You are probably aware of how important it is to start investing early in life. However, there might be many reasons why you are not doing so yet. Maybe investing sounds too complicated and you can’t find the time to learn? Maybe you think that you need a big amount to open an investment account?
In reality, there is no reason that should hold you back from investing. Here is what I see as the best way to start investing with little money – it’s called the Acorns Investment App.
It’s possible you have already heard the name Acorns from your friends and got to this post looking for honest Acorns investment app reviews.
In this Acorns review for 2019 I’ll cover:
- Who are the people behind Acorns
- What are the main Acorns services
- How much does it cost to use Acorns
- Pros and Cons of Acorns app – my own unbiased opinion based on personal experience
- How to sign up and get a $5 bonus
What is Acorns Investment App In A Nutshell?
Acorns is a financial application that enables you to start investing and improving your financial future.
Acorns app was created to help you make the first step into the investing world even if you don’t know anything about financial markets and instruments and barely have any spare money to open an account.
The main ideas of Acorns are simplicity and overcoming the mental barriers that keep people from starting to invest. There is nothing complicated in investing with Acorns. The only thing you need is to make a decision to start investing and open an account.
As other robo-advisors, Acorns will automatically make the investment decisions for you, building your portfolio based on your financial goals.
Who are the founders and managers behind Acorns?
Acorns was launched in 2014 by Walter and Jeff Cruttenden – a father and son with an extensive financial and mathematical background. Before Acorns, Walter had founded and served as a CEO of Roth Capital and the investment banking department of E-Trade.
Among the Board members and Advisors of Acorns, you can find two Nobel Prize-winning economists Harry Markowitz and Richard Thaler. These guys know something about investing!
The list of Acorn’s investors is quite impressive as well, featuring names like Blackrock, Capital Group, PayPal, Rakuten, and even Ashton Kutcher.
How Does The Acorns App Work?
Acorns app simplifies the investment process for you to the absolute minimum of effort. You decide on the amounts and the timing of funding and Acorns invests the money in the appropriate funds, based on your individual financial situation and risk appetite. All the process can be completely automated so it doesn’t require any additional effort from you after the initial set up. Let’s get into a bit more details on this so you can fully understand the options and choose the best one for you.
The main Acorns services are Investing (Acorns Core), IRA Retirement accounts (Acorns Later) and checking account with a debit card (Acorns Spend).
Let’s see in more details what these services can offer you.
What Is Acorns Core?
This is the initial and main business of Acorns that allows you to invest any spare change from round-ups and extra deposits into a professionally built diversified portfolio.
Let me explain the two major parts of the service – funding options and investment choices.
How to fund your Acorns account?
Acorns connects to your banking account and credit cards. You decide on the funding process that can be done in three main ways:
- Round-ups from your purchases. Let’s say you buy a meal for $8.45 and pay with your credit card. Acorns will register a $0.55 round up. You can choose to multiply the round-ups by 2, 3, or 10 if you want.
Once the total of the round-ups reaches $5, this amount will be transferred from your linked checking account to Acorns and invested.
- Recurring investment on a daily, weekly or monthly basis. The optional amounts are $5, $25, $50 or $100. You decide on what day of the week or of the month to invest.
- One time investment of the suggested $10, $25, $50 or any amount of your choice.
There is no minimum to open an Acorns account but you need at least $5 balance to start investing. The threshold is very low, therefore this type of account is often called micro-investing account. However, Acorns has invested more than 1 billion dollars for its clients already.
Acorns Investing Choices
Based on your answers during the sign-up process (see more details on that below in the post), Acorns will propose you one of the five portfolios: Aggressive, Moderately Aggressive, Moderate, Moderately Conservative and Conservative.
The Aggressive portfolio is usually recommended to younger people with a higher appetite for risk.
On the opposite side of the spectrum, the Conservative portfolio is the most appropriate for people close to retirement, who have a low risk tolerance.
