*This post may contain affiliate links. This means if you purchase through the link I will receive a small commission at no cost to you. It is the way sites like this are funded, but does introduce a conflict of interest.
An Introduction to Micro-investing
Stock market investing has never been so accessible. Investors can invest as little as $5 with RAIZ. Over the past 5 years, there has been an explosion in these micro-investment platforms, aimed at getting millennials into the market.
Many first time investors got into the market during 2020, and I think it’s great. Back in 2008 as a junior doctor, I watched the market tumble. Although I knew it was a good time to start investing, we had just purchased our principal place of residence and were broke. On top of that, I had no idea how to start investing. As I imagine brokerage would have been comparitively expensive back then, making small investments not really viable. Without a few thousand dollars and some know-how, it was hard to get started investing.
If I had access to a micro-investment account my stock market investing career would have started (all be it on a small scale) a full 9 years before it actually did. I may have screwed up, panicked and sold my few hundred dollars of investments. That would have been a fairly cheap price to pay for the education the experience provided!
Micro-investment apps provide cheap, super easy access to the stock market and cut out the expensive middle man. They are a perfect place to start for many first-time investors.
History of RAIZ
Acorns was started in the US in 2012 before launching in Australia in February 2016. The company rebranded in Australia as RAIZ and listed itself on the ASX in 2018. RAIZ has expanded internationally to offer micro-investing in Malaysia and Indonesia in 2019.
What is RAIZ
RAIZ is a micro-investment account that allows you to invest really amount into the stock market without brokerage. It targets 18-35-year-olds wanting to invest virtual small change, but offers automated regular and lump sum investing as well.
The investment platform is aimed at removing the need for an expensive financial planner. The RAIZ platform offers a small range of diversified portfolios to choose from, with the ability to form your own custom portfolio from a range of 17 ETFs. On sign up, a basic risk tolerance self-assessment occurs to help you select the most appropriate portfolio.
How does RAIZ Work
The signup process for RAIZ is pretty simple. Navigate to the website, click on “sign up”. You will need to link a “funding account” from which your investments will be transferred, and withdrawals from your RAIZ account deposit.
if you wish to “round up” link the relevant credit or debit cards. You can link as many cards as you like.
The minimum investment is just $5. You can receive $10 invested for free (this month) by signing up with my link*.
RAIZ then requests data required by law and offers you the choice of portfolios to select your investment preference from.
There are three ways to invest with RAIZ:
The idea of round-ups is like a virtual spare change jar. Each time you make a purchase with the linked credit or debit card, the spare change from a dollar is added to the round-up amount.
If a purchase is a whole dollar amount (for example $3), a whole dollar will be added to the round-up amount. These settings can be altered.
When the rounded-up total adds up to $5, this will be invested from your funding account.
Although this seems to be the dominant advertised feature, I don’t like the idea of Round-ups and haven’t activated this feature. But I feel it adds more complexity than is necessary. Unless you are watching the app daily, you have no idea when money is going to be invested from your funding account.
Will you Go Overdrawn?
Students presumably have no money and are the best demographic for this feature. Thinking back to my days as a student though, there would have been a very real chance of there being less than $5 in my account at times. I worry round-ups could result in overdrawn fees for the very skint.
If you are going to invest $20 a month through round-ups, it probably makes more sense to set up a recurring investment of $20 a month. If it leaves your account right after payday, there is no chance of the investment producing an overdrawn fee. Paying yourself first is an excellent habit to get into, even if the amounts invested are tiny initially.
2. Recurring Investments
This is where I think RAIZ really shines. The ability to automate investments is a powerful tool in helping you reach your financial goals.
No matter how little money you have, pretty much everyone can afford to invest the minimum $5 per pay cycle. There are no brokerage fees so this platform is perfectly suited to investing small amounts regularly.
I also think it’s useful for those with money, but no idea about how to start investing. This is one of the easiest ways to get started whilst educating yourself. It’s far too easy to delay investing with endless procrastination. RAIZ was my first stock market investment in 2017.
