In the past couple of years I've written about quite a few startups that are offering easy ways to save and invest.
Acorns is a company that allows you to invest your hard earned money in small micro “round-up transactions”, with the idea that over time your small investments of $0.50 cents here and $0.35 cents there, will lead to a much larger retirement account in the end.
Here's a review of Acorns, and a look at how they can help you to pad your retirement bottom line.
Table of Contents
Acorns was founded in 2012 by Jeff Cruttenden and his father Walter as a way for first time investors to invest in a diversified portfolio. After receiving all of the regulatory approvals, they launched the app on July 15, 2014, and have been helping new investors get in the market ever since. Here are the details from Wikipedia:
Acorns was founded by Jeff Cruttenden and his father, Walter Cruttenden in 2012. Walter was an investment banker and had previously founded and served as CEO of Roth Capital Partners and e-offering, an investment banking firm. Jeffrey with his father worked on creating a mobile app for first-time investors to invest small automated investments from a bank account into diversified portfolios.Within less than two years of launch, Acorns opened nearly 1 million investment accounts. Acorns Grow Inc. is the parent of Acorns Securities LLC, a member of FINRA and SIPC, and Acorns Advisers LLC, an SEC registered investment adviser.
Acorns has over $257 million in assets under management and over 1.1 million accounts as of December 2016. So they're growing at a decent rate, and look to continue that as an attractive option for newer investors.
How Does Acorns Work?
To get started you just sign up for an account, link your checking account and after verifying the account – you can start saving and investing money automatically, without any need for you to intervene.
3 Ways To Save & Invest
Once your account is all setup there are 3 different ways that you can save and invest.
- Round-up savings: First, Acorns can save small amounts of money by rounding up your transactions in your main spending account. So if you spend $4.75 at McDonald's, Acorns will round the transaction up to $5 and deposit $0.25 into your Acorns round-up balance. Once your round-up balance is at least $5, the money is withdrawn from your linked checking and added to your Acorns investment account.
- Scheduled deposits: You can save recurring amounts to Acorns on a scheduled daily, weekly or monthly basis. Just set the deposit amount, choose the frequency, and forget it.
- One time deposits: You can make one time lump sum deposits as well. So if you have $2000 you want to invest in Acorns, you can transfer that over whenever you want.
Acorns Investment Portfolios
The Acorns portfolios mainly invest in ETF index funds and were put together with the main input coming from Dr. Harry Markowitz, a Nobel Prize winner. He is commonly referred to as the father of modern portfolio theory.
Dr. Markowitz came on as a paid adviser in the early days of Acorns, and helped them to design good long term investing portfolios based on modern portfolio theory. They also take into account user input to questions in regards to net worth, yearly income, reasons for investing and time horizons – among other things.
- Conservative: 35% Stocks, 60% Bonds, 5% Real Estate
- Moderately Conservative: 45% Stocks, 45% Bonds, 10% Real Estate
- Moderate: 60% Stocks, 30% Bonds, 10% Real Estate
- Moderately Aggressive:75% Stocks, 15% Bonds, 10% Real Estate
- Aggressive: 90% Stocks, 0% Bonds, 10% Real Estate
As of mid 2017, the following low cost investments are in the portfolios:
- Vanguard S&P 500 Index ETF (VOO)
- Vanguard Small Cap Index ETF (VB)
- Vanguard Emerging Markets FTSE Index ETF (VWO)
- Vanguard FTSE Developed Markets ETF (VEA)
- Vanguard REIT ETF (VNQ)
- BlackRock iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
- BlackRock iShares 1-3 Treasury Bond ETF (SHY)
The investments are mainly low cost Vanguard and IShares index fund ETFs, bond funds, and a real estate ETF to further diversify. The investments are meant to capture the market, and keep fees low, focusing on long term growth.
Investments can change over time, so check for current investments when you sign up.
Opening An Account
Opening an account with Acorns is simple, but it is currently only available for U.S. citizens over the age of 18.
To sign up just go through this simple process:
- Go to Acorns.com via this link.
- Enter an email address and password.
- Connect your main spending account. (where they'll track spending for round-up savings)
- Connect your checking account (where deposits are funded from)
- Create your investment account (taxable accounts only currently), including entering name, address, phone and birth date.
- Enter your Social Security Number for ID verification, tax reporting and fraud prevention purposes.
- Enter net worth, yearly income and your reason for investing. These are standard questions and will be used to help create your portfolio.
- Choose your portfolio. Choose the recommendation or choose one of the other 4 portfolios mentioned above.
After you verify your accounts you'll be set to start saving and investing money automatically by round-up savings, recurring deposits or one time deposits.
