Many people think that in order to start investing they need to be able to regularly put away hundreds or even thousands of dollars into their investment accounts. The reason for this is because many online brokers charge a commission per trade (as well as many other fees) and it is not economical to invest small amounts at a time. Well, what if I told you that there is a way for you invest micro amounts of money such as 32 cents at a time? With the Acorns app that is available as a free download for both IOS and Android devices, you can do just that!
Acorns links with your bank account and allows you to invest your “spare change” into diversified ETF portfolios by rounding up your purchases to the nearest dollar amounts. So, for example, if you buy a cup of coffee for $2.15 then Acorns will set aside an additional 85 cents to invest for you. After you have accumulated $5.00 of “spare change,” Acorns will transfer that money out of your bank account and into a diversified ETF portfolio.
Before we go any farther, let’s take a step back and talk about what a diversified ETF portfolio is. ETF stands for an Electronically Traded Fund which is a portfolio of investments that are not actively traded based on decisions of the fund managers, but instead are automatically adjusted to maintain exact percentages of the different securities that make up the portfolio. A good example of an ETF is the SPY 500 which is an ETF whose holdings include all of the companies that make up the S&P 500 index. So, if a S&P 500 firm goes from 5% of the total S&P 500 (based on market cap which is stock price X shares outstanding) to 6% of the total S&P 500, then the SPY 500 ETF will automatically adjust by selling off shares of the firms who’s portion has diminished while buying more shares of the company who’s position has grown. A diversified ETF portfolio is a portfolio that includes a number of different ETFs.
Specifically, Acorns gives you the option to choose between 5 different diversified ETF portfolios to have your money invested in. They range from conservative to aggressive and have been constructed using modern portfolio analysis and the advice from Nobel Prize-winning economist, Harry Markowitz. If this all still sounds really confusing, have no fear! Acorns will ask you a series of questions about yourself when you set up your account and will spit out a recommendation of what portfolio they think is the best choice for you.
Now that you have a better idea of how your money will be invested with Acorns, let’s take a look at some more information you need to be aware of before starting an account.
Fees: Although Acorns offers people a chance to invest in micro amounts while avoiding many of the costs of larger online brokers, there are still fees involved. As of 1/1/15 Acorns charges users with an account balance greater than $0 and less than $5,000 a fee of $1 a month. Accounts over $5,000 dollars are charged a fee of 0.25% of assets per year. So an account of $10,000 would be charge $25 a year. You can calculate your fees HERE.
Registration Process: Signing up for an Acorns account is fairly easy. I say fairly because although the app has undergone major renovations and improvements since it was first released, it still has its minor quirks and flaws. Acorns is a real SPIC-insured brokerage firm behind the app and that means in order to create an account with them they must prove your identity and acquire all necessary tax information. The app makes this process very easy, but you will need to have your social security number ready. Acorns will link to any bank account and all you need to be able to set that up is your bank login information and your routing/account numbers. Although you need to always be extremely careful when providing this information online or through an app, you can be rest assured that Acorns is legit and uses industry standard encryption and security to protect your data.
**NOTE: make sure and provide the same address as the one that is officially listed on your ID. I made the mistake of using my school address when signing up and had to provide extra information such as a picture of my ID and proof of residence in order to get my account activated**
Bottom Line: In my opinion, Acorns is the perfect app to give people (especially students and millennials) a chance to see the effects of compounding gains and begin to invest without feeling a major burden on their pocketbooks. I also recommend that you think about why and what you are investing for before starting an Acorns account. Personally, I created my account with the intention of a 7-10 year investment at which point I can take that money and move it into a more traditional investment account where I have more control. Another recommendation I make is to “dial-in” the round up amount for your purchases. The default amount is for Acorns to round all of your purchases to the nearest dollar, but that amount is adjustable within the settings of the app. If you find that rounding to the whole dollar is too much, then you can easily dial it back. On the flip-side, if you would like to contribute more to your savings than you are getting through just your round ups then you can have Acorns automatically draft an additional amount from your bank account weekly or monthly.
Don’t forget, if you have any questions about Acorns or any other financial topic, you can submit them online HERE or contact the SFA Student Financial Advisors via phone, Email, or in person.