For many years, the idea of investing in shares seemed out of reach for plenty of Kiwis. High brokerage fees, minimum deposit requirements, and a general sense that the sharemarket was only for the wealthy kept a lot of people on the sidelines. That has changed dramatically over the past few years, with a new wave of micro investing apps making it possible to start with as little as a few dollars.
These platforms have become popular with younger investors in particular. A recent survey by Sharesies found that more than 40 per cent of its users are under 35, and a growing number are investing for the first time. The trend is not limited to New Zealand either. Similar apps have taken off in Australia, the United States, and the United Kingdom, with millions of users collectively investing billions of dollars.
Micro investing apps work by pooling money from many users and allowing them to buy fractional shares of companies. Instead of needing to buy a whole share of a company like Apple or Air New Zealand, you can buy a slice worth as little as one cent. This lowers the barrier to entry and makes it easier to build a diversified portfolio without a large upfront sum.
Most micro investing apps operate as a simple mobile application. You link a bank account, transfer some money, and then choose from a range of investments. Some apps focus on individual shares, while others offer exchange-traded funds (ETFs) that track a market index like the S&P 500 or the NZX 50. Others provide themed portfolios, such as renewable energy or technology companies.
Fees are usually low compared to traditional brokers. Many apps charge no brokerage on trades, instead earning revenue through a small monthly subscription or a percentage fee on the total balance. Some also charge a foreign exchange fee when buying overseas shares. For example, Hatch charges a 0.5 per cent fee on transactions, while Sharesies has a tiered subscription model starting at $1.50 per month for balances under $3,000.
One of the key features that appeals to new investors is the ability to set up automatic payments. You can schedule a weekly or fortnightly transfer of $10 or $20, which then gets invested according to your chosen strategy. This is essentially dollar-cost averaging, a technique that smooths out market volatility by buying at regular intervals regardless of price.
The platform also provides educational content, webinars, and community forums. This helps beginners understand concepts like diversification, risk tolerance, and long-term compounding. While the apps are designed for simplicity, they still encourage users to think about their goals and time horizon.
The main benefit is accessibility. You no longer need thousands of dollars to start. This has opened up investing to students, recent graduates, and those on modest incomes. It also allows people to invest in overseas companies that were previously difficult to access from New Zealand.
Another advantage is transparency. You can see exactly what you own, how it is performing, and what fees you are paying. This is a refreshing change from some traditional managed funds, where fees can be opaque and hard to compare.
However, there are risks. The ease of use can encourage impulsive decisions. Some users treat the apps like a game, buying and selling frequently without a clear strategy. This can lead to losses, especially when markets are volatile. It is also easy to overlook tax obligations. In New Zealand, you may need to pay tax on dividends and capital gains in certain circumstances, depending on your situation and the type of investment.
Regulation is another consideration. Most micro investing apps are licensed by the Financial Markets Authority (FMA), which provides some protection. But they are not covered by the same deposit guarantee schemes as banks. If the platform fails, your investments are held in your name, but there could be delays in accessing them.
It is also worth noting that these apps are not a replacement for a diversified portfolio or professional advice. They are a tool, not a strategy. For long-term goals like retirement, you may still want to consider KiwiSaver or a managed fund.
Before signing up, compare fees carefully. A low headline fee can be misleading if there are hidden charges for currency conversion or account maintenance. Check the minimum deposit and whether there are any ongoing costs. Also look at the range of investments available. Some apps only offer US shares, while others include New Zealand and Australian listings.
Consider the user interface and customer support. A clean, intuitive app makes it easier to stay on top of your investments. Good support is important if something goes wrong. Read reviews and check the FMA’s register to ensure the provider is licensed.
Finally, think about your own behaviour. If you are likely to check your portfolio daily and panic during downturns, a micro investing app might not be right for you. These tools work best for people who can set a plan and stick to it, ideally with a long-term horizon of five years or more.
Many apps now offer automated investing features. You can choose a risk profile, and the app will build a diversified portfolio for you. This is similar to a robo-adviser, but often with lower minimums. Some also offer round-up features, where your spare change from everyday purchases is invested automatically.
Education is a big part of the appeal. Apps like Sharesies and Hatch have extensive blogs, glossaries, and video tutorials. They also run live Q&A sessions and webinars. This helps demystify investing and builds confidence. For many users, the learning curve is part of the attraction.
However, not all education is equal. Some content is marketing in disguise. It is important to seek independent sources. The FMA provides free guides on investing basics and warnings about scams. The Sorted website, run by the Commission for Financial Capability, also has useful tools.
Tax can be confusing for new investors. In general, you pay tax on dividends from New Zealand and overseas companies. For overseas shares, the Foreign Investment Fund (FIF) rules may apply if your total overseas investments exceed $50,000. Below that threshold, you can use the de minimis exemption, which means you only pay tax on dividends and any gains when you sell, but you must declare them.
Capital gains are generally not taxed in New Zealand unless you are considered a trader. However, if you buy and sell shares frequently, Inland Revenue may view you as trading and tax your gains. It is a good idea to keep records of all transactions and consult a tax professional if you are unsure.
Micro investing apps usually provide annual tax statements to help with your return. Some also offer tools to calculate your tax liability. But ultimately, the responsibility lies with you.
The popularity of these apps is likely to continue growing. As more young people enter the workforce and seek ways to grow their wealth, the demand for accessible investing options will rise. We may see more competition, leading to lower fees and better features.
There is also potential for integration with other financial services. Imagine an app that combines your everyday banking, KiwiSaver, and investment portfolio in one place. Some overseas platforms already do this, and it could happen here.
Regulation may also evolve. The FMA is keeping a close eye on the sector to ensure investors are protected. New rules could be introduced around disclosure, fees, and suitability assessments. This would be a positive development for consumers.
Micro investing apps have made it easier than ever for Kiwis to start investing. They offer low fees, fractional shares, and a user-friendly experience. But they are not without risks. As with any investment, it pays to do your homework, understand the fees and tax rules, and invest only what you can afford to lose. With a sensible approach, these apps can be a useful part of a diversified financial plan.
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