If you ever found yourself wishing you could save more, but found it difficult to commit to regular deposits, Acorns offers one of the best services to automate your savings and invest the proceeds for the long-term. With Acorns, each time you pay for something you get to invest a little too, so over time your nest-egg can grow nicely and effortlessly.
Acorns began as an online version of your home piggy bank collecting pennies and quarters. Every time you pay for something with a credit or debit card, Acorns rounds up to the nearest dollar, moves the change into a dedicated account for you and invests it in a diversified portfolio aligned with your risk tolerance and financial goals.
Acorns caters not only to the savvy, younger generation looking to invest wisely without effort but also allows users to bypass the “slowly-slowly” investing method and invest larger nest-eggs all at once too.
For just $1 monthly up to the first $5,000, Acorns will automatically manage all the money invested in your account. The charge is 0.25% for amounts over $5,000 and free to college students.
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College students without earned income get to use Acorns free for up to 4 years while cost-conscious investors will find the 0.25% management fee (for amounts of $5,000 or above; $1 monthly otherwise) and low expense ratios very acceptable.
Acorns targets younger users who don’t want the hassle of figuring out how to invest from the ground up and don’t have the assets yet to warrant speaking with a financial advisor yet still want to invest their loose change. College students get an especially good deal: Acorns is free for up to 4 years with a valid .edu email address to college students who don’t yet earn income.
Savvy, fee-conscious investors will find expense ratios at Acorns to be very reasonable: between 0.05% and 0.15%. Management fees are right in line with those charged by robo-advisors, such as Betterment and Wealthfront, especially for larger amounts above $5,000. The $1 per month charge for amounts below $5,000 can translate into a large % amount of assets under management. For example, $1 monthly translates to 1.2% yearly on a $1,000 nest-egg; this is similar to what traditional financial advisors charge.
Acorns is best for:
- Fee-conscious investors
- Hands-off investors
- College students
- Investors with small portfolios
Acorns Management Fees
Acorns has amassed a larger user base than most robo-advisors because its service is so easy to use and, over time, as your assets grow, its value proposition increases as the management fee diminishes to just 0.25%. Other than Schwab, SoFi and a handful of others with unique business models, few can beat Acorns when it comes to fees.
- $1 monthly for amounts up to $5,000
- 0.25% for amounts of $5,000 and higher
- Free to college students
With respect to fees, Acorns is more attractive than its competitor Stash, which also charges $1 monthly but doesn’t automate and manage the process of investing.
However, investors should note that $1 per month can add up to a sizeable % fee of assets, especially for smaller nest-eggs. For example, Acorns charges a fee equivalent to 1.2% of assets for a $1,000 account, a cost more in line with traditional advisors than what the best robo-advisors charge. However, as the amount of assets invested increases, the percentage fee decreases (because the same $1 per month is charged up to $5,000) so over time Acorns becomes ever more compelling.
Over $5,000, Acorns charges just 0.25% for management fees, which is similar to what Betterment, WiseBanyan, SigFig and a host of other robo-advisors charge. And where Acorns really shines is its free service for college students without earned income.
Acorns Investment Method
Acorns has a very strong advisory board with the Nobel-prize winning father of Modern Portfolio Theory, Dr. Harry Markowitz, on its board.
Like most robo-advisors, Acorns subscribes to an investment philosophy rooted in Nobel-prize winning academic research, called Modern Portfolio Theory.
Dr. Harry Markowitz, the father of Modern Portfolio Theory, and Nobel prize winner is on the Acorns board. Modern Portfolio Theory asserts that the best approach to investing is to diversify an investment portfolio across asset classes in order to maximize returns for a given level of risk.
While it’s an ideal goal to strive to “beat” the market, few have the skill, luck or timing needed to do so regularly and so investing in index funds is a widely accepted method of investing for the long-term, especially for non-professional investors.
You can select asset classes and ETFs in which you wish to invest. Low-cost iShares and Vanguard exchange-traded funds across six asset classes are available:
- Corporate bonds
- Government bonds
- Real estate
- Large-cap stocks
- Small-cap stocks
- Emerging markets
How Acorns Works
Acorns links to your bank account and sweeps ‘rounded-up’ cash amounts from transactions into an investment account, which is invested in a diversified portfolio aligned with your risk tolerance and financial goals. Sophisticated investors can invest a lump-sum amount as well as set up recurring deposits on a regular schedule.
