Introduction
I often get asked whether Acorns ETFs or mutual funds make sense for beginner investors. The answer depends on your financial goals, risk tolerance, and investment strategy. In this article, I break down how Acorns works, compare its ETF and mutual fund offerings, and assess whether it’s the right choice for you.
Table of Contents
What Is Acorns?
Acorns is a micro-investing platform that rounds up your everyday purchases and invests the spare change. It offers automated investing through ETFs (Exchange-Traded Funds) and, in some cases, mutual funds. The idea is simple: if you buy a coffee for $3.60, Acorns rounds it up to $4.00 and invests the remaining $0.40.
How Acorns Invests Your Money
Acorns primarily uses ETFs from asset managers like Vanguard and BlackRock. The platform offers five portfolio options, ranging from conservative to aggressive, each with a different mix of asset classes:
- Conservative – Mostly bonds
- Moderately Conservative – More bonds, some stocks
- Moderate – Balanced stocks and bonds
- Moderately Aggressive – More stocks, fewer bonds
- Aggressive – Almost entirely stocks
Each portfolio is built using low-cost ETFs, which I’ll analyze in detail.
ETFs vs. Mutual Funds: Key Differences
Before diving into Acorns’ offerings, let’s clarify the difference between ETFs and mutual funds.
| Feature | ETF | Mutual Fund |
|---|---|---|
| Pricing | Trades like stocks (intraday) | Priced once per day (NAV) |
| Expense Ratios | Generally lower | Can be higher |
| Minimum Investment | Share price (flexible) | Often requires higher minimums |
| Tax Efficiency | More tax-efficient | Less tax-efficient |
Acorns primarily uses ETFs because they’re cost-effective and tax-efficient—ideal for small, frequent investments.
Acorns’ ETF Portfolio Breakdown
Acorns constructs its portfolios using ETFs from major providers. Here’s a typical allocation for their Moderate portfolio:
| ETF Name | Ticker | Allocation (%) | Expense Ratio |
|---|---|---|---|
| Vanguard S&P 500 ETF | VOO | 40% | 0.03% |
| Vanguard Small-Cap ETF | VB | 10% | 0.05% |
| iShares MSCI EAFE ETF | EFA | 20% | 0.32% |
| iShares Core U.S. Agg Bond ETF | AGG | 30% | 0.04% |
This mix provides diversification across U.S. stocks, international equities, and bonds.
Expense Ratios and Fees
One advantage of Acorns is its use of low-cost ETFs. The weighted average expense ratio for the Moderate portfolio is:
\text{Weighted Expense Ratio} = (0.40 \times 0.03\%) + (0.10 \times 0.05\%) + (0.20 \times 0.32\%) + (0.30 \times 0.04\%) = 0.097\%This is competitive compared to traditional mutual funds, which often charge 0.50\% or more.
Does Acorns Offer Mutual Funds?
While Acorns primarily uses ETFs, some robo-advisors (like Betterment) blend ETFs with mutual funds. Acorns sticks with ETFs for transparency and cost efficiency.
Why ETFs Over Mutual Funds?
- Lower Costs – ETFs typically have lower expense ratios.
- Tax Efficiency – ETFs generate fewer capital gains distributions.
- Liquidity – ETFs trade throughout the day, unlike mutual funds.
For small investors, ETFs make more sense.
Performance Comparison
Let’s compare Acorns’ Aggressive portfolio (mostly stocks) with a traditional S&P 500 mutual fund over five years:
| Investment Type | 5-Year Annualized Return | Expense Ratio |
|---|---|---|
| Acorns Aggressive ETF Portfolio | ~10.2%* | ~0.10% |
| Vanguard 500 Index Fund (Mutual Fund) | ~10.1% | 0.04% |
*Hypothetical based on historical ETF performance.
The difference is minimal, but Acorns offers automatic rebalancing and round-up investing—features most mutual funds lack.
Who Should Use Acorns?
Pros:
✅ Automated Investing – No need to manually invest.
✅ Low Barrier to Entry – Start with spare change.
✅ Diversification – Pre-built ETF portfolios.
Cons:
❌ Monthly Fees – $3–$5 per month can eat into small balances.
❌ Limited Customization – You can’t pick individual ETFs.
Example: Calculating the Impact of Fees
Suppose you invest $100 monthly with Acorns:
- Annual Investment: $1,200
- Acorns Fee: $3 * 12 = $36
- Effective Fee Percentage:
For small balances, this fee is high. But as your portfolio grows, the impact lessens.
Alternatives to Acorns
If you want more control, consider:
- M1 Finance – Custom ETF portfolios, no fees.
- Robinhood – Commission-free ETF trading.
- Vanguard/Fidelity – Low-cost mutual funds.
Final Verdict
Acorns is a great tool for beginners who struggle with saving. Its ETF-based approach is cost-effective and hands-off. However, if you have more than $5,000, traditional brokerages may offer better value.
