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Raiz (Acorns AU) – micro investing

Raiz is an automated investment service, delivered via an easy to use phone app. Spare change can be invested automatically from everyday purchases with the round up feature into a diversified portfolio of exchange traded funds (ETFs, what are EFTs? see below). You can also make regular or one off deposits in addition to the round up feature or without the round up.

Every time you make a purchase with your credit card or debit card, e.g $4.50, $0.50 will be transferred to you Raiz account for round ups to the nearest dollar. Once you have accumulated $5 in change, it is then invested into the investment option you have chosen. You can check your investment history, project future balances and compare performance in the portfolios through the app or website, or download monthly statements.

Signing up

Signing up is pretty straight forward, besides the usual name, address, age, employment, you have to provide your bank log in details for the round up feature. You select how much you would like to round up for your purchases or set up recurring deposits or one off deposits. If you are not comfortable with supplying your bank log in details and you can do without the round up feature, you can supply your bank account details instead and make deposits when you have feel like it.

Once an account is opened, there are no fees on $0 balances. A monthly fee of $1.25 is charged for accounts with a balance of under $5,000 and 0.275% annually for accounts with a balance of $5,000 and over. Fees are deducted from your linked bank account not your Raiz account. Users can deposit additional funds at any time to increase their investments and also make unlimited withdrawals at any time without incurring any fees. There are also no fees for switching investment options. You can choose from Conservative, Moderately Conservative, Moderate, Moderately Aggressive, Aggressive and Emerald portfolio depending on your risk level.

I have always wanted to invest in the share market but every time I tried to read about stocks, shares, buying, selling and fees my brain would go numb and I ended up reading the same sentence over and over. Raiz is like investing for dummies (and I mean it in the nicest way!). Rather than having to read up on individual stocks and paying a fee every time you want to buy or sell stock, this is done for you.

Every month $1.25 in fees is automatically withdrawn from my bank account. I selected the moderately aggressive portfolio which includes stocks from the Australian, US, European and Asian markets. In 5 months since opening my Raiz account I have received about $50 back in dividends (what is a dividend? see below). The dividends stays in the Raiz account and is automatically reinvested in my portfolio.

Raiz Rewards

Raiz has partnered with numerous online stores that will invest a percentage of what you spend into your Raiz account when you shop with them through the Raiz app or website.

Raiz Kids

Use your Raiz account to save and invest for your kids under the age of 18.

What is EFT? (from Raiz blog)

All your investments, whether it be your spare change from round-ups, lump sums or recurring deposits, are invested into one of the 6 diversified portfolios that were constructed with help from the Nobel Prize winning economist and father of Modern Portfolio Theory, Dr. Harry Markowitz.

What is a diversified portfolio?

To find the right balance between risk and reward, your money is never invested into one specific share or company. It is instead invested across a bundle of shares or bonds that form one financial product, called an Exchange Traded Fund (ETF).

The Raiz portfolios are made up of a combination of different ETFs that range from cash, bonds, Australian and international shares. Every investment you make will be allocated towards these ETFs.

Let’s take a deeper look into these ETFs:

The first six are called ‘Large Cap Stocks’

  1. Australia Large Cap Stocks (ASX:STW)
  2. Asia Large Cap Stocks (ASX:IAA)
  3. Europe Large Cap Stocks (ASX:IEU)
  4. US Large Cap Stocks (ASX:IVV)
  5. Australia Social Responsible Large Cap (ASX:RARI)
  6. Global Socially Responsible Large Cap (ASX:ETHI)

What are large cap stocks?

Large cap stocks are the biggest companies on their respective country’s stock exchange in terms of market capitalisation – or total dollar value of a company. Companies that fall in this category tend to be in established industries and are major players in their field. Large cap stocks can be a safer option as their earnings may be more consistent than less-established companies, making them more likely to show returns over time.

Examples of Large Cap stocks that your investments can go towards are international shares such as Apple, Google & Microsoft and Australian shares such as Telstra, Westpac & Woolworths.

  1. Australia Government Bonds (ASX:IAF)

Australia Government bonds are viewed as more secured and as less risky investment products than large cap stocks. It differs to stocks as you are instead essentially lending money to the government at an agreed interest rate. The government will then pay the interest and return the money that was lent at maturity. Rather than hold a bond to maturity though, they can also be traded. The risk is therefore tied to the ability of the Australian Government to pay you back both the interest and the money that was lent at the end.

  1. Australia Corporate Bonds (ASX:RCB)

Similar to government bonds, corporate bonds are a way for Australian companies to raise money, by borrowing from you. The business will pay the interest and return the money lent. It can also be traded on an exchange before maturity. The risk is again therefore tied to the ability of the Corporate to pay you back both the interest and the money that was lent at the end.

  1. Australian Money Market (ASX:AAA)

This ETF is invested into the money market, which has the least volatility. The fund focuses on investing in term deposits and high interest accounts offered by banks in Australia.  As these tend to be short dated, the risk that a bank cannot repay both the interest and the money back is low.

What are the allocations for the ETFs?

We invest your money in a combination of the above ETFs on a sliding scale depending on how aggressive or conservative you want to be with your investments. Conservative portfolios will have a bigger allocation in bonds & cash, while the more aggressive portfolios will have a bigger allocation in Australian and international shares.

How can I keep track?

The Raiz app will give you the daily, monthly and yearly performance of your portfolio. You are also able to keep track of the individual ETF’s performance yourself through the web or via a stock app. Keep in mind though, markets go up and markets go down. Therefore, it is important to look at the long-term big picture and not the daily fluctuations.

What is a dividend? (from Raiz blog)

When you invest, that decision and the patience to stick with it will begin to pay dividends – and not just figuratively! You will literally be paid something called “dividends” or “distributions” (we will use dividends for both) from the ETFs in your portfolio; so what are dividends? And how do they fit in with Raiz?

A dividend is a portion of a company’s earnings that is returned to shareholders. Companies use dividends to pass on their profits directly to their shareholders.

A company will pay a small percentage of its profits to the owner of each share of stock.

Example:
You own 1000 shares of fictional company Mighty Oaks. Mighty Oaks pay a dividend of 5c per Share.

You will receive $50 (Number of Shares Owned X Dividend per Share) in dividend income.

Dividends and ETFs
As an Raiz investor, you’ll have a portfolio of ETFs, so that raises a few more questions…

Do ETFs pay dividends?
Yes! In short – and in fact, for the most part, dividends in ETFs are relatively straightforward. As discussed in our “What is an ETF” blog, ETFs are essentially a combination of shares or bonds bundled together. To put it simply, ETFs basically just take all the dividends from the bundle of shares, and pay all those dividends out to ETF unit holders.

So, as an ETF shareholder, you benefit from the dividends of all the companies which are contained in your ETF.

What will Raiz do with my dividends?
With Raiz, your dividends and distributions will be automatically reinvested in your portfolio. You can view your dividends and distribution history through the platform, and we will aim to provide information on when the ETFs in your portfolio will pay their dividends.

Why reinvest?
To answer this it might be useful to understand why some companies don’t pay dividends. One reason for this, is growth. Whilst it may make shareholders happy to receive a dividend, it may make them even happier if the company keeps their profits and invests them to grow the business – which will in turn, can increase the value of the stock.

We hope that by reinvesting your dividends back into your Raiz portfolio we are investing in the growth potential of your portfolio.  Another step in the right direction, helping your spare change grow.

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