Outside of those ‘in the know’ a historical approach to pretty much any member of any age group suggesting that they really ought to be squirreling more away to secure their financial future would have been met with a similar riposte – ‘can’t afford to’; however, micro-investing is here to promote little and often.
Millennials (those born between 1980 and the early 2000s) probably have greater justification in adopting such a stance than previous generations given that their wages are squeezed, they carry the burden of unprecedented student debt, and the cost of keeping a roof over their head has, well, gone through the roof.
However, the call for a show of hands from those that believe that welfare support and state pension provision is likely to improve in the future is unlikely to garner much support; if Muckle’s core credo is to be invoked to positive effect we need the next generation to start saving and investing early and for a long time.
Let’s not pretend it’s anything other than tough; but the longer you leave it, the tougher it gets, which is why micro-savings apps or sites encouraging small, regular investments are gaining traction.
micro-savings apps or sites encouraging small, regular investments are gaining traction
Technology, particularly mobile, is the enabler for micr-investing and it is not just the preserve of funkily-bemonikered start ups, the big boys in the banks and the traditional wealth managers are seeing the benefit of engaging new clients early and keeping hold of them until they make some proper money out of them.
Unsurprisingly, with financial self-reliance more deeply ingrained, the US got in ahead of us, and a brief look at the range of choices there may give us an inkling as to what we can expect:
Betterment – ‘a great platform for young investors to get started’ – no minimum investment, small regular investments via iOS and Android
Acorns – a ‘round up’ service that ‘allows millennials to easily take tiny amounts of money from everyday purchases’
Kapitall – ‘where investing meets gaming’ – if they needed to meet
Robinhood – ‘bringing Uber-like simplicity to investing in specific stocks for millennials’; makes money from interest on un-invested cash (taking from the poor to give to the rich?)
Openfolio – where social media gets the investing habit
iQuantifi – a ‘virtual IFA’ – do I get a virtual hob-nob?
Add in Personal Capital, Banktivity Investor, Quicken, SigFig Investing, Moneydance, StockTwits, Thinkorswim and Forcerank and you’ll get the gist; but if you’re just starting out this side of the pond, what would represent a sensible first step to securing your financial future?
Before you do anything, take stock; get a grip of any outstanding debts – there is little point in investing whilst you are servicing expensive debt.
Then, make sure that you are making the most of your current pension arrangements – although your pot will be locked away until you are 55, tax relief on contributions is generous and you should ensure that your employer contributes up to the maximum.
The minimum combined contribution from the saver and employer is currently 2%, rising to 5% in April 2018 and 8% from April 2019.
Time is on the millennials’ side and the more you lock away, the more comfortable your retirement; those opting out of a workplace pension scheme effectively miss out on ‘free money’.
Now you’re ready to move ahead:
1 Earn from what you already do – find a current account that pays interest; they’re still out there and rates can be higher than on traditional savings accounts – up to 5% from Nationwide and 3% from Tesco Bank – subject to conditions around minimum balance and contributions.
2 Be tax efficient – Help to Buy ISAs help millennials to start saving for a home deposit by adding a 25% government ‘top up’ to savers’ funds (£3,000 max) on completion of a property purchase.
The new Lifetime ISA (LISA) offers those aged between 18 and 40 a government contribution of 25% either towards the purchase of a first home or towards their retirement.
Investing into a low cost index tracker in an ISA wrapper is a simple, and cost-effective way to start investing.
3 Get the savings habit – regular savings accounts encourage financial discipline and can pay competitive interest rates such as Nationwide’s 5% regular saver deal which is available to its current account customers.
4 Take control – sign up with one of the many micro-savings apps or digital investment managers and begin your journey to financial freedom.
Many banks and building societies offer apps that encourage the user to sweep ‘change’ from everyday purchases into a savings or an investment account.