It’s common to think the amount you could invest is so small it’s not worth it. Invest anyway. Your brain will think up a million excuses to not invest. Get started. It doesn’t matter how small.
If you pay off a debt, immediately increase your investment amount by your previous debt repayment. If you receive a pay rise, increase your investment amount by the expected rise (or a proportion of it). Get these habits started now, and you will build a decent investment portfolio over time. Look back in 5 years and prepare to be amazed at how far you came even though it didn’t really seem “worth it”.
I still use this method, increasing investments with bi-annual pay rises, and any cuts in expenses. It helps me avoid lifestyle inflation and provides increasing amounts of freedom as time goes on.
3. One Off Investment
One-off investments won’t generally create long term wealth, as you need to automate regular investing over the long term as much as possible. But these can be handy if you have a lump sum to invest (tax return?) or want to invest more than usual during a market crash.
Waiting for a market crash doesn’t make mathematical sense, as the market always goes up over the long-term you are missing out on returns. But I do find it helpful to do something during a market crash, and the returns on money invested during a dip are likely to be better than average. I invest extra cash during significant (10%) market downturns and pick up some extra shifts when I can to refund my cash savings. While I was investing regularly with RAIZ, I arbitrarily invested double when my RAIZ balance fell until it recovered.
The minimum investment with RAIZ is just $5. RAIZ allows fractional investing, which means with your $5 you can own tiny amounts of several ETFs. RAIZ allows you to have a diversified portfolio from the start.
What is a RAIZ Funding Account
This is the bank account you nominate investments to come out of. If you withdraw investments, they are also deposited into this account.
RAIZ make you agree not to invest from a credit card or overdraft, which would be a pretty stupid thing to do.
Are Raiz Fees Worth it?
There are no fees on a $0 balance. RAIZ charges $3.50 per month once you have any cash invested until you reach a balance of $15,000 when a 0.275% yearly fee will be charged monthly.
The underlying ETFs also have management fees. The fees for each ETF are listed in the table below, but range from 0.04- 0.59%
There are no brokerage fees, which means you can invest as often as you like. This is ideal for investing a little with each pay.
Whether to invest by paying brokerage fees, or management fees depends on how much, often and long you wish to invest. Paying brokerage (once on purchase) becomes more cost-effective over the long term as you have more invested. Remember, the management fee is a recurring fee every year.
Having said that, RAIZ is still a perfect place to start, but most will want to graduate to a brokerage account or Commsec Pocket once they have accumulated a balance of $5,000 or have $1000 to invest regularly.
If you look at the fees charged in isolation, RAIZ fees are expensive, particularly for smaller balances. Utilisation of RAIZ rewards can completely compensate for the monthly fee, making the platform potentially free.
A premium fee of $4.50 per month is charged for custom portfolios until a balance of $20,000 is accumulated. Fees then revert to 0.275%.
Are the Fees Tax Deductible?
Investment management fees can be deducted from your investment income. Brokerage fees as an investor are added to the capital base when shares are sold. Brokerage can be deducted as an expense for share traders.
What are RAIZ Rewards?
RAIZ rewards are like a cashback account, but better. This feature has improved significantly since I was investing regularly with RAIZ. Back in 2017, I was able to completely offset my RAIZ fees with RAIZ rewards until I had a balance of around $30,000.
RAIZ offers rewards for shopping with 424 online retailers currently! They have also added a search function and a browser extension which will make utilising RAIZ rewards significantly less painful than when I was using it in 2017. I do note, however, that supermarkets are no longer offering RAIZ rewards.
Of course, retailers offer points and cashback to tempt you into spending extra money. With the RAIZ rewards extension, which I have just installed on my browser I think this is less of an issue. It will now prompt me to sign into my RAIZ account and purchase through their link to receive a reward if I am shopping on a site offering RAIZ rewards. This means I can ignore RAIZ rewards and have this prompt and invest any rewards effortlessly.
What RAIZ Portfolio Should I Choose
An option of 7 portfolios is offered, along with a custom portfolio. The decision to choose one can be based on your risk tolerance, time horizon, goals and particular interests/values. The more time and risk tolerance you have, the more aggressive your portfolio could be.
