What Is Acorns?
Acorns is an automated microinvesting platform that invests the spare change from everyday purchases. The idea is that everyone has spare change to invest, and the investing process is easier when it is done automatically.
And it’s true, Acorns absolutely makes the investing process easier—but does Acorns make it better?
- Low minimum balance to get started (just $5)
- Investing on autopilot
- Unique spare change investing system
- No fees for college students
- Automatic rebalancing
- Fees (on a percentage-of-portfolio basis) are high for small balances
- Does not offer the same level of service as other robo-advisors
- Not many options to build your portfolio
How Does Acorns Work?
The real selling point behind Acorns is its simplicity, and it is extremely simple. It can even feel too simple at times.
We’ll get to that in a moment. First, let’s explore the Acorns platform.
The platform’s signature feature is referred to as “Round-Ups.” These are the spare change investments that make Acorns tick.
After syncing your bank and active debit and/or credit cards, Acorns regularly reviews your transaction history and finds spare change to invest. This spare change is the amount that would be left over if you rounded every purchase up to the nearest dollar.
Let’s look at an example.
If you purchase a coffee for $2.30, Acorns rounds that up to $3.00, takes the difference of seventy cents out of your bank account, and adds it to your investment portfolio. These round-ups are added to every transaction on your linked cards, and over time they add up.
How Else Can Acorns Users Invest?
Acorns users aren’t restricted to relying on Round-Ups to put their money to work for them. They can also elect to have recurring amounts taken out of a linked checking account on a monthly basis ($5 minimum) or they can add a lump sum at any time.
The platform also offers a partnership program referred to as “Found Money.”
Found money is a unique offering that partners with leading brands to let users earn cash back on featured offers in the form of deposits directly to their Acorns portfolios.
Some of the featured Found Money brands. In a clever marketing twist, Acorns refers to this cash back program as “cash forward.”
Common offers include a percentage of the purchase invested or a flat dollar value on a minimum purchase. Add the Acorns Chrome extension to your browser and you will receive real-time Found Money notifications while you browse.
Acorn Later is the Acorns platform’s retirement account system. With a fee of $2 per month, Acorns Later is an IRA (traditional or Roth) account. As with the normal Acorns portfolio, rebalancing is handled automatically.
Acorns Spend is a banking program powered by Acorns that is still in the process of being rolled out. The first run of 100,000 slots sold out within the first week, so it is safe to say that demand for this service has been established, but at time of writing, the next run has not yet opened up.
Acorns Spend tacks another dollar onto the monthly fees, meaning that users pay $3 per month for access to the core Acorns investment service, Acorns Later, and the Acorns Spend banking service.
Acorns is designed with new investors in mind, so they have quite a bit in the way of educational content. Grow Magazine is the Acorns personal finance and investing education blog.
It is easy to use and looks good, but experienced investors or people who are financially literate will find a lot of the content a little too simplified.
As an extension of the beginner content concept, Acorns has a section of their site entitled “How-Tos.” Acorns How Tos are written and presented in the same style as the Grow Magazine articles but focus on walking financial consumers through specific circumstances, such as repairing their credit or handling debt.
Where Does Your Money Go?
When setting up your Acorns account and portfolio, you are directed to select from one of five investment profiles ranging from conservative to aggressive, and that’s it.
Everything, including rebalancing, is handled for you. The spare change from your Round-Ups is used to purchase fractional shares of ETFs that represent the asset classes listed (such as real estate, emerging markets, etc.).
When it comes to investing, it really doesn’t get any easier than this. But here’s where Acorns really might be too simple. If you are already committed to using a robo-advisor, then you’re all set.
Set it and forget it.
Also, consider using a lower-fee robo-advisor if that’s the path you want to take.
But if you are a self-directed investor, Acorns can make you feel like you aren’t in control. This is where the question of fees comes into play. Is a dollar a month a little or a lot to pay in fees?
How Do Acorn’s Fees Stack Up?
Acorn’s fees only make sense if you make them make sense, or if you are a college student (the Acorns platform waives the dollar monthly fee for college students).
Let’s look at it this way:
Assuming an average of $0.25 invested per Round-Up…
- 50 transactions would result in $12.50 invested; the monthly $1 fee accounts for a whopping 8% of the portfolio.
- 100 transactions would result in $25.00 invested, of which a dollar is 4%.
- 150 transactions would result in $37.50 invested, of which a dollar is 2.7%.
Once you reach over $5,000 in your portfolio, the fees change to become competitive with those of other robo investors at 0.25% of portfolio assets. But Acorns does not offer advanced services such as tax loss harvesting.
Fifty transactions is already multiple transactions per day throughout the month; if the fee for what you invested is going to fall below 2.5%, you need to be pulling in over $40 a month in Round-Ups.
There are some exceptions.
Some Round-Ups will be more than $0.25. You can augment Round-Ups with recurring investments or lump sums, and you can earn bonuses that go directly to your portfolio with Found Money offers. That being said, the only Found Money offers that make sense are those that you were going to purchase anyway.
Making a $250 purchase just to get a few percentage points of the total as a bonus doesn’t make good financial sense.
So, What’s the Verdict?
Acorns is ideal for college students
They know their target market. College students neatly fit the bill as cash-strapped investors who do not have enough capital on hand to invest and meet brokerage account minimums. College students’ spare change is invested with no fees.
College students get a head start on their portfolio and don’t pay a cent in fees. Win-win.
Acorns is a good tool for people who struggle to save
Studies (and personal experience) have shown that saving money is easier when you don’t have to think about it. Acorns acts as a sweep account for your checking and associated credit cards. There are other automatic savings plan tools out there that are not only more cost-effective but a better savings solution; but Acorns is simple, easy to get started, and can reinforce or build good savings habits.
Thirty cents here or seventy cents there certainly isn’t going to add up as fast as a dedicated savings plan, but it’s a start.
Acorns is a good tool for people who want an automated investing solution
When it comes to simplicity, Acorns has it figured out. There is no easier way to invest.
Download the app, put in your information, and select your portfolio. Portfolios are constructed based on your risk tolerance, and once your cards and bank account are synced, your daily purchases generate Round-Up investments completely on autopilot.
Acorns isn’t a good fit for serious or self-directed investors
If you are an investor who is looking for control over your portfolio, Acorns won’t deliver it. If you are an investor who is looking for a top-rated robo-advisor, Acorns will also fail to impress. There are other robo-advisors out there that do more for similar (or even lower) fees.
The platform is smooth, robust, and reliable—but it simply isn’t the best tool for serious investors.
The Bottom Line
If this review of the Acorns platform demonstrates anything, it is that Acorns is simple to use.
It offers a unique microinvesting solution that invests your spare change totally on autopilot. The platform doesn’t charge fees to college students. The fees that are charged to the rest of us can be a little steep unless we are actively working to get the most out of the platform.
The retirement account feature is great for younger investors or college students who are trying to get started preparing for their future, but many investors will likely come to the platform with an established retirement account already up and running.