Product Review: Acorns
This article has been updated December 2017.
Fintech is playing a big part in the future of personal finance. Although the basics of investing remain the same and always likely will, the advent of apps such Acorns have changed the landscape of investing. Acorns will probably not appeal to a serious investor, (for some reason I can’t see Warren Buffett opening an account) however it has really done a great job reaching out to a group of individuals that otherwise probably would not have been investing. Surely this alone is makes the app great!?
Acorns is all about micro-investing, investing small amounts on a regular basis. The premise is simple, much like the age old piggy bank that you dump your spare change into at the end of each day (yes I also still do this), the app takes your virtual change from your bank transactions and transfers it in an investment account. So unlike your piggy bank your money actually has a chance of growing. For example when you spend $4.60 on your Soy Mocha Latte and use your card to pay for the transaction Acorns will automatically round that up to $5 and invest the $0.40 in your selected portfolio.
The set up is very easy, once you download the app and set up an account, you link your transaction accounts (savings accounts or credit cards) to the app and adjust the round-up settings to an amount you are happy with. You can simply round up to the nearest dollar or add $1 to each transaction. You then have the option to deposit an initial sum to kick start the account and you can also add a regular deposit. Initially I deposited $100, set up a regular payment of $50 a month and chose to round my transactions up to the nearest dollar.
The are 6 investment types choose from, Conservative to Aggressive and then Socially Responsible large companies, which sort of fits somewhere in the middle. Each one is made up of a mix of cash, bonds and ETF’s (both local and international) with the Conservative portfolio geared towards cash and bonds and the Aggressive towards international and local share markets. Since I am young (at least in working life terms) I have chosen the Moderately Aggressive fund, which is made up of the below:
I like that the portfolios use Exchange Traded Funds (ETF’s) rather than individual stocks as they help de-risk the investment since you are investing across a large range of companies across several markets. So if one company performs poorly it is usually offset by another that performs well. Or if that company has performed poorly consistently it can drop out of the ETF altogether and be replaced by a better performing one. Normally to do this you would need to pay fees to sell the shares, then fees again to buy another one, not with an ETF, this happens at no extra cost to you. ETF’s have also been proven to beat most managed funds over a long period of time, so in my opinion are the best way to buy into the share market. Whilst you aren’t buying ETF’s directly you still get the benefit of them via Acorns.
This type of investing was not previously available to most investors as the transaction costs would be far too high. Acorns charge no fees on Deposits or Withdrawals but charge a monthly fee of AUD$1.25 for balances under $5,000 or 0.275%/yr for balances over $5,000. Whilst this is not exactly on the low side of managed funds fee structures they do offer something that most of the big investment firms do not, they allow you to buy in and continue buying in a very low level all in a very intuitive and modern format that does a very good job and bringing investing to a new demographic.
In the 5 months since I downloaded the app and set up my account I have invested $519 for returns of $4.51 and reinvested dividends of $5.82. This works out to an average of $33.80 a month of round ups to go along with my $50 monthly contributions. Whilst obviously this has not been an earth shattering return is has been a nice saving tool that has the potential to grow rapidly.
It is definitely a long term strategy as it can take some time to build up a decent portfolio and it is probably not something for the serious players, but it is one of the most passive ways of investing, pretty much a set and forget, which does suit a lot of people.
Update December 2017
I have continued on with my Acorns account experiment without paying too much attention to it. My balance has increased to $798 and I have experienced a gain of $47.24 or $6.29%. I’m pretty happy with the result and plan on keeping my account running for the foreseeable future.
The fees for such a small value investment are high when considered in isolation however I think the real value comes in being able to create a well diversified investment with your spare change. Even after fees the rate of return is much better than what you could achieve in a savings account, and if you tried to replicate the investment yourself it would simply be far too expensive given the brokerage fees you would have to pay on each transaction.
If you would like to open your own Acorns account click here for my referral and we will each get a bonus $2.50!
Happy investing!
10 thoughts on “Product Review: Acorns”
I signed up to Acorns – just for fun really. Part of my budget is to put aside a fortnightly amount to replace my car every five years (mostly forgotten by most budget guru’s – just sayin’) . I park this fortnightly amount in Acorns. I initially did the whole round up thing but it annoyed me in the end as I like to keep my bank accounts correct down to the last cent. Also the amounts coming out of my bank were so slow compared to normal electronic banking…….you organise for an amount to regularly debit and it does it two days later than you expect. Also there is no fortnightly auto debit option only weekly, monthly etc. Seriously….most folk get paid fortnightly so why not have this option available. Anyways, I now just manually click my fortnightly amount every payday and two days later it takes it out. I know the fees are not super cheap but they are reasonable and I like supporting a good idea. So every five years I will draw down. We’ll see how it goes.
Thanks for the reply Mr HM. I too like the idea, not sure yet if I intended to keep it going but was keen to see how it worked and what you could do with it. When my kids are old enough I would like to set them up with an account.
I would be interested to hear on how you decided on replacement of your car every 5 years? I’ve heard varying opinions, personally I would consider 7 years reasonable, depending on kms and condition of course.
TSD
I’m doing a 12 month Acorns experiment and blogging about it- more for fun than anything else. It would be interesting to see how much I actually end up saving through the round up feature by the end of the 12 months. I do plan on taking it all out and starting over again when it hits $5k with the idea of transferring it over to Vanguard but we will see.
I like this idea! Will check out your blog 🙂
I am not yet sure what I am going to do with mine but perhaps something similar. At the moment it kind of feels a bit like a novelty and one day, as you said, you would want to transfer it over to a “real” account, like a Vanguard.
Thanks for the review. I believe The fees are way too high on an annualised basis for smaller balances – $1.25 a month x 12 months = $15. Divide that into your $500 and you get 3% a year.
You are correct, for small accounts it is not a good rate. However I believe you also need to consider if you were to try and replicate this yourself you would be paying brokerage fees on each transaction ($10-$20), which would obviously not be viable. You definitely need to weigh up if you think the fee is worth the ability to diversify to that extend or if you think you can get a better return elsewhere.
By my calculations, in order to be sensible, an investment of $500+ is needed, otherwise fees gobble up the return. On the other hand many people would have their “spare money” sitting in the bank earning around 1%. It also gives young people market exposure where they otherwise could never get it and can force saving. The annual fee (less than $5,000) is equivalent to one trade per year. For a novice, sensibly choosing a single EFT in which to invest say $500 – $1000 would be impossible.
So on balance, I think this is a good option for young people with more than $500 to invest, who want to learn more about investment, who want to grow their wealth and develop an understanding of risk and returns. They can almost use it like a bank for spare money. I would not recommend investing over $5,000 with Acorns but buy directly on the ASX.
I think you are spot on Stephen. Acorns certainly has a place in the investment market, I believe it is somewhere in the beginner/intermediate investor area. It certainly has its merits but does need to be understood. Either way I think it is a great concept and a well designed app that adds value to the industry.
Hi, Just for the record regarding fees, in your review you didn’t mention the management fees applied to each investment option. These make the costs of acorns even less appealing for small investors.
Hi, thanks yes you are correct I did not mention those fees. It should be noted that those fees are on top of what you will get charged by Acorns, I will update my review.
As I mentioned in my review I believe the Acorns format still serves as a great tool for inexperienced investors as it exposes them to the ups and downs of the market and allows them access to the market at a small buy in without the brokerage fees.
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