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In this Acorns review, we’re going to show you how Acorns works, what the potential savings and risks are, and help you determine whether Acorns is a smart investment tool for you.
Remember your piggy bank or loose change jar you had as a kid? How you would drop all your nickels, dimes, and quarters in there until it was packed full? If you’re like me, every time you brought that change in the bank it added up to more cash than you thought.
Acorns wants to take this “out of sight, out of mind” savings strategy to the next level. They round-up your expenses to the nearest dollar, then invest your nickels and dimes for future goals. Recently, the company added retirement accounts and a debit card account.
But can this micro-investing strategy really grow your wealth?
Let’s take a look.
JULY 2018 UPDATE:
Acorns is now offering a $5 signup bonus for new accounts opened. After completing your account registration, Acorns will deposit $5 into your account to help you get started.
Acorns Review At a Glance
- Free investment for college students
- Automated investing
- No investment minimum
- High management fee for smaller investment sizes
- Slow account withdrawals
- No personal guidance
Best for: College students who can use the app to start investing for free. Hands-off investors who have a small amount to invest now, but struggle with saving on a regular basis.
The Bottom Line: Acorns is a great way for new investors to get their feet wet, particularly college students who can use the app for free for up to 4 years. But at small portfolio sizes, the $1 monthly fee will wipe out most of the potential investment gain.
What is Acorns?
Acorns is part spare change jar, part robo-advisor. This app rounds up your purchases on linked credit or debit cards – now with the option to boost those round-ups by 2x, 5x, or even 10x – and invests that money for you.
Acorns offers three levels of service:
For $1 per month, this is Acorns’ original micro-investing app. To sign-up, you connect your bank account and link any credit and debit cards where you want round-up investments to occur.
Then you select the amount of money you want to contribute to your Acorns investment to get started. There is no minimum, but the app won’t actually begin investing for you until your Round-Up balance equals $5 or more.
Finally, you’ll answer some questions about your financial situation, goals, and risk tolerance. Acorns will use this to recommend one of its five ETF-based investment portfolios. You can override their selection if you want more or less risk in your portfolio.
In addition to your Round-Up investments, you can set recurring investments that occur daily, weekly or monthly. Acorns Found Money service is also partnered with over 200 brands that give you cash back, automatically invested, for purchases.
This account level is free for up to 4 years for college students.
Acorns + Acorns Later: $2/month
In 2018, Acorns added retirement investments to their platform. Now you can invest in a Roth, Traditional, or SEP IRA with Acorns. Investments into your Acorns Later account occur the same way as with the original Acorns service.
Acorns + Acorns Later + Acorns Spend: $3/month
The most recent addition to the Acorns platform is a digital checking account. Acorns Spend is a full-service checking account allowing digital direct deposit, mobile check deposit and payment, and unlimited fee-reimbursed ATM withdrawals.
Acorns Spend allows for real-time Round-Ups, custom spending strategies to boost your savings, and increased Found Money cash-back with up to 10% invested from local places you regularly visit.
How Does Acorns Work?
Acorns’ investing service, like most robo-advisors, is based on Modern Portfolio Theory created by Dr. Harry Markowitz. It has five optimized portfolios to choose from and automatically rebalances your portfolio and reinvests all dividend payments regularly.
Each Acorns portfolio is made up of ETFs, or Exchange Traded Funds, with exposure across multiple asset classes. These ETFs have internal expenses that equal about 0.10% of your investment over time.
Here is how Acorns portfolios are broken down today:
|Conservative||Moderately Conservative||Moderate||Moderately Aggressive||Aggressive|
|Large Company Stocks||12%||24%||29%||38%||40%|
|Small Company Stocks||2%||4%||10%||14%||20%|
|Real Estate Stocks||2%||4%||6%||8%||10%|
|Emerging Market Stocks||0%||0%||3%||4%||10%|
As you add money to your account through Round-Ups or scheduled deposits, Acorns will invest that money for you based on your risk-profile. If you are using the basic Acorns account, this will occur in a taxable investment account.