The way Acorns works is you first begin by connecting your bank checking account to what’s called your Round-up account. Data transfers are encrypted to mitigate security concerns. You’ll then be prompted to set up an investment account that has one of the following financial goals:
- Long-term investment
- Short-term investment
- Major purchase
Your investment account will be invested according to the most appropriate risk level for your objectives. It will fall into the following categories:
- Moderately aggressive
- Moderately conservative
Once you’re setup is complete, you can start using Acorns. Let’s say you pay for a coffee that costs $3.24 so $0.76 is added to what’s called your Round-Up balance. Once your Round-Up balance has at least $5 in it, the money will be swept from your bank account into your Acorns investment account.
You can customize which transactions you want selected for your Round-Up account or choose the automatic setting which counts all eligible transactions.
It’s also possible to set up recurring deposits on a regular schedule each day, week or month. And if you prefer, you can invest a lump sum amount of $20,000 or $30,000 too.
Acorns Pros and Cons
Beginner investors with small portfolios who want a simple, automated investing experience with the bonus of some education will find Acorns to be a good fit. Account minimums are low and fees are reasonable. Acorns doesn’t yet support retirement accounts or offer a tax strategy, but does have a compelling value proposition that has attracted millions of clients already.
|Acorns Pros||Acorns Cons|
|✅ Free To College Students: For up to 4 years, college students who do not have any earned income can take advantage of Acorns at no cost as long as a valid .edu email address is provided.||❌ Limited Account Types: Acorns only serves investors with taxable accounts so for those looking to take advantage of tax benefits associated with IRA and 401(k) retirement accounts, other services, such as Rebalance IRA, might be a better fit.|
|✅ Low Account Minimums: To set up an account at Acorns, no deposit is required and just $5 is needed to get started investing.||❌ No Tax-Loss Harvesting: Many robo-advisors, such as Wealthfront, offer free tax-loss harvesting services to create a tax-efficient portfolio but Acorns comes up shy on this feature.|
|✅ Found Money: Acorns has an excellent partnership program which allows users to get cash back automatically by linking a card to an Acorns account when you use certain services, such as Hulu, Airbnb and Jet.|
|✅ Education For New Investors: Like Stash, Acorns does a good job teaching beginner investors how to get up to speed with investing basics. Acorns does so via a publication it calls Grow Magazine, which is a personal finance site featuring content relating to student loans, credit card debt and other topics that millennials will find especially valuable.|
|✅ Automatic Savings: Acorns provides the ultimate commitment device to saving regularly simply and automatically. Without effort, daily transactions turn into a nest-egg that grows as part of a diversified portfolio of stocks and bonds.|
|✅ Lump-Sum & Recurring Investments: Not only does Acorns cater to investing via “round-up” contributions to a dedicated investment account but it also allows you to make large lump-sum investments and recurring deposits too.|
Acorns Fees & Minimums
Acorns has low expense ratios, low management fees on amounts over $5,000 and hidden fees are not a concern when transferring or closing an account.
|Account Management Fees||$1 monthly (Amounts < $5,000)|
0.25% (Amount of $5,000 and more)
|Investment Expense Ratio||0.05% – 0.15%|
|Account Minimum||$0 to open|
$5 to invest
|Annual, Transfer, Closing Fees||NO|
A drawback of Acorns is that only taxable accounts are supported at this time. No IRA or 401(k) retirement accounts are supported.
Acorns Tax Strategy
While free rebalancing is supported, tax-loss harvesting is not a feature Acorns provides. Investors who care about automated tax-loss harvesting should consider other alternatives, such as Wealthfront.
|Tax Loss Harvesting||NO|
|Free Account Rebalancing||YES|
Acorns is a great commitment tool to get you to save and invest effortlessly. Acorns makes it easy to turn day-to-day transactions into a nest-egg invested for the long-term.
Although Acorns doesn’t yet support retirement accounts or offer a tax-strategy, it’s got more than enough to recommend it as a simple way to turn loose change into a handsome nest-egg.