Is Acorns Worth It?

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Short on time? Here’s the what you need to know about Acorns:

Acorns is a micro investing platform which combines robo advising with an automated savings feature. Here are the three most important aspects of Acorns you should know:

1. There’s no self-directed trading (meaning you don’t have full control to buy/sell/trade the stocks and bonds in your portfolio – Acorns manages this for you based on the portfolio you choose) 
2. There’s a flat fee structure for $1, $3, or $5 a month depending on the plan you choose (unless you’re a college student and then it’s free!). For portfolios worth over $1 million dollars, the monthly fee rises to $100 a month. 
3. You won’t save your way to retirement by investing only spare change

Who is Acorns best suited for?

Acorns is best suited for college students who:

• M1 Finance
  • Check out the full review of M1 Finance for Beginners
• Betterment

What is Acorns?

Acorns is a micro investing platform that combines robo advising with an automated savings feature. 

What is micro investing?

Micro investing is a relatively new way to invest. As the name suggests, it allows you to buy securities (stocks, bonds, etc) with very small amounts of money – as little as $1. You may be thinking, how can I buy stocks with only $1? Does that mean I’m limited to buying only the cheapest stocks in the market? No. That’s because you can invest in what are called fractional shares.

What are fractional shares?

While you may not be able to afford the price of an entire share, your $1 can buy a piece of a share (aka fractional shares). This is why apps like Acorns can offer investors the ability to invest with their spare change. 

Now, let’s get back to Acorns.

There are three important aspects of Acorns that deserve your attention:

1. There is no self-directed trading 

Acorns users simply choose one of five pre-set portfolios: conservative, moderately conservative, moderate, moderately aggressive, and aggressive.  For those who aren’t as comfortable or confident in their securities trading skills, this can be seen as a positive. For those who want more control over their portfolio, Acorns will likely feel too restrictive. 

2. There’s a flat fee structure

The monthly subscription fee of $1, $3, or $5 a month depends on the plan you choose. It’s also important to note that for portfolios worth over $1 million dollars, the monthly fee rises to $100 a month. 

That might seem like a big jump, going from as little as $1 a month to $100 a month, but it’s important we look at the whole picture. The average advisory fee for a portfolio worth $1 million in 2020 was 0.32%. To make an apples to apples comparison, let’s look at what the total annual fees would be on a $1 million portfolio. Acorns charges $100 a month, which totals $1200 a year. The average robo investment platform charges 0.32%, which totals $3,200 a year. Now, $100 a month might not seem so bad. 

On the other hand, Acorns touts itself as one of the friendliest micro investment platforms for those just starting out. So let’s say you’re a beginner and your portfolio is only $1,000. While $1 a month ($12 a year) might not seem like very much, it means you’re paying annual fees worth 1.2% of your portfolio’s value. That’s significantly more than the average management fee of 0.25% on portfolio’s less than $5,000.

Tiny percentages add up

If you find yourself reading these itty bitty percentages thinking, does it really matter if you pay 1.2% or 0.25%? Yes. It matters immensely. While these percentages are small, they add up over time. In a recent study, Nerdwallet found that millennials paying 1% in fees will sacrifice an expected $590,000 in returns over a 40 year investment period.

There’s always a tradeoff 

It’s important to note that there’s usually a trade off between costs with robo advising platforms. Typically, platforms that allow you to invest with smaller amounts of money will charge you an advisory fee, regardless of how much money you might have invested (even if it’s only $5).

Other platforms might not charge you an advisory fee until your portfolio reaches a certain value (say $10,000). However, those platforms are more likely to have a minimum balance requirement for you to even open an account with them. 

No fees for college students

Recall at the beginning of the article where we mentioned Acorns was best suited for college students. Here’s why. A big perk of Acorns is that college students can invest with Acorns free for four years. When you sign up, be sure to indicate ‘student’ as your employment and use your .edu email address. Once you sign up, you’ll be able to use Acorns free for four years.  

3. You won’t save your way to retirement by investing only spare change

One of the reasons Acorns is well known is for its motto of investing spare change. Acorns helps you invest your spare change with their round-up feature. So, whenever you buy something, the purchase price will be rounded up to the nearest dollar and that spare change will be automatically invested in your Acorns portfolio. 

While that’s not a bad way to help you save money, that method is not going to be enough for you to save your way to retirement. You’d have to spend a lot of money to be able to save enough. And if you’re spending that much money, well, it might be a good time to reassess your budget. 

Most financial experts agree that you should save at least $1 million dollars for retirement. Let’s take a look at an example. Say you’re 20 years old and want to know how much you need to invest each month (expecting 7% returns) in order to retire with $1 million dollars at age 65:

You’d need to invest $261.24 each month to get you to your goal of a million dollars. 

The average Acorns user invests $30 a month through roundups. Again, while that’s not a bad way to help you save some extra money, it means your monthly contributions are falling short by $231.24. Using the same parameters as mentioned above but you only invested $30 a month, you’d have only an estimated $114,858.28 after 45 years. 

Pros and cons of investing with Acorns

Now that we’ve gone over the three most important aspects of investing with Acorns, here’s a rundown of the pros and cons. 

Pros of Acorns

• No minimum investment
• Informative content
• Easy, hands-off way to invest
• User friendly app & website
• Free account management for college students
  • Those with .edu email address will get 4 years of Acorns for free

Cons of Acorns

• Flat fee structure is detrimental to small portfolios
• Users need to actively invest beyond just savings round ups
• No self-directed trading
• The 5 portfolio’s available are limiting

So, is Acorns worth it?

For most investors, Acorns won’t be an effective, cost-efficient way to save for retirement. However, it’s a great tool for college students. Since investing is free for college students (for four years), Acorns is a great app to help beginners who:

• Are looking to implement automated savings habits
• Prefer hands-off investing
• Want to begin investing even while they may still be learning the ropes
• Want to build up a portfolio without the ability to invest large sums of money

Alternative investment apps to consider

So what other apps should you consider investing with if you’re a beginner, but not a college student?

Personal favorites here at The Ambitious Dollar include M1 Finance and Betterment, which offer:

• Low fees
• User friendly apps & websites
• Fractional shares
• Informative content
• Low minimum balance

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