You can change the portfolio later if you don’t like the recommendation.
All the portfolios use the same 6-7 low-cost ETFs (Exchange Traded Funds) that invest in a broad range of stocks and bonds: Large Companies, Small Companies, Developed Markets, Emerging Markets, Real Estate, Corporate Bonds and Government Bonds. The ETFs are from two of the best companies in the market – Vanguard and BlackRock.
The difference between the portfolios is in the proportions invested in each ETF. The more aggressive the portfolio is, the more weight it puts in stocks. More conservative portfolios invest more in bonds.
It is important to build a well-diversified portfolio, as it helps to reduce the risk: while one investment may lose money if the market is down, the other assets might compensate with profits and smooth the bumps.
Acorns portfolios were developed based on the advice from the Nobel Prize laureate Dr. Harry Markowitz.
Cost: Acorns core costs $1 per month. If you are a student, sign up with your valid .edu email address and your fee will be waived. Acorns is free for students, isn’t it nice?
What Is Acorns Later?
This is a separate IRA account that can be opened with Acorns if you choose to do so. IRA (meaning Individual Retirement Account) is a retirement savings account that comes with possible tax advantages for eligible investments.
Acorns helps you to make a decision about the right type of IRA – Traditional, Roth and SEP. I would recommend to check with a tax professional or a CPA before investing and see if you are eligible to invest in IRA, as there are IRS limits that vary for everyone’s financial situation.
Your IRA portfolio will be automatically re-balanced from time to time to reflect your age. The closer you are to retirement, the more conservative portfolio will be chosen for you.
Cost: $2 per month for both Acorns Core and Acorns Later. You can’t have only the IRA account without the Core.
What is Acorns Spend?
Acorns Spend is a checking account with a debit card that integrates the round-up and retirement savings in the easiest way. Acorns has partnered with Lincoln Savings Bank, a member of FDIC, to be able to offer this service to the customers.
There are some nice features like unlimited ATM reimbursements (get money back if you had to pay a fee for using an ATM), free bank-to-bank transfers, mobile check deposits and more. However, I’m not sure if this is really that better than any regular bank account you might already have, especially taking into account an additional $1 monthly cost. I never paid a penny to my traditional bank anyway.
Cost: $3 per month for Acorns Core, Acorns Later and Acorns Spend. It’s not allowed to have a Spend checking account without the Core and IRA components.
What Is Acorns Found Money?
Acorns Found Money is similar to cash back sites like Ebates or TopCashback. There is a list of retailer partners that will give you money back if you shop with them through Acorns. The difference is that the money will be added to your Acorns account and invested instead of being sent to you as a gift card. Of course, you can withdraw the money from Acorns if you want, but why not let it work for you as an investment?
The point with getting cash back for online shopping is finding the highest rate. I have checked several partners’ offers from Acorns Found Money and, in many cases, I was able to find a better rate elsewhere.
However, some of the offers were really attractive, as for example 1.8% cash back on Airbnb, which is totally absent from the majority of cashback sites.
Recently, I was planning two getaways for my family with Airbnb. As always, I tried to find a cashback site to make the purchase, but this time, my favorite sites didn’t offer me any cash back for Airbnb. Luckily, Acorns has Airbnb on the list of its Found Money offers, with a nice 1.8% rate of cash back. So I clicked on Airbnb from Acorns, booked our stays and got $36 into my investment account. Nice reward!
Another attractive offer is with Blue Apron – $30 for new customer signup, while other sites offer only from $5 to $20.
I recommend checking Found Money along with other cashback sites every time you plan an online purchase.
Is the Acorns Investment App safe?
When we talk about safety, there are two main components – the safety of your money and the security of your information.
Your money is safe, as Acorns is subject to strict regulatory oversight by several US authorities, such as FINRA, the SEC and the IRS. Acorns Securities is a member of SIPC (Securities Investor Protection Corporation), meaning every customer’s investments are protected up to $500K.
