You don't need a lot of money to start investing. In fact, you can start investing with as little as $5. That's what robo-advisor Acorns wants you to know. For people who may have very limited funds and prefer a hands-off investment approach, Acorns may provide the easiest way to become an investor. But is Acorns worth it? As someone who uses Acorns myself, the reviews are in. Here's what you need to know before joining Acorns.
What is Acorns?
Acorns is a robo advisor that allows individuals to become investors with the simple use of an app. Robo advisors essentially manage everything for you. In a previous post, we discussed micro investing and Acorns. Please refer to that post for a more elaborate discussion of this subject. Let's briefly discuss some key features of Acorns.
How Acorns work
Acorns makes it easy to set up an investment account. There is no minimum amount of money needed to open an account. Once your account is created, you just need $5 to start investing. Everything is done through an app. You need to link a bank account, where money is taken from to fund your investment account. The different funding sources of Acorns are round-ups, Found Money, and a lump sums option and automatic contributions.
- Round-ups. This is the the main funding source. When you make a purchase with a linked debit or credit card, Acorns will automatically round-up the purchase price to the nearest whole dollar. For example, if you fill up your gas tank for $15.50, Acorns will round that up to $16.00. It will then invest the spare change ($0.50) in your investment account. That $0.50 is drawn from your linked bank account. This can add up quickly, especially if you decide to double ($0.50 x 2 = $1.00) or triple ($0.50 x 3 = $1.50) your round-ups. These are options available to you.
- Lump sums and automatic contributions. Besides round-ups, another way you can grow your investment account is by making periodic lump sums or automatic contributions of, say, $5/week/month, $10/week/month, etc. Whatever amount you choose to contribute, if at all, is up to you.
- Found Money. This is another way to further grow your nest egg. Acorns' Found Money feature lets you get free money invested in your core investment account. By partnering with over 200 money partners, including Apple, Amazon, Macy's, Sam's Club, Hulu, Choice Hotels, Airbnb, among others, you get cash deposited into your investment account to help you achieve your investment goals even faster. Don't take my words for it. Here's the proof.
Acorns investment strategy: portfolios with built-in diversification
Acorns will automatically invest your money in 1 of 5 different diversified portfolios: conservative, moderately conservative, moderate, moderately aggressive, and aggressive. You will be assigned an investment portfolio, based on your responses to questions during the initial account set up. These portfolios use exchange-traded funds (ETFs) across many sectors, including large company stocks, small company stocks, real estate, emerging markets, corporate and government bonds, and international large company stocks. The idea is to minimize risk and give you broad market exposure. Below are Acorns' five investment portfolios.
The pros and cons of investing with Acorns
Acorns is all about making investing easy and pain-free to the masses. Is it worth it? Here's where Acorns rises high and falls short.
Acorns: the pros
- Painless way to invest. This is a great way to save. You will barely notice that money is taken out of your account. The best investments are the ones forgotten!
- Investing: simplified. Acorns has simplified investing. You don't need to know any technical investment jargon to start. All you need is your smart phone and the app.
- Diversification. With its pre-built investment portfolios, you don't need to go pick stocks, index funds or mutual funds for your account; it's all done for you. You get true diversification across a wide range of investment sectors.
- Investing with little money. The idea that you need a lot of money to start investing is put to rest with Acorns. You can become an investor with only $5!
- Cheaper than mutual funds. Acorns uses exchange-traded funds (ETFs). ETFs offer some of the lowest expense ratios around.
Acorns: the cons
- Limited securities offer. For the investor who likes a more hands-on approach to investing, you are limited to one of Acorns' five investment portfolios. You cannot add individual stocks or other securities to your account.
- Limited account types. Acorns is mainly for brokerage accounts. If you want a tax-deductible account (e.g. 401k), you could be out of luck.
The bottom line
Acorns is not for everyone. Micro investing may be the best investment strategy for the individual who prefers a more passive investment strategy. This style of investing allows anyone to invest with a very small amount of money. Acorns professional advisors handle everything after you set up your account. Acorns removes traditional investment barriers, such as brokerage fees, transaction fees and investment minimums. The pros far outweigh the cons to not recommend Acorns. Start investing with Acorns for as little as $5. When you join, you also get $5 to start with.
Like this article? Please share and leave us your feedback in the comment section to help us improve and grow. Subscribe below to get our latest articles. Here are a few more articles you may find useful: I buy the U.S. economy with a single index fund. The initial result is stunning! | How to transfer assets from Acorns to another broker | How to use your tax refund | Cash is trash, not king. Invest it! | Stocks vs. index funds vs. ETFs: differences and similarities.