Acorns is a popular micro-investing app that has gained significant traction among millennials and Gen Z investors. Its user-friendly interface and low barrier to entry make it an attractive option for those looking to start investing without requiring a substantial amount of capital or extensive financial knowledge. But is investing with Acorns truly worth it? This article provides a comprehensive analysis of the platform, considering its features, fees, benefits, and drawbacks, to help you make an informed decision.
Understanding Acorns and Its Core Features
Acorns operates on the principle of “round-ups,” which automatically invest spare change from your everyday purchases. When you link your credit or debit cards to the app, Acorns rounds up each transaction to the nearest dollar and invests the difference. For example, if you spend $2.50 on a coffee, Acorns will round it up to $3.00 and invest the $0.50.
Beyond round-ups, Acorns offers several other key features:
Acorns Invest: This is the core investing account, allowing you to invest in a portfolio of ETFs (Exchange Traded Funds) based on your risk tolerance. These portfolios are diversified across different asset classes, including stocks and bonds.
Acorns Later: This feature allows you to open an Individual Retirement Account (IRA), either a Traditional IRA or a Roth IRA, to save for retirement. Acorns Later also provides guidance on contribution strategies.
Acorns Spend: This is a checking account and debit card that allows you to manage your everyday spending and earn bonus investments through “Found Money” partnerships.
Acorns Early: This feature allows you to open an investment account for your children, typically a custodial UTMA/UGMA account.
How Acorns Invests Your Money
Acorns utilizes a robo-advisor approach to investing. After you answer a few questions about your financial goals, risk tolerance, and investment timeline, Acorns recommends a portfolio that aligns with your preferences. These portfolios are constructed using ETFs managed by Vanguard and BlackRock, providing diversification across different sectors and asset classes.
Acorns offers five pre-built portfolios:
- Conservative: Primarily invests in bonds.
- Moderately Conservative: A mix of bonds and stocks, with a heavier emphasis on bonds.
- Moderate: A balanced portfolio with a mix of stocks and bonds.
- Moderately Aggressive: A mix of stocks and bonds, with a heavier emphasis on stocks.
- Aggressive: Primarily invests in stocks.
The platform automatically rebalances your portfolio as needed to maintain your desired asset allocation.
Found Money: Earning Bonus Investments
Acorns’ “Found Money” feature partners with numerous retailers, allowing you to earn bonus investments when you shop with participating brands. These partnerships typically offer a percentage of your purchase amount back as an investment in your Acorns account. Activating these offers is generally straightforward. You simply click on the offer within the Acorns app and make your purchase through the provided link or with your Acorns debit card.
Analyzing the Fee Structure of Acorns
One of the most important considerations when evaluating any investment platform is its fee structure. Acorns charges a monthly subscription fee, which varies depending on the plan you choose.
Acorns Personal ($3/month): Includes Acorns Invest, Acorns Later, Acorns Spend, and a checking account.
Acorns Family ($5/month): Includes all features of Acorns Personal, plus Acorns Early, which allows you to open investment accounts for your children.
While these fees may seem small, they can significantly impact your returns, especially for small account balances. For example, a $3 monthly fee translates to $36 per year. If you only have a few hundred dollars invested, this fee can eat into a substantial portion of your earnings.
Consider this: If you have $100 invested and pay $36 in annual fees, you need a return of 36% just to break even.
The impact of fees diminishes as your account balance grows. However, it’s crucial to consider the percentage of your portfolio that these fees represent.
Pros and Cons of Investing with Acorns
Weighing the advantages and disadvantages of Acorns is critical in deciding if it aligns with your financial goals and investment style.
Advantages of Using Acorns
- Low Barrier to Entry: Acorns allows you to start investing with as little as $5, making it accessible to individuals with limited capital.
- Automated Investing: The round-up feature automates the investment process, making it easy to save and invest without actively managing your portfolio.
- User-Friendly Interface: The app is designed with simplicity in mind, making it easy to navigate and understand, even for beginner investors.
- Diversification: Acorns’ portfolios are diversified across different asset classes, reducing risk and potentially enhancing long-term returns.