In addition there are an increasing number of micro-investing apps designed to get millennials into the groove – True Potential allows savers to invest from just £1 into a multi-asset fund within a tax efficient stocks and shares ISA wrapper; Moneybox allows users to sweep residual cash, make one off or regular investments into one of three risk adjusted portfolios – ‘cautious’, ‘balanced’ or ‘adventurous’ – in either a general investment account or an ISA. See ‘Micro-investing: just don’t do nothing’
Banking apps either come from traditional players such as Nationwide with its Impulse Saver app and HSBC’s SmartSave or from a number of new entrants fuelled by the fintech revolution such as Monzo; some may be configured to automatically sweep surplus money from a current account into a savings account at the end of the month.
Chip takes us a little closer to Big Brother by analysing your spending patterns, working out how much you can afford to save, and then transferring it into a Barclays savings account – it currently works with HSBC, Santander, Lloyds, NatWest, Nationwide, RBS, TSB, Halifax, First Direct, Co-operative Bank and Metro Bank; if you spend more, it transfers less and vice versa.
Customer acquisition is key to the micro-investing and robo-advice platforms; Chip has an ‘introduce a friend’ scheme that adds 1% to the annual interest that is paid to the introducer’s account.
The fact that an imminent launch will be of a ‘digital piggybank’ called Oinky gives a good indication of its target audience and many of the micro-investing apps use popular social media language such as emojis to communicate.
an imminent launch will be of a ‘digital piggybank’ called Oinky
Folio is being heralded as a ‘smart banking app that tailors your savings around the things you love’ letting you automatically save small amounts of money, for specific goals – ‘making saving a fun, simple and personalised experience’; Squirrel is apparently the ‘UK’s simplest way to create and stick to a budget.
It would be easy to dismiss such apps as gimmicky because of the way in which they are attempting to engage with tech savvy millennials, but the absolutely serious nature of the pursuit and the value of engaging with the next generation of savers and investors have not been lost on the more traditional sectors of the financial services sector.
Once the embodiment of old-school wealth management, Killik and Co, with Silo, its ‘bionic finance’ initiative, and Brewin Dolphin with Brewin Portfolio Service have launched ‘incubator’ services of their own; even banking behemoth UBS has joined the fray with SmartWealth, albeit with a less than entry level £15,000 minimum investment.
Those wishing to set their financial objectives, assess their attitude to risk and embark upon a more structured investment regime may consider one of the growing number of robo-advice, or ‘digital wealth management’ platforms as they would prefer it.
Companies such as Nutmeg, Scalable Capital, MoneyFarm and Wealthify are all open for business and allow 24/7/365 access from a range of mobile devices and proprietary apps; to see the most a comprehensive comparison of UK robo-advisers click here
Many are attempting to reach out to millennials; MoneyFarm, for example has no minimum investment and levies no management fee on the first £10,000 invested.
Take some time to research the various platforms that exist and find the one that offers the right range of account types, investment options and fee structure for your requirements.
robo-advice is ‘do-it-for-me’ investing
The robo-advisers typically manage your portfolio on a discretionary basis – i.e. once you have set your financial objectives, and been allocated an investment portfolio in line with your attitude to risk, you mandate them to make investment decisions on your behalf; you are able to monitor the balance and performance of your investments, or indeed access them, at any time.
Unlike DIY investors who select their own individual stocks and shares, robo-advice is ‘do-it-for-me’ investing and may be attractive to those that want a diversified and managed investment portfolio but without attracting the cost of traditional financial advice.
Whether they be micro-savings apps, round-up investment services, robo-advice platforms or incubator services rolled out by investment managers and banks, the one certainty is that there will be an awful lot more of them in the future as the FCA nurtures and encourages the fintech community to plug the ‘advice gap’ that it in no small way contributed to.
Facing an increasingly uncertain future, it is inevitable that there will need to be greater individual responsibility when it comes down to personal finance; technology now provides access to investment capability that would have been the preserve of the red-braces brigade in the past, and the evolution of artificial intelligence and future technologies such as blockchain will deliver incredible power to the individual.
If that engages the next generation of savers and investors, allows them to achieve financial freedom and achieve better outcomes, Muckle will have achieved its purpose.