For smaller investors seeking a way to build wealth and grow their savings accounts, spare change apps are enticing. Over decades, the stock market is one of the best ways for individuals to grow their wealth, especially for retirement and future goals.

During the last century, investing in the stock market resulted in approximately 9% annual return while savings account returns were in the low single digits.

Yet nearly half the population is missing out on this wealth building opportunity.

Gallup found that 55% of Americans owned stock in April 2019. This number has dipped a bit since 1998, when the financial reporting company reported that 60% of Americans owned stock.

That leaves a large swath of the population not investing.

Because of the large number of ordinary Americans shut out of the financial markets either by choice, high investment minimums, or lack of knowledge, many spare change investing apps have emerged.

Spare change apps, like Acorns, Betterment and M1 Finance allow small investors to invest in the stock market. No need for thousands of dollars to get started. Just download an app, answer a few questions, link a bank account and you can invest spare change into the stock market.

Investment Apps like Acorns, Betterment, M1 Finance, Stash, Twine, Axos Invest, Wealthfront and others make investing spare change easy. Possibly too easy.

With the S&P 500 index growing nearly 30% in 2019, it might seem like investing in the stock market is a sure fire way to riches. Yet investment apps like Acorns have their pros and cons.

For newer investors, considering whether to use an investment app to get started in the stock market, here are the spare change app pros and cons.

What is a spare change app?

The Acorns spare change investing app uses a system called “round ups” to transfer the difference between your purchase amount and the next round dollar amount into the stock market. So, if you buy a coffee for $2.40, then $.60 will be transferred into your investing account.

Other apps where you can invest spare change are competing with investment apps that allow you to get started investing with a low minimum investment amount.

This article will cover the spare change investing app domain, with round ups or not, to help you understand whether this easy path to investing is worth it, for you.

Spare Change App Pros

1. Low Investment Minimums - You can get your money working for you in the stock market quickly, with small investment amounts. Many spare change and robo-advisor apps require zero minimum investment amounts.

One of my favorite investment apps is M1 Finance. This app allows you to invest in ETFs, stocks, and pre-made portfolios called M1 Finance Expert Pies. I have an account with them that owns a 60% stock – 40% bond expert pie of diversified stocks and bonds. And, the minimum investment amount is only $100.

2. Low or Zero Management Fees – Investing in the stock market involves fees. Exchange traded funds charge small management fees. Stock trading might charge commissions to buy and sell. Although, Robinhood has never charged fees for trading and recently most of the major discount brokers have also cut their commissions.

Most spare change apps charge low or no investment management fees. The founders of Robinhood wanted to introduce investing to people that were previously shut out of the investment markets. So they led the way with free trading. The competition between M1 Finance vs. Robinhood helps consumers as both spare change investment apps charge zero management fees for their basic services.

3. Introduces Younger Folks to the Investment Markets – The robo advisor and spare change investment apps make investing easy. Signing up and linking accounts is seamless. Most apps explain how to invest with little money. Small investors can buy stocks and funds with a few dollars and begin to learn about the financial markets without a lot of money.

Spare Change App Cons

1. Fees for Small Accounts Might be High – If an investment app charges per account and not per amount invested, small balance accounts are penalized. For example, Acorns charges either $1, $2, or $3 per month, depending upon the plan. With a $2 per month fee, and a $200 account value, you’re paying a one percent management fee. Although M1 Finance and Robinhood don’t charge fees to open an account or to buy or sell securities.

2. Investing Might Be Too Easy – Investing involves risk and you could end up losing money. Although average stock market returns are roughly 9% per year, there are some years where the stock market loses money. For example, in 2008, the stock market lost 36% and in 2018 the stock market lost 4.23%. Consumers need to understand the risks as well as the benefits of investing.

3. Consumers Might Not Invest Enough – Investing small amounts of money with spare change apps can take a long time to build wealth. If you invest $20 to $30 per month, it’s going to take decades to see any significant investing growth. Investing tiny amounts will not be enough to build up a retirement nest egg.

It’s helpful to check out an investment calculator to find out how much money you’ll need to meet your financial goals.

Spare Change Investing Apps Wrap up

Investing with spare change apps is a good way to get started investing. But don’t forget to learn about investing and increase the amount you deploy into the markets over time. Also, do not invest any money in the stock market that you will need within the next five years. Investing is best for long term goals, as the financial markets are volatile and values can go up and down.