Other Features of Acorns
Acorns has added other features over the last couple of years.
The Found Money section on the Acorns app allows you to shop at Acorns partner sites like Jet.com, Blue Apron, Airbnb, Apple, Hulu and others to be rewarded with cash back when you use a linked payment method.
So for example, if you book with Airbnb via the Acorns app and use your linked card, they'll invest up to 1.8% of your service fee in your Acorns account. Buy something from Apple via the app? You'll get 1.2% back to invest.
It's an interesting way to save and invest a little extra by doing things you might have done anyway. It's not going to make a huge difference, but if you were going to buy something anyway it's a nice bonus.
Grow Magazine – Educational Content
Acorns publishes an online personal finance magazine that is geared towards millennials with advice on side hustles, credit card debt, student loans, investing (obviously) and other financial topics.
The content also appears in the app, so it's always at the tip of your fingers.
Acorns Service Fees And Minimums
Where the rubber meets the road is just how much you'll be paying to use Acorns. What are the fees and minimums for using the service?
First of all, there are no minimums in order to have an account, and you only need $5 to invest in one of Acorn’s five pre-built portfolios. So the service is accessible to just about everyone. There are no trading fees either.
Free For Students
If you're a student who registers for the service with a .edu email address, you'll be eligible to receive up to 4 years of free service with Acorns.
Since young first time investors are their target market, that makes some sense. If you're a student, why wouldn't you jump in on a great deal like this?
Low Annual Management Fees
For non-students, you'll pay $1/month when you start investing. When your account balance is over $5000, you'll pay a 0.25% annual management fee, which is in line with other automatic investing services like Betterment and Wealthfront.
While $1/month isn't really that much, the one caveat is that if you have a low balance account and you're paying $1/month for the service, that fee could be a relatively large percentage of your assets in comparison to some other services, especially if you're only investing by doing transaction round-ups.
For example, if you have $400 invested with Acorns, the $12 annual management fee will be about 3% of your assets. That's quite a bit more than some other similar services. For example WiseBanyan has no fee for investing, and Wealthfront is free up to the first $10,000. Honestly though, it's really not that much to get started investing with Acorns, and the faster you accumulate your balance, the less of an issue it is.
Automated Micro-Saving & Investing
I'm a big fan of all the automated saving and investing services that have popped up in the past few years. My belief is that the more automatic you can make saving investing, the more likely most people are to plan for their future and put their future first.
I love the fact that Acorns invests for the long term with an investing strategy based on Modern Portfolio theory. If you're a student, it's a no brainer to sign up since you can get up to 4 years of the service for free.
For others, the fees charged for the service are in line with similar robo-advisors. The only caveats to my hearty recommendation are the facts that there may be cheaper options for those with extremely low account balances. The faster your balance grows, the less of an issue that becomes.
I'd also love to see them add some retirement account options in the future as they currently only provide taxable accounts.
All in all Acorns is a great service that can help make investing easier – and more automatic. They're one of the best microsavings and investing sites out there, and I'd recommend checking it out.
|Robo-Advisor||Assets Under Management (AUM)||Annual Fee||Account Minimum||Bonuses||Review|
|Wealthfront||$6.5 billion||0.25% of account balance||$500||$15k managed FREE (Bible Money Matters readers)||Review|
|Betterment||$9 billion||0.25% of account balance. 0.40-0.50% w/ human advisors||None||Up to one year managed FREE||Review|
|M1 Finance||$100 million||FREE (fees for add-on services)||None||Review|
|WiseBanyan||$80 million||FREE (fees for add-on services)||None||Review|
|Acorns||$257 million||$1/month under $5k. 0.25% of account balance above $5k. Free for college students.||None||Review|
|Stash Invest||$200 million||$1/month under $5k. 0.25% of account balance above $5k.||$5||$5 New Account Bonus (Bible Money Matters readers)||Review|
|SigFig||$120 million||Under $10k FREE; 0.25% of account balance above $10k||$2,000|
|Personal Capital||$4.3 billion||0.49% to 0.89% of account balance||$25,000||Review|
|Wealthsimple||$1 billion||Under $5k FREE; $5k-$100k 0.50%/yr; $100k+ 0.40%/yr||None||Up to a $100 sign-up bonus (Bible Money Matters readers)||Review|
|Charles Schwab||$15.9 billion||FREE (They require you to hold 6-30% of portfolio in cash)||$5,000|
|Fidelity Go||N/A||0.35% of account balance;||$5,000|
|Vanguard||$65 billion||0.30% of account balance||$50,000|