Acorns Investing Review 2018: Automatically Invest Spare Change

If you’re anything like me, you probably remember your parents or grandparents filling up cups, jars, cup holders and desk drawers with leftover coins from daily cash spending. Once in a blue moon, you might have rolled these coins and deposited them at the bank. It was a surprisingly effective way to save hundreds or even thousands of dollars each year.

These days, most of us don’t use paper currency, so we rarely have “spare change”. Hoarding coins in jars for a rainy day fund simply isn’t a realistic option. Instead, our money is electronic digits on a screen. As a result, we simply spend our money without wondering what we should do with the “spare change.” However, many apps want to change that habit.

One of the first apps to come out with the spare change concept was Acorns. It’s an automated investing app that rounds up your transactions. Then it automatically invests your money into a portfolio that makes sense for you.

Since its initial release, Acorns has continued to innovate, and it’s raised the bar for micro-investing apps. A few of the new feature releases make it reasonable to consider Acorns again. Should you create an Acorns account, or is it an overblown app? This review explains the good and the bad.

What Does Acorns Do?

Acorns is a micro-investing platform designed around the concept of modern portfolio theory. As an Acorns user, you’ll download the Acorns App and answer a few questions. The app will then recommend an efficient portfolio for you.

Acorns portfolios range from conservative (lots of bonds) to aggressive (all stocks and real estate). 

All the portfolios contain exclusively low cost ETFs from Vanguard and BlackRock. From time to time, Acorns may swap out one ETF for another ETF that tracks the same index. These are the investments that Acorns is using today. It’s worth noting that these options haven’t changed in at least a year (likely because they are still among the lowest cost ETFs in the market).

• iShares iBoxx $ Investment Grade Corporate Bond ETF | LQD
• iShares 1-3 Year Treasury Bond ETF | SHY
• Vanguard Small-Cap Index Fund ETF Shares | VB
• Vanguard REIT Index Fund ETF Shares | VNQ
• Vanguard 500 Index Fund ETF Shares | VOO
• Vanguard Emerging Markets Stock Index Fund ETF Shares | VWO
• Vanguard FTSE Developed Markets Index Fund ETF Shares | VEA

Once you’ve chosen your portfolio, you’ll link your debit and credit cards to the Acorns platform. When you make a transaction, Acorns will “round up” the transaction to the nearest dollar. The round up (or spare change) gets deposited into a holding account. If you spend $7.55, Acorns will deposit $.45 into your holding account. When the account has at least $5, Acorns will automatically invest the proceeds into the market. They will use the investing opportunity to rebalance your portfolio.

A new feature that Acorns recently released is “round-up multiplier.” Essentially you can double to 10X your roundups. For example, a $.45 round-up could automatically become a $.90 round-up if you select a 2x multiplier. If you select a 10x multiplier it will become $4.50. The multiplier can be adjusted through the app, but not from the Acorns website, so be careful with it.

You can also set up recurring investments. For example, you could choose to invest $5 per day on the platform, or $200 per month if you prefer.

If your portfolio gets way out of line, Acorns will engage in rebalancing. In the non-tax advantaged accounts, the rebalancing may have tax implications for you. However, if you opt to set your money into an IRA (using Acorns later), the rebalancing will not have immediate tax consequences.

Finally, Acorns has a new debit card platform called Acorns spend. The advantage of Acorns spend is that you can immediately deduct round-ups from your checking account (something that could take several days from a credit or debit account). Acorns offers unlimited ATM reimbursement, has no minimum balance, and doesn’t charge overdraft fees. However, you will need to pay the $3 per month Acorns fee, to maintain the account.

Found Money Partnerships

Acorns has also created referral relationships with a number of online retailers and service providers. When you use the Acorns app to purchase from a select list of retailers, the companies will deposit Found MoneyⓇ into your account.

Found money ranges from 1-2% of the purchase price for most retailers. Retailers include Apple, Walmart.com, AirBnB, The Wall Street Journal and more.

The Found MoneyⓇ concept combines the micro-investing concept with the cashback site concept. While Acorns has a few unique partners, EvoShare offers better cashback rates, and they will deposit money directly into your retirement account.

New Features

Multipliers- To boost your Acorns contributions without setting up automated investments, you can opt for the acorns multiplier. You can multiply your round-ups by 2x, 3x, or 10x. With the 10x option, an average monthly round-up of $50 becomes $500. This can be a great way to keep yourself from overspending. This feature is available at the $1 per month level.

