Acorn review: how it works, pros and cons
If you are looking for companies to help you invest your money, the Acorns platform is a big player. In this Acorns Review, I’ll explain how Acorns can turn the change you get by making daily purchases into building blocks of a healthy investment portfolio – with almost no effort on your part.
I’ll also determine if the platform’s fees are worth it, so you understand who should – and shouldn’t – pay for this service.
Acorn Review: A Quick Look
|Company type||Automated micro-investment|
|Main characteristics||Automatically invests change on purchases|
|Best for||People who must be forced to save|
What are acorns?
Acorns was launched in 2012 as a microinvestment app.
His name explains what he does in a metaphorical way. To paraphrase an old saying, a mighty oak begins with a small acorn. The same goes for investing if you buy into the Acorns way.
Acorns rounds the amount of your purchases to the nearest dollar and automatically invests the change in exchange traded funds (ETFs). It charges a monthly fee between $ 3 and $ 5. You can also save for retirement, open a checking account or invest for your children with Acorns.
Round-Ups, Acorn’s name for its free money method, aren’t the only way to fund an Acorns account. You can make traditional money transfers and deposits. You can even increase your balance by shopping from the company’s partner retailers (more on that later).
Acorns had over 6.8 million users as of February 2020, the last time it publicly shared those numbers. The company has raised more than $ 200 million from NBCUniversal, BlackRock, PayPal, Jennifer Lopez and Alex Rodriguez.
The fintech company is also considered a robo-advisor because it automatically invests your money in one of many pre-designed plans.
How do acorns work?
When you make a purchase from a checking account, credit or debit card linked to your Acorns account, Acorns rounds up to the next dollar and sets aside your change. For example, if you buy your favorite candy bar for $ 1.20 at a gas station, Acorns will set aside 80 cents.
This modern version of a piggy bank sweeps the change from your linked account to your Acorns account. And you can make automatic daily, weekly or monthly investments or even one-off deposits. You can also set up multipliers which, for example, will double or triple the loose change on your purchases. You can also tell Acorns to invest a quarter, 50 cents, 75 cents, or even a dollar when a purchase amounts to an equal amount – or nothing at all. The system is quite flexible.
Acorns invests your currency in Exchange Traded Funds (ETFs), which tend to spread your investments across a wide range of companies and asset classes. The Acorns website claims that every dollar you invest is automatically diversified into over 7,000 stocks and bonds through fractional stock purchases.
The company offers five types of portfolios: conservative, moderately conservative, moderate, moderately aggressive, and aggressive. Acorns gives you a recommendation based on your age, goals, income, and time horizon. You can accept this recommendation or choose your own level of risk when creating your account. Well-known investment management firms Vanguard and BlackRock designed the portfolios.
Acorns claims that its average user invests over $ 30 per month in its “Round-Ups”.
How much do acorns cost?
Acorns offers two monthly subscription levels after Lite ($ 1) discontinues in September 2021:
Here’s the math: Both tiers cost $ 36 or $ 60 per year. Many asset management companies charge a variable fee equivalent to a small percentage of your overall investment. Any reasonable review of Acorns will mention that the company’s flat rates can be costly for the amount you invest.
Here are some additional calculations: If you are at the Personal level and have a balance of $ 100, you pay a management fee of 36%. For the context, the competitor Betterment charges 0.25% per year. It would take a balance of over $ 10,000 to hit that number with Acorns.
“What you pay for is the forced and automatic savings,” silver expert Clark Howard said.
“Yes [$36] one year takes you to change your ways with money, so it’s a well spent [$36]. The reality is that if someone doesn’t need this, it’s better to have free stock trading and free online banking. If you have the discipline, I’d rather you didn’t pay a fee that you don’t need to pay.
It doesn’t take money to open an Acorns account and only $ 5 to start investing. It costs $ 50 per ETF if you want to transfer your portfolio to another broker, but you can sell your holdings instead and transfer the resulting money at no cost.
