Acorns Investing App--A Deep Dive

You all know by now how much I love Index Funds and Index Fund ETF's. I talk about them all the time and they make up basically my entire stock portfolio. And you must know by now that I do my Index Fund ETF investing through the app Acorns. I think they're amazing and I've been using the app since 2019, so a solid 18 months now. I wanted to give you guys a deep dive look into the app, so you can get a sense of what the app is like if you're looking for apps to start your investing journey on. So, here we go.

First of all, from my understanding, Acorns is only available for U.S residents. Any international folk, unfortunately can't currently use this app.

Acorns comes with a couple of really cool features and what you'll see most advertised is their roundup feature. Basically it works like this: You can link your credit cards to the app and anytime you buy something for like $2.50 or $19.50, or some amount like that, Acorns will round it up to the nearest dollar and invest that amount for you in a preset portfolio of your choosing. So, if I bought something for $2.50, Acorns will round that up to $3 and pool the extra $0.50 along with other purchases I've made. Once I hit a threshold of $5.00 of round-ups, it'll be debited from the bank account that I have linked to my Acorns account and invested in a preset portfolio of my choosing. You can set this up automatically in your settings and monitor it. You can turn it off anytime you like and you can link multiple credit/debit cards. It's a great way to automate your investments.

To be honest, however, I DO NOT think that's the best reason to download the app. In fact, if you're just going to use it for the round-up feature I wouldn't suggest using it. Here's why:

Acorns charges a subscription to its users. This is how they stay in business. They have three different subscription tiers:

  1. Lite--Includes an Investment Account for $1/month

  2. Personal--Includes investment account, retirement account, and checking account for $3/month

  3. Family--Lite+Personal+Investment account for your kids at $5/month

So, using myself as an example, I have a brokerage account and a Roth IRA, which means I am paying $2/month. Here's why using just the round-up feature only would NOT be a good reason to use the app.

Let's say for the month, my roundups add up to $20. That means at the end of the month $20 gets invested into my account. I'm paying $2 in fees for the two accounts that I hold, which means my cost, as a percentage, is $2/$20 = .1 or 10%/month. That's huge and not worth it at all. BUT...let's say now at the end of the month I take a portion of my income and invest it automatically into my IRA and Brokerage accounts. Let's say along with the $20 from round-ups I also add in $180 from my linked bank account totaling $200/month invested. I still have to pay my $2 account fees, which means as a percentage it'll look like this: $2/$200= 1%/month. It's still kind of high, but as you can see as I invest more and more, the subscription fees, as a percentage, get lower and lower.

I know I say "keep your fees" low in all of my posts and I do still believe that, but here's how I justify it:

Because Acorns uses an algorithm to invest your money such that the proportions of all your funds in your portfolio is always maintained, there's never a reason to rebalance your portfolio at the end of the year like most people have to do with traditional trading platforms. So, for example, let's say I have a Moderately Aggressive Portfolio with a 80:20 split between equities and bonds. With Acorns, every time I invest my $200/month, the 80:20 split gets maintained because the algorithm splits my money accordingly between my equity funds and bond funds. With traditional trading platforms I would have to re-evaluate my portfolio every year or six months and sell some assets off to re-establish my 80:20 split between equities and bonds. When I sell at profit to rebalance my portfolio, that means I have to pay capital gains tax, which is percentage cost. This percentage cost will cost me more and more money in the future as my nest egg grows and grows. That sucks! With acorns I don't need to worry about that because my proportions are always maintained.

Now, last thing I would like to mention is the pre-set portfolio's that Acorns offers. Acorns is NOT a trading platform like Robinhood or any of the other traditional platforms. You CANNOT buy individual stocks/bonds nor can you construct your own portfolio. You CANNOT buy crypto either. You can ONLY invest into the pre-set portfolios they have listed and they have 5 different portfolios. I will list them below with their splits:

  1. Conservative--100% Bonds

  2. Moderately Conservative--40% Stocks, 60% Stocks

  3. Moderate--50 % Stocks, 50% Bonds

  4. Moderately Aggressive--80% Stocks, 20% Bonds

  5. Aggressive--100% stocks

Each of these Portfolio's are made up of low cost ETF's and Index Fund ETF's, which is why the portfolios are diverse and cheap.

Acorns is a great app for beginner investors who are looking to learn about investing or for investors, like myself, who aren't looking to do anything complicated. We just want a platform where we can automate our monthly investments into low-cost Index Fund ETF's and let compound interest do its thing.

If you're looking to do more complicated trading or want more control of what assets you want in your portfolio then Acorns is not for you. You may want to look at TD Ameritrade and jump onto their trading platform called Think or Swim.

Acorns also has a lot of educational content and up to date insights on markets for their subscribers. Ultimately they follow the model of the great investor, John C. Bogle, "Just stay the course."

Well that wraps up the deep dive into the Acorns investing app. I hope that was useful. If you're interested in opening an account and starting your investment journey with Acorns I've attached a link below. If you use this link you'll get $5 invested in your account, but like I said don't stop there. Budget in a healthy percentage of your money to invest through the app on a monthly basis and let compound interest do its thang :)

As always,

Happy Investing,

The Layman Investor

Acorns Sign Up:

972 views0 comments

Recent Posts

See All