The Acorns App: Stock Investing With Pocket Change

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There has been some chatter lately on Yahoo Finance and others about this new app called Acorns. The app was set up to help people break into stock investing who wouldn’t normally invest because they don’t have a bunch of extra money. Traditionally stock investing has been a rich man’s game for a couple of reasons. First, before the advent of the internet it was difficult to invest unless you had a relationship with a money manager. Second, fees on individual stock trades were fairly high so you needed a lot of money to make the fees worth it.

Acorns essentially eliminates the traditional barriers to the market. It connects to a credit or debit card and rounds spare change to the next dollar. If I pay $5.25 for a cup of coffee Acorns will round up that $.75. Once the change adds up to $5 it automatically invests the money into your stock account for a comparatively low monthly fee.

In 2011 Jeff Cruttenden had an idea for the business because he said his friends would always talk about investing but no one really had the money to do it. In the news Acorns has been touted as a sort of groundbreaking new way for millennials to begin investing. Apps like Acorns appeal to young people more than other age groups and millennials are also not likely to have a lot of spare cash.

As a millennial the idea of this app sounds great to me. I decided to do my own research to see if it would really be worth it. My conclusion is that Acorns isn’t for everybody but it’s also not a bad option. Here is my basic guide to Acorns stock investing.

How It Works

Acorns is very simple and straight forward. You simply download the free mobile app (available for Android and IOS). Acorns will ask you which account you’d like to use for your round-ups such as your favorite credit card or bank debit card. Next it will ask you to connect your bank account from which you can choose to transfer larger amounts instead of the $5 Acorns automatically pulls from your round-up account.

You’ll be asked some questions about your savings goals and your income then Acorns will suggest what to invest in. You don’t necessarily have to invest in what they tell you and you can do a blend of all the different funds if you want to.

Fees/Types Of Investments

Six different ETFs are offered through Acorns:

ETFs are a kind of low cost fund that you can invest in. They are similar to index funds (which are my personal favorite) but do have some key differences. The founders of Acorns believe in a low-cost approach to investing rather than fancy mutual funds with money managers.

Another great aspect of Acorns is it has no minimum balance. You can start with any amount of money you want. If your account balance is under $5,000 they charge $1/month. If your balance is above $5,000 they charge 0.25% per year.

Compared to other types of investing this is actually a great deal. If you use an online brokerage like Scottrade or Etrade you’ll pay at least $7 per trade. With Acorns you aren’t paying per trade so theres a huge savings there. For mutual funds a typical expense ratio could run you in excess of 1%. To sum this all up, Acorns has some of the lowest fees around.

One new feature they have introduced is no fees for students. If you’re under 24 years of age you won’t be charged any fees for accounts of any size. According to their website, you may be eligible for this discount even if you’re older. You have to sign up using your college .edu email address and choose ‘student’ as occupation.

 

My Analysis

I think the best thing Acorns has going for it is it’s easy to use. As far as stock investing goes, you don’t get much simpler than this. I think the mobile app interface is clear and easy to read. You can easily see your transactions and the breakdown of the funds your money is held in. You can invest in Acorns accounts with little money unlike a lot of other options. However, I suggest investing at least a chunk of money instead of letting small amounts pile up.

Here is where things get a little tricky. Sure, you can invest whatever small amount you want but its important to remember that $1/month charge. If there is only $10 in the account that one dollar is going to eat up 10% of your principal. My suggestion is to deposit at least $500 to start with. The more money you have in the account, the more you will save on fees.

Another part of this money equation to think about is how much a money round-up is going to add to your credit card bill. If I were to guess round-ups would probably add about $20 to my monthly bill. That doesn’t sound like a lot of money but it’s certainly more than a Netflix subscription. Consider first if you can afford the extra charges.

I have to say that when I first began researching Acorns I didn’t like the lack of options for investing. If I could choose I would invest in individual stocks. On the other hand, a lot of people don’t know anything about what to invest in so limited options makes everything more simple.  I will say that the options they do give are good. I wholeheartedly agree with investing in low-cost funds and I think the options they offer will generally set you up for success.

I’d like you to remember that like all stock investments you could lose the money you put into your Acorns account so don’t invest what you can’t afford to lose. I believe the old investment adage is “don’t invest the rent money.” It’s always a good financial rule to have extra money put away. I would recommend having a rainy day fund set aside before you think about stock investing.

As the years go by the internet is making it possible for average people to get knowledge once only available to the rich. The internet has made everything more efficient and convenient for the consumer and that means things get cheaper. It is my hope that someday soon we will see zero fee investing services.

In the end Acorns is a good option for people who need a lot of guidance with investing. With other online brokerages you will pay more money for more guidance. Acorns offers very low fees compared to competitors and it has good investment options. It’s a good place to start.

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