For some people, building personal savings is second nature. For others, it’s much more difficult.
Even if your income is more than enough to cover your expenses from day to day, it takes discipline to sock away the remainder and avoid the corrosive effects of lifestyle inflation.
Millions of consumers struggle to spend less than they earn. Which is why I was excited to learn about Acorns, a saving and investing tool that combines the simplicity and user-friendliness of saving apps such as Digit with the wealth-growing power of robo-advisor platforms such as Betterment and SoFi.
If you know you could save more if you tried, but you aren’t quite sure how to get started (or how to motivate yourself to get started), take a few minutes out of your day to learn more about Acorns.
Here’s a rundown of Acorn’s key features, some tips to get more out of the platform, and its biggest advantages and drawbacks.
Acorns: The Basics
It’s built around the tenets of modern portfolio theory (MPT), an increasingly popular set of investing principles developed by Nobel Prize-winning economist Dr. Harry Markowitz. (Acorns Later, the platform’s tax-advantaged retirement account, also follows MPT.)
MPT’s framework helps investors allocate assets in accordance with their risk tolerance, constructing diversified portfolios that achieve an optimal balance between risk and return. Dr. Markowitz even sits on Acorns’ board, although the degree to which he contributes to the company’s strategic or day-to-day activities is unclear.
Sign-Up: Basic Procedures
To sign up for Acorns, you need to download the app (Android or iPhone) and connect your checking accounts and credit cards. You can connect as few or as many accounts and cards as you like, and can always add more later. You’ll earn a tidy $5 bonus once your account is open.
Once your accounts are connected, you’re asked about your reasons for investing (for example, building wealth for the long term or saving for a major purchase) and prompted to enter some basic demographic and personal information.
If you’ve opened a bank or brokerage account before, this part will feel familiar.
Building an Acorns Invest Portfolio
Using the information you’ve provided during the sign-up process, Acorns creates a recommended portfolio of low-cost exchange-traded funds (ETFs) managed by iShares and Vanguard.
Each ETF is an index fund corresponding to a specific asset class: large-company stocks, small-company stocks, emerging markets stocks, real estate stocks, government bonds, or corporate bonds. According to Acorns, these ETFs collectively offer access to approximately 7,000 individual stocks and bonds.
Your recommended portfolio’s design is based on your time horizon, age, income, and investing goals, which in turn informs your assumed risk tolerance. Portfolios’ precise asset allocations are subject to change over time due to rebalancing.
But they generally follow the following patterns at each level of risk tolerance:
- Conservative: This portfolio is weighted toward government bonds and corporate bonds, and away from small company stocks and emerging market stocks.
- Moderately Conservative: This portfolio is weighted toward government bonds and corporate bonds, and away from small-company stocks and emerging market stocks, though less so than the Conservative portfolio.
- Moderate: All classes more or less weighted equally in this portfolio.
- Moderately Aggressive: This portfolio is weighted toward small company stocks and real estate stocks, with roughly equal weights for emerging market stocks, large-company stocks, emerging market stocks, government bonds, and corporate bonds.
- Aggressive: This portfolio is weighted toward small company stocks, real estate stocks, and emerging market stocks, and away from government bonds and corporate bonds.
Acorns has a three-tiered fee structure, and each tier has its own set of features and functions.
- $1 Per Month (Acorns Lite). This tier includes Acorns’ signature automated investing plan, automatic portfolio rebalancing, the ability to make one-time investments, and cash back via Found Money. (More details on each of these features below.)
- $3 Per Month (Acorns Personal). This tier includes everything in the Acorns Invest tier, plus Acorns Later (customized IRA recommendations, automatic recurring SEP, traditional, or Roth IRA contributions, and manual IRA contributions) and Acorns Spend (a checking account that comes with a Visa debit card accepted at millions of merchants worldwide, access to more than 55,000 in-network ATMs, exclusive opportunities to earn up to 10% back on everyday purchases, and automated transfers to your Acorns investment accounts).