What is the “Acorns Earn” program?
“Acorns Earn” is the company’s version of a cash back program.
Acorns has partnerships with more than 350 companies, including Walmart and Nike. You’ll get what Acorns calls “found money” when you buy from one of these partners and use a linked payment method.
For example, if you make a qualifying purchase from Nike with an account linked to Acorns, Nike will pay 5% of your purchase amount to your Acorns investment account.
Acorns has created a Chrome extension to make sure you don’t miss out on any deals when shopping online. The Acorns Earn feature also includes a vacancies section as well as the company’s referral program.
Acorn review: where it shines
Tassels can be a good tool for people who don’t have the discipline to save money on their own. Here are some of its best attributes:
- Help develop good financial habits. Americans are notoriously bad at saving money. Acorns makes the process automatic. It can help people save and invest who might not otherwise.
- Includes educational and digestible content. The Acorns website uses less technical language than the websites of many investment firms. This makes it accessible to beginners. Acorns also publishes Grow Magazine, an online personal finance site, and it integrates this content into the Acorns app.
- Offers unique advantages. There are too many to list here. But, for example, you get a free children’s book when you sign up for the Family level ($ 5). Some of the perks are small, but they’re a nice touch of well-being.
Acorn review: where it is missing
My Acorns review has already revealed one major downside: the fees. Here are details and a mention of some of its other shortcomings:
- High management fees. Many robot advisors charge you a percentage of your assets rather than a lump sum. Acorns’ approach can lead to deceptively high fees, especially if your balance is low.
- Expensive transfers. It is common practice to charge clients who wish to transfer their portfolios to another brokerage. For example, Robinhood charges a flat rate of $ 75. As Acorns bills by ETF, if you have four ETFs, you will pay a fee of $ 200. But you can still sell your holdings and cash out for free.
- Narrow selection of portfolio options. The portfolios themselves cover a maximum of seven asset classes (real estate, domestic large-cap stocks, international large-cap stocks, small-cap stocks, emerging markets, corporate bonds, and government bonds). It’s very diverse, but other robo-advisers have an even wider selection of asset classes.
- Notable missing features. Acorns offers customer support, but no human investment advisors. It also doesn’t offer the crop of tax losses like most traditional brokers and many fintech companies do. And there is no Acorns 529 plan, but this offering is not common among fintechs.
Who should use acorns?
If you are in one of these groups, acorns might be a great option for you.
- New investors. If you’re still in school, just starting your career, or have never made an investment before, acorns can be a great stepping stone to building healthy habits with your money.
- Poor savers. I know we live in the digital age. But if the phrase “money burned a hole in my pocket” applies to you, maybe acorns can be the boost you need to start saving.
- Passive investors with at least $ 10,000. If you want a reputable person to manage your portfolio with a diversified and automated long-term strategy, Acorns could be a good solution. This is especially true if you have $ 10,000 or more. At this point, Acorn’s fixed costs start to become competitive with other options you might pursue.
Clark says if you’re disciplined and just interested in Acorns because of its innovative approach, there are probably better investment platform options out there.
Some of them include:
- Free stock brokers. Companies like Robinhood, Webull, Fidelity and Schwab fall into this category.
- Online banks. Ally and Discover are just two of the companies that handle your banking needs without charging you a fee.
- Robo-advisers who charge a percentage. Betterment, one of these companies, offers a similar hands-off investment, but charges 0.25% of your investment.
- Automated investment free of charge. Like Acorns, the Fidelity Rewards Visa Signature card allows you to set up automatic contributions to your investment account when you make purchases. However, Fidelity does not charge fees for its investment account.
Passive, automated investing for as little as $ 3 per month seems like a steal. But because Acorns offers flat rates, its management fees can be exorbitant if you only have hundreds or even a few thousand dollars in your account.
Still, acorns can help people develop good habits. This can make saving and investing more accessible to people who might not otherwise. It executes the “invest your change” concept well and offers some great benefits as well.