The first micro-investing app and the largest. You can invest in one of 7 portfolios which are built for different goals/life stages. Raiz charges a flat monthly fee of $2.50. Or a % fee when you hit $10k. You can invest in small amounts of just $5 at a time.
• Spaceship — This is currently my favourite investing app. They offer two portfolios. An index and universe portfolio. The index tracks 200 of the largest companies around the world. The universe portfolio includes companies that Spaceship thinks will be important in the future (like Apple, Tesla etc). The best feature of Spaceship are the low/zero fees. For balances under $5k you pay nothing at all! This deal can’t be beat. If you have less than $5k then you should be investing in Spaceship (although remember do your own research, I can’t tell you to invest, but I can tell you what a great deal zero fees on such a portfolio is!)
• Stake — Stake is a little different to Raiz and Spaceship. It allows you to buy U.S shares with zero commissions. You can also buy partial shares. This means you can invest as little as $10 at a time. If you’ve always wanted to invest in companies like Apple or Netflix, well now you can! p.s — Stake has a free stock offer which is available to new users.

If you’re looking for a hands-off approach to investing, then Spaceship or Raiz are both solid options. If you’re looking to pick stocks on your own, then Stake would be for you.

Commsec Pocket is a possible alternative. However they currently don’t allow partial share trading. So it’s not really micro-investing and the maths doesn’t add up for me.

I’ve been using a combination of Spaceship and Raiz. My Spaceship portfolio outperformed Raiz, but I was still impressed with how well both apps performed during Covid times. In during that market crash, I never lost more than I had put in and still came out way ahead. And because I was dollar cost averaging (investing small amounts regularly), I was able to profit from the market downturn.