Acorns later- Acorns now supports IRA accounts including traditional IRAs, Roth IRAs, and SEP-IRAs (for self-employed people). You may need to check with a tax professional to see if you’re eligible for any of these accounts. Contributing to Acorns in a tax advantaged account is a great way to start investing for retirement, even if you can’t afford to max out contributions just yet. The cost for Acorns Later is $2 per month.

Acorns spend- Acorns created a debit (checking) account for users who want to integrate their spending, and their retirement savings. Round-ups are deducted right away, and depending on where you live, you may qualify for “Found Money” at local shops. The advantages of Acorns spend are the unlimited ATM reimbursements, no minimum balance, and no overdraft fees. Unfortunately, Acorns spend costs $3 per month which is a high fee to pay considering the number of low fee accounts that are available.

Acorns gift cards- Want to help a friend, sibling, or relative start investing? Acorns offers gift cards to get them started. You essentially give them a gift card worth $25 or more, and they sign up for an account with Acorns. Personally, I love the idea of giving an Acorns gift card to a high school graduate, who can get a head start on investing by creating an account with Acorns.

How Much Does Acorns Cost?

When you combine Found MoneyⓇ and all your round ups, most people will invest at least a few hundred dollars every year. Saving and investing the change can make a huge difference when you’re just getting started.

However, Acorns won’t manage your investments for free. You’ll pay $1 per month for accounts up to $1 million. If you’re under age 24, and you have a valid .edu email address, Acorns will waive your management fee for up to 4 years.

If you want to add the IRA option, you’ll spend $2 per month. Compared to robo-advisors like Betterment and Wealthfront (which charge .25% per year), Acorns is a steal. Of course, M1 Finance is still free.

Finally, if you want to add the Acorn Spend app, you’ll pay $3 per month. This does have the advantage of allowing you to invest extra found money, since Acorns round-ups won’t just apply to online retailers. You may earn up to 10% cash back from local retailers (especially restaurants, grocery stores, and coffee shops). Of course, the amount of cashback you might earn really depends on the partners in your area.

Aside from the management fee, Acorns does not charge transaction fees. That means you can deposit a lump sum (up to $20,000 per day) into your Acorns account, and you can withdraw money at any time without transaction costs.

You’ll never pay trading fees which is a big cost saver for small investors.

Are these prices worth the service that Acorns provides? Let’s say you save $20 through roundups your first month. Then you pay a $1 maintenance fee. In that case, you’re paying an 80% management fee your first month. As your portfolio grows, the ratio shrinks.

If you end up investing $400 your first year, you’ll pay $12 in management fees. That’s an effective 3% management fee.

3% or even .25% is a hefty fee to pay for mediocre investing. Acorns isn’t offering tax loss harvesting, and the ETFs they offer can be purchased for free from a traditional brokerage.

If you exclusively use the $1 per month option (for an after-tax) portfolio, you’re getting a low cost. However, Acorns doesn’t engage in tax loss harvesting, so it’s probably better to choose a robo-advisor instead. This is especially true if you aren’t adding regular contributions and just relying on round-ups to build your portfolio.

That said, Acorns newer features may make the platform worthwhile for more users. If you set up regular contributions, you could save $5500 in an IRA or Roth IRA, and even more in a SEP-IRA (depending on your income). When you take into account that Acorns automatically rebalances for you, $2 per month is a great deal. Since you’re inside a tax advantaged account, tax-loss harvesting becomes less important.

The $3 per month gives you access to the $2 per month option, plus an option for more found money, real time roll-ups and a debit card. I suspect that most people won’t earn an extra dollar per month in found money to offset the cost of the account. Instead of opening an Acorns account, you would be better served to open a fee-free account instead.

If you're concerned about the pricing (and you should be), check out our list of places to invest for free.

Final Thoughts On Acorns

College students who can waive the monthly fee should consider opting in to the Acorns platform. It’s a great way to invest a little bit of money that would otherwise get spent. But remember, Acorns is an investing platform, not a high yield savings account. Your investments could lose value, so you need to think hard about whether investing is the right choice for you.

The $2 per month option can make sense for people who need a little push to invest. The round-ups plus a modest $100-$200 monthly automatic deposit will get you well on your way towards saving for retirement. If you haven’t started investing for retirement yet, I think the $2 per month option can be a good deal that will pay long term dividends for you (literally and figuratively).

Professionals entering their peak earning years can probably skip Acorns. They should prioritize retirement accounts, savings accounts, and business investments over Acorns. I would also advise against the Acorns spend account right now. Although it costs just $3 per month, most people can get a free checking account, with similar benefits.

The bottom line is that Acorns is expensive - relatively. If you're investing low amounts, the percentage is a big bite of your money. However, if you need the boost and automatic saving portions, then check it out.