Putting our money to work is no easy feat – you need a significant capital to start, and you must know what you can invest in.
Acorns allow younger millennials like us to start investing in portfolios built by experts, using our spare change.
But, 4% of $5 amounts to just 20 cents – does micro investing really work, or would we be better off just building our investment capital before we think about investing?
Let’s explore in this article.
But first, let’s get the fundamentals out of the way. If yo: are new to the concept of micro-investing, here’s a quick introduction:
What is micro investing?
Micro-investing lets you invest small amounts of money into a diversified portfolio of assets, making it a suitable option for anyone who is just starting to invest or has limited funds.
Micro-investing platforms simplify and make the process affordable by offering various investment options like stocks (thanks to fractional shares), bonds, ETFs, and mutual funds.
Acorns is one such micro-investing platform.
How does Acorns work?
Acorns helps you put aside spare change through their Round Ups feature – your spending will be rounded up to the next dollar and the sum will be hoarded for you and once it reaches $5, it will be automatically invested for you based on your risk profile.
You can also choose to fund your account manually or set up an automatic recurring deposit that would force you to save and invest regularly.
Under the hood, Acorns is a robo advisor that helps you invest through a diversified portfolio of ETFs. These are selected based on your risk profile and long term goals. You can customize it to your needs during the set up and update your preferences along the way.
Acorns also help to rebalance your portfolio and reinvest your dividends automatically so there’s no need to keep up with everything that’s happening. You just need to check on your progress and determine if the portfolio is growing according to your expectations.
How does Acorns make money?
Acorns charge a monthly fee for its service – $3 for a personal account and $5 for a family account.
Is Acorns worth it?
While that sounds cheap, it may make up a significant portfolio of your capital if your portfolio value is low.
If you’re on a personal plan for a year, that would be $36 per year. If you’d like to keep your investment costs at 1%, that would mean that you should have a portfolio of at least $3,600.
Has anyone made money on acorns?
Yes…and well, it depends.
It really depends on how long you’ve been on the app and how the overall markets are performing. As the returns of robo advisors vary widely depending on the portfolio that a user is investing in, it is difficult to come up with consistent historical data.
The Robo Report which tracks the performances of roboadvisors using a 60/40 allocation suggests that Acorns has underperformed its benchmark by 1% in the 4th quarter of 2022. That said this could be a short term impact due to the bear markets.
Conclusion
While Acorns is a great way for young adults like us who do not have much capital or savings to start investing, it may work best as a saving tool rather than an investment vehicle.
Once your capital grows, you may want to build your own ETFs portfolio or start picking your own stocks with the aim of outperforming the market.