- $5 Per Month (Acorns Family). This tier includes everything in the lower tiers, plus Acorns Early, a kid-friendly investment solution that supports multiple accounts and offers automated recurring investments, family financial advice, and potential tax savings. Acorns Early is a great way to teach kids about saving money.
The ETFs in which Acorns invests are among the lowest-priced on the market, but they still add to the cost of using the platform.
Depending on your asset allocation, expect your aggregate expense ratio — the management fees charged by the funds you invest in, computed annually — to range between 0.05% and 0.15%. That’s in addition to Acorns’ monthly fees.
Acorns is designed for investors with less than $1 million in investable assets, but it’s not clear whether Acorns declines to accept new deposits once your balance hits the $1 million mark.
Here’s a closer look at Acorns’ most important features:
For a limited time, get a $10 bonus investment when you create a new Acorns account and make your first deposit (minimum $5). Terms apply.
Acorns is a mobile-first program, meaning it’s built around a lightweight, user-friendly Android or iPhone app.
Unlike most traditional brokerages and robo-advisors, it doesn’t have a desktop-friendly dashboard or trading platform. For better or worse, it’s designed for on-the-go use.
Acorns’ core feature is summarized by its trademarked phrase “Invest the Change.”
The concept is simple: every purchase you make with your Acorns Spend debit card or any linked debit card is rounded up to the nearest dollar, with the rounded-up portion invested automatically by Acorns’ robo-advisor software.
For instance, say your next grocery store bill is $54.36. Your total charge appears as $55.00 on your bank or credit card statement, but $0.64 of your payment is automatically invested in your Acorns account.
It’s easy to see how this can add up quickly, assuming you link all of your spending accounts to your Acorns account. According to a study by the Federal Reserve Bank of San Francisco, the average American household made 59 purchase transactions in October 2012, or nearly two transactions per day.
However, because Acorns charges monthly fees, building a portfolio solely with spare change from a few dozen transactions per month may not be cost-effective.
For instance, when you invest $20 per month in your Acorns Lite plan using the round-up method, your $1 monthly fee accounts for 5% of your contributed assets.
You can schedule recurring investments to be transferred from a linked bank account to your Acorns account on a weekly or monthly basis. This is a common robo-advisor feature.
If you can afford to invest more than the value of your round-up investments, recurring investments can help grow your nest egg faster and reduce the impact of Acorns’ fees.
You can also schedule one-time investments, another common robo-advisor feature. This is a great way to initially fund your account or invest periodic windfalls, such as end-of-year bonuses or tax refunds.
Found Money is an Acorns feature that resembles cash-back credit card rewards. When you shop with Acorns’ Found Money partners (including some of the country’s biggest retailers) using any credit or debit card linked to your Acorns account, you earn cash back that’s then automatically deposited into your Acorns investment account.
Cash back amounts vary by partner but can range as high as 10%. Partners include Walmart, Airbnb, and Blue Apron.
Be aware that some Found Money opportunities — known as “Tap & Save” — require you to navigate to the partner’s website and make your purchase without exiting the Acorns app. (Others simply require you to use your linked card at checkout.)
Found Money typically appears in your Acorns account within 60 to 120 days.
Acorns’ customer support team consists of technical staffers equipped to help with app functionality issues and investing experts authorized to provide general advice and guidance around risk tolerance, asset allocation, and other matters.
They can be reached via email at Acorns’ contact page.
Acorns’ investing portfolio solutions, checking account, and value-added features offer some clear advantages for users.
- Automatic Round-Up Investments Are Convenient and Low-Friction. Acorns’ round-up system is the definition of “set it and forget it” investing — you invest your spare change as it’s accumulated, with no direct action required on your part. For people with limited funds to invest and little time to schedule transfers, this is a huge time- and stress-saver.