If you are not ready to invest in the stock market, due to a short time line but still like the idea of rounding up, check out this ING review.
For those interested in the actual make-up of the portfolios:
|ETF Management fee (on top of RAIZ fee)||Conservative||Moderately Conservative||Moderate||Moderately Aggressive||Aggressive|
|AAA Australian Money Market||0.18%||24.5%||9.6%||3%||3%||3%|
|STW – Australian Large Cap stocks||0.13%||13.5%||21.2%||31.7%||43.6%||54%|
|IAA – Asia Large Cap stocks||0.51%||3%||3%||8%||13.8%||23.5%|
|IEU – Europe Large cap Stocks||0.59%||3%||3%||4.1%||6.4%||7.1%|
|IAF – Australian government bonds||0.15%||30%||30%||19.2%||3%||3%|
|RCB – Australia corporate bonds||0.28%||23%||25%||25%||21.3%||4%|
|IVV US large cap stocks||0.04%||3%||8.2%||9%||8.9%||5.4%|
|ETF Management fee (on top of RAIZ fee)||Emerald||Sapphire||Custom|
|AAA Australian Money Market||0.18%||6%||3%||Build your own custom portfolio with any percentage of any of the listed ETFs.|
|RARI – Australian socially responsible large cap||0.45%||38.6%|
|ETHI – Global socially responsible large cap||0.49%||34.1%|
|STW – Australian Large Cap stocks||0.13%||41.4%|
|IAA – Asia Large Cap stocks||0.51%||13.1%|
|IEU – Europe Large cap Stocks||0.59%||6.1%|
|IAF – Australian government bonds||0.15%||21.3%||2.9%|
|RCB – Australia corporate bonds||0.28%||20%|
|IVV US large cap stocks||0.04%||8.5%|
|BTC – Bitcoin||Purchased through Gemini||6%|
As expected you will pay a small premium on fees for investing ethically, with the emerald portfolio. You will want to make sure that RAIZ’s idea of ethics matches yours.
RARI excludes alcohol, tobacco, gambling, pornography, armaments and coal mining from it’s investments. It doesn’t exclude mineral mining fossil fuels or uranium mining. Here is information on the holdings in RARI, and here is the ethical investor’s assessment.
Ethical investing is going to, by definition, include a lot of subjectivity.
Do you Pay Tax on RAIZ & How to Complete your Tax Return
You will always have to declare income to the ATO at the end of the tax year.
RAIZ produces a tax statement after the end of the tax year that you can take to your accountant.
You will pay income tax, and receive franking credits on dividends received based on your tax bracket.
If you have sold investments you will pay capital gains tax (discounted 50% if invested for more than 12 months).
When does RAIZ Pay Dividends?
RAIZ automatically reinvests your dividends in your RAIZ account. They are payable in accordance with the payment frequency of the underlying ETF funds. These pay dividends twice to four times annually.
If this is your first time receiving dividends, you can look forward to a little thrill. This is truly passive income. Initially, the amounts will be tiny, they will grow if you keep investing and re-investing.
RAIZ make it easy for you to stick to the plan by automatically reinvesting dividends.
How to Withdraw
Like the rest of the platform, making a withdrawal is simple and free. You can withdraw your cash at any time.
Is My Money Safe?
RAIZ has been operating in Australia since 2016. Although it is not CHESS sponsored, the underlying investments are managed by a custodian.
In the unlikely event of RAIZ ceasing to exist, the custodian should make sure your money is returned to you. However, this could be a lengthy process. I found this risk acceptable in exchange for the easiness of investing for my first investments.
Few people invest substantial amounts of money in RAIZ. I consider micro-investing as training for starting to invest more independently. The average account balance is a little over $2000. Once you have $5000 or more or are ready to invest $1000 per month or more, it’s worth considering moving on. Commsec pocket and Pearler* are both CHESS sponsored and don’t charge an account fee.
Investment returns with this platform represent investment returns of the underlying ETFs minus fees. Although past performance is known to be a really rubbish predictor of future returns, 3-year returns are summarised here and look pretty good.