Signing up for Acorns requires linking your checking account, with the username and password you normally use to access it. I know it might feel uncomfortable. However, this is pretty normal in the financial industry that utilizes strict security standards. Actually, Acorns doesn’t store your bank credentials at all. It uses SSL with 256-bit encryption and multi-factor authentication to protect your privacy.
Nothing is 100% secure from hackers these days, but if you use online banking, you can use Acorns with the same level of confidence.
Who Can Open An Account With Acorns?
You need to be a US resident, at least 18 years old and have a valid social security number.
There is also Acorns Australia, for Australian residents.
Is Acorns Investment App A Scam?
Acorns is definitely a legitimate service, regulated by financial authorities in the US, as I mentioned above. That being said, you must understand that there is no guarantee to make any short term profit, as this is the nature of any risky investment. I’ll elaborate about it in the next section.
Can You Make Money With Acorns?
As an investor, you need to understand that the main factor that impacts your short term profits is the financial markets movements. If the market goes up, you make money. If the market is down, you lose it. Of course, not all the markets (US stocks, Emerging market stocks, Bonds, Currencies, Commodities) move in the same direction, therefore the diversification is important.
What you need to understand is that if you lose money during some short period (it can be even a year or more), it’s probably not Acorns fault, but will happen with any robo-advisor.
Look at the chart below – this is one of the major US stock indices S&P 500.
You can see that there were some serious falls in the value of this index, but in the long term, the direction is always up. It’s very hard (actually quite impossible) to predict the right timing to buy and sell. The best thing you can do is to set up a periodical contribution and let the market do its job in the long term, building your wealth.
As an investor, you should understand the short term risk and not let it disturb you. However, you should never invest the money that you might need on short notice, like your emergency fund or savings for your next vacation.
Acorns Customer Service
I happened to read some complaints about Acorns customer service being not responsive in cases of closing the account or referral bonuses. Well, I’m sure every company has some clients who had encounter technical or other issues and might be not fully satisfied.
From my own experience, Acorns has great support. Once I had unintentionally opened Acorns Later account just to see what IRA it will recommend for me (Traditional IRA, if you are curious). I didn’t fund the account and was afraid to get charged for it. My support ticket was answered on the next business day, account closed and no charges applied.
Pros and Cons of Acorns App
As every financial service, Acorns has its benefits and disadvantages.
Acorns Pros – Why I like Acorns?
Low minimum investment
With a minimum of $5 to start investing, Acorns is an affordable service to everyone. You can’t say “I don’t have money to start investing” anymore. At the price of a coffee at Starbucks, you can open an account for your better financial future. Many other robo-advisors require amounts around $5,000 to open an account.
Spare change round-up investment
Just between you and me, money doesn’t have a name. You can call it “round-up” or the “gift to my future self”. The result is the same – you invest X dollars. You can easily check the average amount of transactions on your credit cards and predict the monthly amount of this round-up money that will be invested. However, it’s much easier to agree to rounding-up than to set a recurring monthly investment, isn’t it?
Rounding up is just a genius psychological gimmick that helps people to overcome the belief that they don’t have any money to invest. I’m aware of several apps that use the same idea and I’m all for it, as long as it leads to the right financial decision.
Simplicity and automation of the investing process
I see simplicity as the main advantage of Acorns. One of the major problems that hold people from investing is the fear of the constant need to make complex decisions about their money – building the portfolios, choosing financial instruments, finding the right timing. The research shows that in the long term the only thing you need is taking consistent action. The compound interest and the long term stock markets rise will do the rest.
Acorns automates the decision-making process for you. After the initial set up, your investments are on autopilot. Both round-ups and the recurring contributions are invested in the appropriate portfolio that is rebalanced from time to time when the markets move. It’s “set it and forget it” for you.
