Acorns and Such

By popular demand, today we talk about Acorn–the app-based company that lets you invest your spare change. From what I understand, for a base price of $1 per month, Acorn will automatically round up your purchases to the next dollar and invest the difference for you. They also have $2 and $3/month options, which will get you things like access to an IRA or a checking account with a debit card that can be used for cash back at select merchants.

Let’s go through an example of how this works. Let’s say you buy a latte for $4.49. I’m not sure if this is how much a latte costs. I’m actually not certain I know exactly what a latte is. But anyway, you buy this thing for $4.49, and Acorn “rounds it up” to $5 and invests $0.51 for you. Apparently, this type of thing is geared towards millennials who want to start doing something with their money but are hesitant or afraid to invest in the stock market on their own (poor things!). The “rounded up” amount gets invested in a mixture of exchange traded funds (ETFs), with options ranging from a conservative portfolio (mostly bonds) to an aggressive one (a mix of domestic and international stocks).

With enough spare change, your acorns could grow into these!

Honestly, it’s not a bad idea. It’s a creative way to get more people to start investing, which I’m definitely a fan of. However, when we actually break it down we realize it isn’t as great as it seems. Let’s consider the target Acorn user–someone who just invests their spare change. Let’s say they go with the $1/month option and end up with $200 of spare change over the course of a year. Over that same year, they’d pay $12 in fees, which is 6% of $200. Even the “aggressive” portfolio will only generate real (inflation-adjusted) returns of about 7% on average. So this acorn user is earning, on average, a 1% return. Note that this is 1 percent out of a potential 7%, but unfortunately Acorn is eating up the bulk of that 7%. I guess that’s better than leaving your money in a checking account, or spending the rest of your spare change on more junk. But here at Money and Megabytes, we don’t just aim for “better than nothing”. So here’s what I recommend you do instead.

Joey’s Recommendations for Current and Potential Acorn Users

  1. Graduate from investing spare change to investing actual whole dollars. Like hundreds or, if you’re able, thousands of dollars per month. We’re not playing games here, this is your future! And there are better things to do with money than buy stuff.
  2. Spend the ~2 hours it takes to understand how the stock market works, how to invest in it, what to do when it crashes, and (if you want extra credit) how to allocate your own assets. Seriously, this doesn’t take a whole lot of time and will literally be the most valuable time you’ve ever spent. It’s worth it.
  3. Invest on your own for free! There are step-by-step guides with photos on how to do this, and honestly it’s probably as easy as downloading and setting up Acorn.
  4. There are several companies out there besides Acorn that seek to make investing easy and accessible to everyone. With the right dollar amounts (e.g. if you’re investing $20k a year with Acorn the fee is suddenly not so much) these can be relatively cheap and easy options. But doing it yourself is also cheap, easy, and worth learning.

So skip the latte, drink a glass of water, and invest the whole $5 instead. If you do, you’ll be happier, healthier, and wealthier.

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