This platform allows you to designate a proportion of your investments for your children. Investors can open sub-accounts for several children. But a percentage, rather than a dollar amount needs to be allocated to each child. Then this percentage of current and future investments are ear-marked for the child.
I found the kids feature pretty unusable, unfortunately. There is no way to invest a set amount for a child (say $5000) and let that grow separately whilst you continue investing into your main RAIZ account.
The investments are legally owned by the adult, which avoids punitive child tax rates. Unfortunately, the investments cannot be transferred to the child after they turn 18 without incurring tax consequences (capital gains tax).
The best way to save for your child depends on your personal situation. Check out the best ways to invest for kids.
RAIZ send a newsletter to investors containing finance articles. There are a reasonable number of articles touting their own products. There is no structured education programme like many early investors would benefit from. Check out RASK for free and paid introduction to investing courses.
If you are looking for a new super fund, start with this article. RAIZ provides detailed information about their super product here. I personally wouldn’t start with a company you like and working out whether their super product is any good.
Start with your super balance, insurance and investing philosophies and values. Then cut options down based on fees. Finally check past returns.
RAIZ, of course, have a phone app. It is very usable. You can check your balance, invest and withdraw at any time. But I didn’t need any encouragement to check my balance multiple times a day, particularly as a nervous first-time investor! So I deleted the app from my phone.
It takes time to invest with RAIZ. It will take 1-2 business days for your invested funds to clear in your RAIZ account, which makes the minute to minute ETF prices completely irrelevant.
Alternatives to RAIZ
Space ship is similar to RAIZ. It was founded in 2016, and has no minimum investment. There is also no management fee whilst an account contains less than $5000. Even beyond this, fees remain super low at 0.05-0.1% on top of underlying ETF fees.
Similar to RAIZ, spaceship voyager is not CHESS sponsored. There are only three options to invest in with Spaceship – Passive (spaceship origin), active (spaceship Universe) or environmentally sustainable (Spaceship Earth). There is no rewards system with Spaceship.
ASIC fined Spaceship in 2018 for conduct that was false and misleading. I am pretty cautious around all things finance and this early misconduct put me off ever using the product. Some would consider the minimal number of options a downside.
Commsec pocket has no management fees but charges brokerage.
Its well suited to those able to invest $1000 at a time (for $2 brokerage).
There are seven single ETF options, rather than the diversified portfolios with RAIZ.
Commsec pocket are CHESS sponsored, which is unusual and excellent for a microinvestment product. This means you legally own the shares and can just move them to a different broker.
It is not as cheap as Pearler* if you have larger amounts to invest. Commsec pocket is also only appropriate for a period of time until investors graduate to their big boy/girl brokerage account 🙂
If you are confident in choosing your investments and are happy to save up a few paycheque savings and invest every few weeks or months, Pearler is going to be cheaper than the above options.
The platform is improving fast, and I will provide an update soon on my first $20K invested with Pearler. Pearler enable automation of investments which takes a lot of will power out of investing.
Vanguard Personal Investor
Vanguard personal investor is the other practical alternative. Unfortunately, they don’t currently offer automated investing which is really annoying. But otherwise the platform is looking pretty good if you only intend to invest in Vanguard products. They offer these without brokerage or management fees, which is incredible.
Micro-investment apps are a low barrier method of starting your stockmarket investing journey. You can get started with minimal cash and no investing knowledge.
Because time in the market is the most critical factor in results and every investor I talk to wishes they started earlier! Being invested also provides time and motivation to learn and get used to volatility. Screw up freak out and sell moments whilst micro-investing provide valuable experience on observing the market rebound with minimal financial loss.
RAIZ is a strong contender and very easy to use platform. It allows you to benefit from a diversified portfolio as soon as you begin investing. If you would like to try RAIZ, opening an account through my link* will reward you (and me) with a free $10 to start with.
Aussie Doc Freedom is not a financial adviser and does not offer any advice. Information on this website is purely a description of my experiences and learning. Please check with your independent financial adviser or accountant before making any changes.