- Retirement Savings: The Acorns Later feature provides a convenient way to save for retirement through an IRA.
- Educational Resources: Acorns provides educational articles and resources to help users learn more about investing.
- Found Money Partnerships: The “Found Money” feature allows you to earn bonus investments when you shop with participating retailers.
Disadvantages of Using Acorns
- Monthly Fees: The monthly subscription fees can be relatively high, especially for small account balances.
- Limited Investment Options: Acorns only offers a limited selection of pre-built portfolios, restricting your ability to customize your investment strategy.
- Lack of Control: The robo-advisor approach provides limited control over your investment decisions. You cannot pick individual stocks or ETFs.
- Tax Implications: Round-ups and rebalancing can trigger taxable events, which may reduce your overall returns.
- Opportunity Cost: While Acorns encourages saving and investing, the potential returns may be lower than those offered by other investment platforms with more diverse investment options and lower fees.
Who is Acorns Best Suited For?
Acorns is particularly well-suited for:
- Beginner investors: Those who are new to investing and want a simple, automated way to get started.
- Young adults: Individuals in their 20s and 30s who are looking to build long-term wealth.
- Individuals with limited capital: Those who want to start investing with small amounts of money.
- People who want to automate their savings: Those who struggle to save regularly and appreciate the round-up feature.
However, Acorns may not be the best choice for:
- Experienced investors: Those who prefer to have more control over their investment decisions and want access to a wider range of investment options.
- High-net-worth individuals: Those with significant assets may find the fees relatively high compared to other investment platforms.
- Active traders: Those who want to actively trade stocks and ETFs.
Comparing Acorns to Other Investment Platforms
Several other investment platforms offer similar services to Acorns. These include:
- Robinhood: Offers commission-free trading of stocks, ETFs, and options.
- Webull: Another commission-free trading platform with advanced charting tools and analysis.
- Stash: Offers a similar micro-investing platform with a focus on education and socially responsible investing.
- Betterment: A robo-advisor platform that offers personalized investment advice and portfolio management.
- M1 Finance: Combines the features of a robo-advisor and a brokerage account, allowing you to build a customized portfolio of stocks and ETFs.
When choosing an investment platform, it’s essential to compare fees, investment options, and features to determine which one best meets your needs. It is important to consider your investment goals, risk tolerance, and investment timeline.
Optimizing Your Acorns Account for Better Returns
If you decide to invest with Acorns, there are several strategies you can use to optimize your account for better returns:
- Increase Your Round-Ups: Increase the multiplier on your round-ups (e.g., 2x, 5x, 10x) to invest more money automatically.
- Set Up Recurring Investments: Set up recurring daily, weekly, or monthly investments to consistently add to your account.
- Choose the Right Portfolio: Select a portfolio that aligns with your risk tolerance and investment goals. If you have a long investment timeline, you may consider a more aggressive portfolio.
- Take Advantage of Found Money: Actively use the “Found Money” feature to earn bonus investments when you shop with participating retailers.
- Reinvest Dividends: Ensure that dividends are automatically reinvested to take advantage of compounding returns.
The Long-Term Potential of Investing with Acorns
While Acorns may not be the most cost-effective option for everyone, it can be a valuable tool for building long-term wealth, particularly for those who are new to investing. The automated round-up feature and low barrier to entry make it easy to start saving and investing, and the diversified portfolios can help reduce risk.
The key to success with Acorns, or any investment platform, is consistency. Regularly contributing to your account and staying invested for the long term can help you achieve your financial goals.
The Bottom Line: Is Acorns Worth It?
Whether or not Acorns is worth it depends on your individual circumstances and financial goals. If you are a beginner investor looking for a simple, automated way to start saving and investing, Acorns can be a good option. However, it’s essential to be aware of the fees and consider other investment platforms that may offer lower costs or more diverse investment options.
Carefully weigh the pros and cons, compare Acorns to other platforms, and consider your own financial situation before making a decision. Consider the long-term impact of fees, the availability of investment options, and the level of control you desire over your investments. Investing, regardless of the platform, should be a well-informed decision.
What exactly is Acorns and how does it work?
