As an investor and someone who’s been through the ups and downs of the stock market, I’ve learned the value of having tools that simplify the trading process. One such tool that I’ve come across recently is the Acorns Stock Trading App. It’s designed to make investing accessible for people like you and me—those who are either starting out or want a low-maintenance way to grow their money. In this article, I’ll dive deep into what Acorns is, how it works, and whether it’s a good fit for your investing journey.
Table of Contents
What is Acorns?
Acorns is a micro-investing app that aims to help people invest their spare change automatically. The app rounds up your everyday purchases to the nearest dollar and invests that difference in a diversified portfolio. For example, if you buy a coffee for $3.75, Acorns rounds it up to $4 and invests the extra 25 cents. Over time, these small investments can add up to something significant, especially when you let it compound.
The app doesn’t require large amounts of capital to get started. It’s designed for those who might not have the time, expertise, or large sums of money to make traditional investments. Acorns also provides tools for retirement savings, such as an IRA, and has educational resources to help users understand their investments better.
How Does Acorns Work?
Acorns operates on a straightforward premise: invest spare change. But there’s more to it than just rounding up purchases. The app connects to your bank accounts and credit/debit cards. Once linked, every time you make a purchase, Acorns rounds up the transaction to the nearest dollar and invests that difference. You can also make one-time or recurring deposits into your account.
Here’s a simplified breakdown of how it works:
- Link Your Cards: You link your credit/debit cards to the app.
- Spend: You go about your daily purchases as usual.
- Round-Up: Acorns rounds up each transaction to the nearest dollar.
- Invest: The app invests your rounded-up amounts in a portfolio of exchange-traded funds (ETFs).
- Grow: Over time, these investments will compound and hopefully grow in value.
The beauty of this approach lies in its simplicity and automation. You don’t have to think about it. It’s an effortless way to get started with investing without worrying about whether you’re making the right decisions.
Acorns Investment Options
When you set up an account on Acorns, you’re given several portfolio options based on your investment goals and risk tolerance. These portfolios consist of a mix of ETFs that span various asset classes like stocks, bonds, and real estate. Acorns uses a “smart” portfolio strategy based on modern portfolio theory, which means they try to create a diversified portfolio that maximizes returns for the least amount of risk.
Portfolio Options
Acorns offers five different portfolio types:
- Conservative: This portfolio is designed for those who want to minimize risk. It’s focused more on bonds and less on stocks.
- Moderate: A balanced approach, with a mix of stocks and bonds.
- Aggressive: Designed for those who want to take on more risk in hopes of higher returns, with a heavier focus on stocks.
- Socially Responsible: For investors who care about making a positive impact, this portfolio focuses on sustainable, eco-friendly investments.
- Personalized: This is where Acorns lets you customize your portfolio based on your unique goals.
Acorns also automatically adjusts your portfolio as you approach your financial goals, helping to ensure you’re taking on the right level of risk at any given point.
How Much Does Acorns Cost?
Acorns is relatively affordable, especially considering its features. The app operates on a subscription model with three different pricing tiers:
- Lite: $1 per month. This plan gives you access to the core features, like round-ups and the basic investment portfolio.
- Personal: $3 per month. This includes everything in Lite, plus additional features such as retirement accounts (IRA) and financial planning tools.
- Family: $5 per month. This gives you everything in the Personal plan, plus accounts for multiple people in your family, allowing you to manage your kids’ investments and set up a joint account.
While the monthly fees may seem like a small amount, they can add up over time. However, given the ease of use and the potential for long-term growth, I find it to be a reasonable cost for the convenience.
Acorns vs. Traditional Stock Trading Apps
Now, you might be wondering how Acorns compares to more traditional stock trading apps like Robinhood or E*TRADE. While apps like Robinhood allow you to actively trade stocks and ETFs, Acorns is geared toward passive investing. It’s a hands-off approach, where you don’t have to worry about choosing individual stocks or managing your portfolio actively.
Here’s a comparison table that outlines the key differences:
| Feature | Acorns | Robinhood | E*TRADE |
|---|---|---|---|
| Investment Style | Passive (automatic round-ups) | Active (individual stock trading) | Active (individual stock trading) |
| Portfolio Types | Diversified ETF portfolios | No portfolio, individual stocks | Custom portfolios with stocks/ETFs |
| Fees | $1 – $5 per month | No fees for trades | $0 per trade (some fees for other services) |
| Account Types | Personal, IRA, family | Brokerage, IRA | Brokerage, IRA, 529 Plans |
| Automation | Yes (round-ups) | No | No |
As you can see, Acorns is more suited for people who want to automate their investments without dealing with the complexity of active trading. Robinhood and E*TRADE, on the other hand, are better suited for those who want to actively manage their portfolio and pick their own stocks.
Examples of How Acorns Can Help You Invest
Let’s take a practical example to illustrate how Acorns works in real life. Suppose you make the following purchases in a day:
- Coffee: $3.75
- Lunch: $12.50
- Gas: $25.10
Acorns will round up these purchases to the nearest dollar:
- Coffee: Round-up to $4.00 (extra 25 cents invested)
- Lunch: Round-up to $13.00 (extra 50 cents invested)
- Gas: Round-up to $26.00 (extra 90 cents invested)
So, in total, Acorns would invest $1.65 for you that day.
Now, if you made similar purchases each day for a month, that would total:
$1.65 x 30 = $49.50
Even though $49.50 might not sound like a lot, if this continues for months or years, the amount grows significantly. Additionally, the investments made would hopefully appreciate over time, adding another layer of growth.
The Pros and Cons of Using Acorns
While Acorns offers several advantages, it also has its limitations. Here’s a closer look at both the pros and cons.
Pros:
- Automated Investment: The main appeal of Acorns is that it makes investing automatic and easy.
- Low Cost: With a monthly fee as low as $1, Acorns is an affordable option for many.
- Diversified Portfolios: You don’t need to pick individual stocks—Acorns does it for you by creating a diversified portfolio of ETFs.
- IRAs and Retirement Accounts: Acorns offers tax-advantaged retirement accounts, making it a good option for long-term investing.
- Socially Responsible Investing: Acorns offers a socially responsible portfolio for those who want to invest with a purpose.
Cons:
- Monthly Fees: While the fees are relatively low, they can add up over time, especially for people who are only investing small amounts.
- Limited Control: If you want more control over your investments and the ability to pick individual stocks, Acorns might not be for you.
- Slow Growth for Small Investments: If you’re investing small amounts, it might take a while to see significant growth, even with compound interest.
Is Acorns Right for You?
Whether Acorns is right for you depends on your goals, preferences, and how much time you want to dedicate to investing. If you’re looking for a low-maintenance, hands-off way to invest, Acorns could be a great choice. However, if you prefer to have full control over your investments and are looking for more flexibility, you might want to explore other options.
Personally, I believe Acorns is an excellent tool for anyone starting out in the world of investing, especially if you’re not looking to actively trade or make frequent decisions about where to put your money. It’s a great way to dip your toes into investing without feeling overwhelmed.
Conclusion
In the end, Acorns provides a convenient and simple way to start investing, even if you have little experience. The app’s automation, low fees, and diversified portfolios make it an appealing choice for beginners. However, it’s not without its limitations, particularly for those who want more control over their investments. As with any financial decision, it’s important to weigh the pros and cons before jumping in. By understanding how Acorns works, you can decide whether it aligns with your investment goals and style.
If you’re ready to give it a try, I’d recommend starting small and seeing how the app fits into your daily life. The key is consistency, and with Acorns, even small steps can lead to big results over time.