- Low Ongoing Fees for Larger Accounts. Acorns’ top monthly fee is $5 ($60 per year), plus ETF expense ratios that typically range from 0.05% to 0.15%. On a $100,000 balance, that works out to 0.06% plus 0.15% on the high end, or 0.21% max. This is much lower than traditional advisory accounts, whose management fees can exceed 1%. It’s also slightly lower than competing automated advisors such as Betterment.
- No Minimums. Acorns doesn’t believe in minimums. You don’t have to worry about a minimum account funding amount, ongoing minimum balance, or minimum inbound transfer amount. In fact, the platform is built around the concept of micro-investing, and the round-up feature necessarily involves sub-$1 transfers. Some competing automated investing platforms, including Wealthfront, have minimum opening deposits (Wealthfront’s is $500).
- Found Money Delivers Robust Cash Back Without the Credit Card. Found Money is basically a cash-back credit card without the credit card. It’s a great way for consumers who don’t use credit cards due to personal preference or credit issues to earn a reliable return on everyday spending — up to 10%, which is actually far better than most cash-back rewards credit cards.
Acorns does have some downsides to consider before opening an account.
- No Totally Free Tier. You always have to pay to use Acorns. Sure, $1 per month doesn’t seem like a lot, but it’s not insignificant for low-asset users (see below). By contrast, Wealthfront is totally free for smaller accounts.
- Fees Can Be Costly for Low-Asset Users. Acorns’ fees can be quite high for low-asset users. For example, Acorns Lite’s $1 per month management fee translates to $12 per year. On an account balance of $1,200, that’s the equivalent of 1% of assets under management — comparable to what you’d pay a traditional advisor. By contrast, Betterment and Wealthfront both have flat percentage fee schedules that don’t penalize low-asset users.
- Not Ideal for DIYers. Acorns is not ideal for active, DIY investors who feel comfortable managing their own money and value the freedom to allocate their assets as they see fit. Acorns’ preset portfolios are designed to accommodate general levels of risk tolerance and are periodically rebalanced to account for market movements — however, they are also fundamentally passive. If you’re looking for a suite of tools that allows you to “beat the market” — if that is indeed your goal and you understand its implications — then Acorns is absolutely not suitable for your needs.
- Limited Customer Support. Compared with other technology startups, Acorns’ customer support tools are pretty good. It has a decent knowledge base, sophisticated ticketing and email support tool, and live phone support during business hours. However, compared with other advisory firms and online brokerages, its support is a bit thin — better suited to technical troubleshooting and general investing questions than bespoke advice and analysis. If you’re looking for a partner to hold your hand through the process of investing or give you personalized advice about how your financial, personal, and career goals align, Acorns probably can’t accommodate your needs. Consider a fee-only financial planner instead.
- No Desktop Functionality. Acorns is a mobile-first platform. That’s great for habitual smartphone users. At the same time, it’s nice to be able to check in on your investments in the more comfortable, leisurely environment of your home office or living room couch. If you’re looking for a platform that blends the leanness and flexibility of a robo-advisor with the trappings of a desktop-friendly brokerage backend, look to Wealthfront or Betterment instead.
- Risk of Loss of Principal. Acorns invests in ETFs that, like all investment vehicles, can lose value. Although each Acorns account has SIPC coverage up to $500,000 per account, this is not the same as the more reliable FDIC insurance for cash held in insured deposit accounts. If capital preservation is an overriding concern, consider holding funds in FDIC-insured certificates of deposit, money market accounts, or high-yield savings accounts.
Modern portfolio theory, the foundation upon which Acorns and other robo-advisory platforms are built, is not perfect.
For instance, skeptics argue that MPT blithely assumes a consistent correlation between asset classes — for example, that changes in equity pricing produce predictable changes in bond pricing. That’s not always the case.
Despite its flaws, MPT has stood the test of time, and it remains a suitable underpinning for millions of retail investors. If you’re new to investing, Acorns is a sound place to start.
Just remember to remain curious and periodically reevaluate your personal goals and financial needs. After all, what works today is not guaranteed to work forever.