Acorns is a micro-investing app that allows users to invest small amounts of money, even spare change from everyday purchases. It works by linking to your bank accounts and credit cards. When you make a purchase, Acorns rounds up the transaction to the nearest dollar and invests the difference into a diversified portfolio of exchange-traded funds (ETFs).
The app offers different portfolio options based on your risk tolerance and investment goals. These portfolios are pre-built and managed by experts, relieving the user of having to research and select individual stocks or bonds. You can also set up recurring investments and contribute lump sums to further grow your portfolio.
What are the fees associated with using Acorns?
Acorns offers a tiered subscription model, with varying fees depending on the features offered. The basic “Personal” plan typically costs a few dollars per month and includes investing, retirement, and checking accounts. Higher tiers, like “Family,” offer additional features such as investment accounts for kids and access to expert consultations, but come with higher monthly fees.
It’s crucial to understand these fees and consider them in relation to the potential returns on your investments. For small account balances, the monthly fees can represent a significant percentage of your investment returns, potentially negating any profits. Therefore, users should carefully evaluate if the value they receive from Acorns’ features justifies the cost.
Who is Acorns best suited for?
Acorns is particularly well-suited for beginner investors and those who find it difficult to save and invest consistently. Its automated round-up feature makes investing accessible and almost effortless, allowing users to gradually build a portfolio without requiring large sums of money. The simplicity of the platform and pre-built portfolios also make it appealing to individuals who lack investment knowledge or the time to manage their own investments.
However, more experienced investors or those with larger sums to invest might find Acorns’ limitations and fees less attractive. Individuals comfortable managing their own investments and selecting individual stocks or ETFs might prefer brokerage platforms that offer lower fees and greater flexibility. Acorns serves as an excellent entry point but may become less suitable as investment needs evolve.
What are the potential drawbacks of using Acorns?
One potential drawback of Acorns is its relatively high fee structure, especially for smaller account balances. The monthly fees can erode potential returns, particularly for accounts with only a few hundred dollars invested. Users should carefully calculate the impact of these fees and compare them to the fees charged by other brokerage platforms.
Another potential downside is the limited investment options available on Acorns. The app only offers pre-built portfolios, which may not align perfectly with every investor’s risk tolerance or investment goals. While this simplicity is appealing to beginners, more experienced investors might prefer the flexibility to customize their portfolios and invest in individual securities.
What kind of returns can I expect from Acorns?
The returns you can expect from Acorns depend on several factors, including the portfolio you choose, the amount you invest, and the overall performance of the market. Acorns offers portfolios with varying levels of risk, ranging from conservative to aggressive. Historically, more aggressive portfolios have generated higher returns, but they also come with greater volatility.
It’s important to remember that past performance is not indicative of future results. Market fluctuations can significantly impact investment returns, and there’s no guarantee that you’ll earn a specific rate of return with Acorns. Before investing, carefully consider your risk tolerance and investment goals, and choose a portfolio that aligns with your individual circumstances.
How safe is Acorns and my investment?
Acorns is a legitimate and secure platform that employs industry-standard security measures to protect user data and investments. The company uses encryption to safeguard personal and financial information and regularly monitors its systems for potential security threats. Furthermore, Acorns accounts are SIPC insured, meaning that your investments are protected up to $500,000 in the event of Acorns’ failure.
However, SIPC insurance does not protect against market losses. Like all investments, Acorns investments are subject to market risk, and you could lose money. While Acorns takes steps to protect your data and investments, it’s essential to understand the inherent risks of investing before using the platform.
How does Acorns compare to other micro-investing apps or traditional brokers?
Acorns is a popular micro-investing app, but it’s important to compare it to other options like Robinhood, Stash, and traditional brokerage accounts. Acorns stands out for its automated round-up feature and simplicity, making it ideal for beginners. However, its fees can be higher than those charged by some other platforms, especially for small account balances.
Platforms like Robinhood offer commission-free trading of individual stocks and ETFs, providing greater flexibility and potentially lower costs for experienced investors. Traditional brokerage accounts offer a wider range of investment options and tools, but they may require more active management and investment knowledge. The best option depends on your individual investment needs, experience level, and risk tolerance.