Micro investing: the good, the bad and the ugly

Commonwealth Bank has launched a new micro-investing app – CommSec Pocket – designed for young people and inexperienced investors. CommSec Pocket is supposed to turn saving into investing. But things don’t work out quite as simply as that.

You can’t buy company shares directly with CommSec Pocket. The app is limited to seven Exchange Traded Funds (ETFs). To make things even simpler, the app rebrands the seven investment options with catchy names and icons:

1. “Aussie Top 200” = iShares Core S&P/ASX 200 ETF – IOZ
2. “Aussie Dividends” = SPDR MSCI Australia High Dividend Yield Fund – SYI
3. “Global 100” = iShares Global 100 ETF – I00
4. “Emerging Markets” = iShares MSCI Emerging Markets ETF – IEM
5. “Health Wise” = iShares Global Healthcare ETF – IXJ
6. “Sustainability Leaders” = BetaShares Global Sustainability Leaders ETF – ETHI
7. “Tech Savvy” = BetaShares NASDAQ 100 ETF – NDQ

CommSec Pocket has been granted a waiver by the Australian Securities and Investments Commission (ASIC) to offer investment transactions below the usual $500 minimum, a Commonwealth Bank spokesperson told InfoChoice.

So you can invest as little as $50 and that’s why it’s called micro-investing. Micro-investing was pioneered by Acorns (now called Raiz) and FirstStep and is aimed at savers who have not yet made the daunting leap into investing. So there are guides and articles in the CommSec Pocket app explaining ETFs and investing.

CommSec Pocket charges $2 brokerage for trades up to $1,000. For trades over $999.99, Pocket charges 0.02 per cent ($20 for a $1,000 trade). There are no ongoing or account keeping fees.

The big highlight of Pocket is automated regular investing, which is like regular direct deposits into a savings account. Commonwealth Bank’s promotional material highlights the $50 minimum trade as an alternative to a direct deposit savings plan but how realistic is that?

To find out, I set up a regular $50 per fortnight plan investing in “Tech Savvy.”

CommSec Pocket displayed a message telling me that units (shares) in “Tech Savvy” are worth $19.66 each and the fee is $2. So for my $50 I would get:

• 2 units x $19.66 = $39.32.
• $39.32 + $2 fee = $41.32

So, on current share prices my $50 would cover two units with $8.68 left over.

“We will only debit your bank account the amount invested plus brokerage,” said the Commonwealth Bank spokesperson.

“The leftover funds will remain in your bank account,”

So far so good – and disconcertingly easy. I’m already thinking this might be a good way to get my teenagers interested in investing.

However, .... The problems with micro-investing

Now, each fortnight, I collect a trade confirmation letter from LINK in my (snail) mailbox. That reminds me I’m buying shares, not depositing funds into a bank account. I’m also reminded of that fact by the movements in share prices. CommSec Pocket tells me my investment has lost 4.41 per cent and the current price is now $19.28.

If I was to continue with this strategy and sold down the track for a significant profit the CGT implications could be interesting. In short, CommSec Pocket is not a realistic long-term way to build a share portfolio. But it is not supposed to be that. You would want to be transitioning out of CommSec Pocket to a more full-service brokerage pretty quickly.

The ugly side of micro-investing

But it is also not a realistic way to save money and build a simple portfolio of ETF shares. Over time, the fees simply can’t be justified. For example, I can use the CommSec app to buy 1,000 units (shares) in an ETF for a brokerage fee of $19.95. Using Pocket to buy two units at a time for $2 would cost me $1,000 for the same result – 1,000 ETF shares. That’s a difference of $980.05 in brokerage fees for buying the same 1,000 shares. The spokesman from Commonwealth Bank confirmed this.

“CommSec Pocket is an investing app for people who are new to the sharemarket and want a simpler investing experience,” said the spokesman.

“CommSec’s full platform services hundreds of thousands of self-directed investors with access to all ASX-listed securities, international securities, research and a wide range of trading tools such as conditional orders and alerts.

“You can purchase the same ETFs on the full CommSec platform.”

Micro-investing vs Saving

A one-year micro-investing plan using CommSec Pocket to buy two “Tech Savvy” shares per fortnight at (say) $19.66 each + brokerage of $2 per trade ($41.66) will cost me $1074.32 and I will have (hopefully) $1022.32 worth of shares at the end of the year.

If I save the same amount per fortnight ($41.66) over one year I will have closer to $1,080 at the end of the year according to the InfoChoice Savings calculator. I could then go ahead and buy my 52 shares for a single brokerage fee of $19.95 and be $38 ahead.

So CommSec Pocket might be an easy, slick attention-grabbing way of getting young people interested in shares but the small regular savings plan type of investing doesn’t make financial sense in the long run.

Investors can research and compare online share brokers and margin loans at InfoChoice.com.au.

CommSec Pocket can be downloaded from the iOS App Store and Google Play Store. To use CommSec Pocket, customers must have a CommBank Transaction account and a CommSec ID or NetBank ID.

Jason Bryce is Content Manager for InfoChoice and loves comparing pretty much anything. Jason has worked as a business and finance journalist for 25 years, starting at ABC TV. Since then Jason has worked for the Herald Sun, BankingDay.com, Singlemum.com.au, Sunday Mail (Brisbane), SuperFunds, In The Black magazine, Kidspot and a few other media outlets as well.