Acorns Review: Micro-Savings and Investing with This Easy App

Acorns is a robo-advisor app that makes investing as easy as saving your spare change. It does this by “rounding up” your everyday purchases and putting the extra money in a portfolio the service has designed for you.

Everything about Acorns is incredibly simple and streamlined. That includes the pricing model, which has three flat-rate tiers at $3, $6, and $12 per month. But while this app is geared toward newbie investors, that pricing structure could cost you more than other robo-advisors if you have a small portfolio.

In this Acorns review, we’ll look at this robo-advisor/microsavings hybrid to help you decide whether it’s a good fit for your portfolio and wallet.

Acorns Features

Additional Features

• Round-Ups. Whenever you make a purchase with a linked credit or debit card, Acorns rounds it up to the nearest dollar or a prespecified amount. It then invests that money in your portfolio.
• Found Money. Making purchases at one of Acorns’ more than 200 Found Money partners, which include Airbnb, Groupon, and Walmart, will earn you extra money to invest.
• Acorns Gift Cards. You can purchase a $25 Acorns gift card online or at a participating brick-and-mortar retailer.
• “Potential” Tool. This feature lets you see how your investments would grow over time based on certain parameters.

What Is Acorns?

A father-and-son duo, Walter and Jeffery Cruttenden, launched Acorns as a micro-savings app in 2014. Walter is no stranger to financial startups; he also founded investment banking firm Roth Capital and serves as CEO of E*TRADE’s investment banking division.

Acorns’ current CEO is Noah Kerner, who has attracted several celebrity investors, including Jennifer Lopez, Bono, and Ashton Kutcher. BlackRock, PayPal, and NBCUniversal also hold stakes in Acorns.

More than 6.8 million people use the Acorns app, and the company reports that users have invested more than $1 billion through the service.

Since its founding, Acorns has grown beyond simple micro-savings. The company also offers online checking accounts and IRAs. We’ll discuss how you can add both of those features in just a bit.

How Does Acorns Work?

Like most robo advisors, Acorns uses Modern Portfolio Theory, which holds that a portfolio’s total risk and return profile is more critical than that of any one investment. That means investors need diversified portfolios to maximize returns and limit risk. In fact, Modern Portfolio Theory’s originator, Harry Markowitz, is an investment committee advisor for Acorns.

Acorns rounds up your spending on every purchase with a connected debit or credit card. You can round up to the nearest dollar or a higher amount you specify using the Round-Up Multiplier tool. You can then instruct Acorns to invest that money into your portfolio.

In addition to Round-Ups, you can also make manual investments or set up a recurring direct deposit of as little as $5.

For an extra monthly fee, you can invest your money in either a traditional or a Roth IRA. Both kinds of retirement accounts can help you save money while taking advantage of tax savings.

When you sign up for an Acorns account, you’ll be asked about your investing goals, time horizon, and income. That’s typical of any robo advisor. Acorns will then recommend one of five pre-built portfolios.

Acorns Portfolios

Acorns’ portfolios are comprised of exchange-traded funds, or ETFs. These are made up of either stocks or bonds. Acorns uses five to seven ETFs that represent asset classes such as real estate, emerging markets, government bonds, and large or small companies.

Here’s a breakdown of the five portfolios Acorns recommends:

Conservative

• Short-Term Government Bonds: 40%
• Ultra Short-Term Corporate Bonds: 40%
• Ultra Short-Term Government Bonds: 20%

Moderately Conservative

• Government Bonds: 30%
• Corporate Bonds: 30%
• Large Company Stocks: 24%
• International Large Company Stocks: 8%
• Small Company Stocks: 4%
• Real Estate Stocks: 4%

Moderate

• Large Company Stocks: 29%
• Government Bonds: 20%
• Corporate Bonds: 20%
• International Large Company Stocks: 12%
• Small Company Stocks: 10%
• Real Estate Stocks: 6%
• Emerging Market Stocks: 3%

Moderately Aggressive

• Large Company Stocks: 38%
• International Large Company Stocks: 16%
• Small Company Stocks: 14%
• Corporate Bonds: 10%
• Government Bonds: 10%
• Real Estate Stocks: 8%
• Emerging Market Stocks: 4%

Aggressive

• Large Company Stocks: 40%
• Small Company Stocks: 20%
• International Large Company Stocks: 20%
• Emerging Market Stocks: 10%
• Real Estate Stocks: 10%

Unlike some other robo advisors, such as Betterment, Acorns doesn’t let users mess around with their portfolios. So if you’re even a little of a DIY investor, you probably won’t enjoy the experience here. You might also find Acorns’ short list of five to seven ETFs a bit limited and restrictive. (In fact, an online broker might be a better fit for you.

However, if you’d rather let a robo advisor do all the work, Acorns could be a good fit. And although an Acorns portfolio doesn’t have a bazillion ETFs, it still offers enough diversification to please the father of Modern Portfolio Theory!

Acorns Fees

Here’s where we feel Acorns falls short. Typically, robo advisors charge a percentage fee, usually 0.25% to 0.35% annually. Acorns has chosen a simpler approach, with three pricing tiers ranging from $1 to $3 per month.

Although that sounds inexpensive, a $3 fee on a $100 portfolio translates to 36% annually. That’s much more than what you’d pay at Betterment or Wealthfront.

At its cheapest tier, you’d need an Acorns portfolio of roughly $14,400 or more to bring your effective fee down to about 0.25%, comparable to most robo-advisors. If you’re investing that much money, you might prefer a more robust robo-advisor.

At the lowest tier, you’d spend $36 per year; at the highest tier, that rises to $144 per year. In the grand scheme of things, that’s a tiny amount, and many new investors will find the service well worth it.

Just be careful that your fees don’t eat into your portfolio’s returns.

Here are Acorns’ pricing tiers.

Acorns Pros & Cons

Conclusion

If you have no idea where to begin with investing, Acorns could be a great fit. It makes saving and investing extremely easy. You’ll start building your portfolio without even thinking about it.

On the flip side, if you want to DIY, you’ll be disappointed by Acorns’ relatively high pricing and limited customization.

Still, we all have to start somewhere, and this fun robo-advisor app could be a great way to test the waters of investing.

Meet the Author

Kevin Mercadante

Kevin Mercadante is professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage...

Read full bio