Micro-investing is an increasingly popular way to invest in stocks and that allows investors to access the share market via affordable and easy-to use smartphone apps.
A big reason that micro-investing apps have exploded in popularity with investors is that they charge low fees and have low barriers of entry, enabling users to invest small amounts of money into Exchange Traded Funds (ETFs), comprising hundreds of companies listed on the stock market.
In the old days, investors would have to use an online broker, which can charge around $10 or $30 whenever you buy one or sell one ETF units. But we are not in the olden days anymore. Lets take a look at how Raiz’s fees compare to brokers.
Raiz was the first players on the micro-investing scene in Australia and remains the market leader today. It charges no brokerage fee and instead uses a monthly fee model.
With Raiz, you are charged $2.50 per month in fees if your account holds $10,000 or less or 0.275% a year in fees per year on balances more than $10,000. So, if your balance was $1,500, you’d be charged $30 a year, regardless of how many investments you make a month or how often you switch portfolios.
The only exception is for our recently released Sapphire investment portfolio, which has a five per cent target allocation to Bitcoin. If you’re in this category, the fee structure is $2.50 per month and 0.275% for all accounts, regardless of balance. This is due to the higher costs of trading Bitcoin and keeping it in secure custody.
The other benefit of Raiz is that you can start investing from only $5.00 and withdraw any amount from your account at any time without ever having to pay any fees or penalties. Just like you can add money at any time using our automated features.
Unlike Raiz, online brokers charge a brokerage fee for each trade, which includes both buy and sell orders. A typical online brokerage fee ranges from $10 to $30, and usually carry a minimum investment of $500, compared to Raiz’s minimum of $5.
So, even if you invest $500 once per month for a year, you’d be charged $120 – $360 over the course of the year on a total investment of $6,000, making it a significantly more expensive option than Raiz.
The Raiz portfolios consist of up to seven different ETFs (to diversify your investment), which means that replicating a Raiz portfolio through a broker becomes very expensive, since you would need to incur seven different brokerage fees.
If you wanted to go one step further and replicate the weightings of each ETF according to the Raiz portfolios, minimum investment amounts could cause you to need a large amount of cash. For example, if the minimum investment for a broker was $500, and you wanted to have a 5% allocation to a US shares ETF, you would need to make at least $10,000 worth of investments to keep that weighting (since 500 is 5% of 10,000).
There are now some platforms that offer a simplified offering for low cost brokerage and smaller minimum investments, but not as low as $5 for a diversified portfolio of 7 ETFs.
Even with a brokerage of $2 per trade, it would still cost you at least $14 every time you try to replicate a Raiz portfolio. You also have to buy whole ETF units, of which some ETFs can cost greater than $450 per unit.
If you’re investing once per month for a cost of $14 in brokerage, that’s $168 a year. $168 a year is the fee that would be charged on a Raiz investment with a balance of $61 thousand, and don’t forget that with Raiz you can make as many deposits and withdrawals as you want without increasing that cost.
The bottom line is that unless you are dealing with very large amounts of cash, if you want to make regular investments into a diversified portfolio of ETFs, Raiz is likely to be the inexpensive option when compared to an online broker.
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The information on this website is general advice only. This means it does not take into account any person’s particular investment objectives, financial situation or investment needs. If you are an investor, you should consult your licensed adviser before acting on any information contained in this article to fully understand the benefits and risk associated with the Raiz product.
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