Good investment choices
Acorns uses a small set of ETFs, but they are high-quality low-cost products. There might be better options in the market, but an average beginning investor doesn’t have the skills, time and money to find them. Sometimes, the “best” is the enemy of the “good enough”, as looking for the best can easily hold you from doing anything at all, especially when it’s not your main task in life.
Too many people think “I’ll do some research about investments when I have time” and it never happens. In the best case, they keep their money in savings accounts that barely pay any interest. In other cases, the money is just spent on another whimsical purchase and the idea of investing is forgotten again.
User-friendly clean design
Both the website and the app are designed in a very user-friendly and intuitive way, without an overwhelming amount of choices. You will be able to find what you are looking for in a second.
6. Acorns referral program and Found Money
Acorns gives you these two options to add free money to your account. If you like Acorns, you can refer your family and friends and get $5 for each new account they open. They will get $5 as well.
Acorns Cons – What Could Be Done Better?
The fees are high for small accounts
Though $1 monthly fee might seem like a tiny amount, this is not the right way to look at it.
In the investment management industry, the fees are usually set up as a percentage of the account value and the fee range is normally from 0.25% to 1%.
If we look at the annual fee of $12, it will be 0.25% of $4,800, meaning that if your account’s balance is below this number, you are going to pay quite a high fee to Acorns. For example, if you only have $100, your fee will be the whopping 12%!
Take into account that many other companies with lower fees require a pretty high minimum investment, while Acorns only asks for $5.
The good thing is that Acorns provides you with several ways to get the fee covered. Starting with $5 that you’ll get just for signing up through this post (this is a 5 months fee paid for you, right?), via referral bonus (another 5 months per each referred friend) and to the Found money where you might find some great offers as well. Remember my Airbnb cash back of $36? It will pay for the next 3 years fee!
2. A small number of investment options
Other automated investment services may offer more investment options, including commodities and currencies. It doesn’t guarantee better returns, though.
No tax loss harvesting
Acorns doesn’t provide tax loss harvesting (TLH) as do several other robo-advisors. However, to get the benefit of TLH you might need more professional tax advice and it’s not material when the balance of your investment account is relatively small.
4. Checking account with fees? Not a great idea
If you already have a good and free checking account, that allows you to use online services for your needs, I don’t see the reason to open another one with Acorns Spend and pay additional $1 per month.
5. No human advisors available
If you want to talk with a professional about financial markets and investment choices, you won’t have this option with Acorns. Usually, personal advisors are available for investors with larger accounts (more than $100k – $200k).
6. Money withdrawal takes time
Take into account that money withdrawal can take several business days, as ETFs can’t be sold immediately. That’s another reason why Acorns (or any other investment account) shouldn’t be used for an emergency fund.
My Final Thoughts On Acorns Investment Service
I consider Acorns Core a great option if you fall at least in one of the following categories
- College Students (who get Acorns Core for free)
- First-time investors without financial knowledge
- People who want to invest but struggle to find the money or commit to savings
- People who want to learn about financial markets
- Investors looking for hands-off, “set it and forget it” approach
It would not be the right option for more sophisticated investors who want to build their own portfolio, chose what funds to buy, invest in individual stocks or decide on the timing of each transaction. If you have a large amount to invest (above $100k), you’d better check with a financial advisor and your CPA for possible tax benefits and holistic financial planning.
Acorns Later can be a good choice if you don’t max out your 401k through your employer.
Acorns Spend doesn’t look like a great idea, in my opinion, because of the additional fee.
One last thing to consider: Acorns gift card can make a great present for birthday, graduation or holidays to get your loved one into the investing world and help to establish healthy financial habits.
How To Sign Up With Acorns?
Opening an account with Acorns is super easy and quick. Just click on the button below:
You’ll go through the quick signup process and verification and will be able to start investing.
For detailed walk-through of Acorns App, with step-by-step screenshots that show you how the app looks like from inside, go to the following post:
Please let me know if you have any additional questions about Acorns and I’ll be happy to help.
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