You can withdraw your money from Acorns at any time, but investment withdrawals can take 5 to 7 business days. And the reality is, you don’t want to use your Acorns savings as a regular source of cash. Investing is a long-term game. By pulling money from this account for day-to-day expenses and goals, you’ll increase the chance of losing money in the market.
Frequently Asked Questions On Acorns
With so many options out there, investors have questions. Here are the top queries we’ve seen around the web.
Are Small Round-Up Investments Enough to Matter?
When it comes to saving for your future, every little bit helps!
At the same time, should Round-Up investments be the core part of your investing strategy? No.
But even investing $30 a month at a 7% market return adds up to over $4,800 in 10 years. Put that same amount in a savings account, even a high-interest one like CIT Bank or Discover Bank, and you’re only looking at just under $3,900. And the gap between investing and saving only increases over time. That’s the power of compound growth!
Is Acorns Worth the Cost If I Just Use the Round-Up Service?
Not unless you are a college student and can use it for free. For small accounts, the $1 monthly fee is very high and offsets any reasonable potential gain from the investments.
Let’s assume you had 50 Round-Up transactions a month, at an average round up value of $0.40. The Acorns app would invest $20 for you each month but would take 5% of those savings in fees.
As your account value increased, that percentage would decline. But you would need to have $5,000 invested before the fees were as low as Betterment at 0.25%. And Betterment offers those fees with no minimum investment threshold and with access to a retirement account. You would need $10,000 invested in an Acorns IRA to match Betterment’s fees.
What a $1/mo Fee Means for a Taxable Account:
|Account Balance||Annual Fee|
What Are the Risks with Investing with Acorns?
As with any investment, performance isn’t guaranteed. Investing has risks which means the value of your portfolio can trend up and down over time. Yes, the long-term returns of the stock market have been up. But year to year? Things can get ugly.
The biggest risk for Acorns users is deciding that your Round-Up investments are just another savings account. Remember rule number one in the Golden Rules for Investing Money – play the long game.
If you have plans for your money in the next three to five years, opt for a high-interest savings account instead. Some online banks, like Chime Bank, offer free checking accounts with automatic savings that don’t auto invest.
Should I Invest Large Sums with Acorns?
For hands-off investors with large sums to work with, the flat-rate fee may look attractive. For example: If you have over $10,000 to invest in the Acorns + Acorns Later membership level and your fees drop to below the levels of top robo-advisor competitors like Betterment and Wealthfront, Acorns appears to be a cost effective option.
However, I would still not recommend investing large amounts with Acorns. Their investment options aren’t as robust as the bigger players. Portfolios include less diversification across asset types and no ability to customize asset allocation outside the five key portfolios.
In addition, if you are primarily investing in a taxable account (the basic Acorns level), you don’t get tax-loss harvesting to improve long-term returns offered by many competitors.
Finally, you don’t get access to professional financial support with Acorns. Larger robo-advisors provide some access to Certified Financial Planners (CFPs) to answer your burning questions. You might not have any today, but as your portfolio grows or we hit a downturn in the market, it can be a comforting option.
Who is Acorns Good For?
– College students who want to start investing with small amounts of money. The free management fees make it the perfect way to get your feet wet. Acorns also has an excellent learning platform through their online magazine, Grow, to help you learn the basics.
– Hands-off investors who struggle to save and want to make the most of spare change with the occasional bonus savings from partner retailers.
Acorns App Review Summary
When it comes to round-up investing apps, Acorns is the best in the business. It’s easy to use, has an excellent education platform for new investors, and simple, straightforward fees.
However, whether the $1-3 monthly fee is a benefit or a detriment really depends on your account balance. If you’re only adding a few dollars a month to your Acorns account, that $1 a month will hinder your investment growth.
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