Acorns Review 2021 – Forbes Advisor

Acorns offers a simplified, low-cost passive investing approach that suits many types of investors. While the app’s user design and educational content is designed for new-ish investors, its flat-fee structure is actually more expensive for those who are just starting out (competitor Ellevest has a similar problem). As such, we recommend potential customers weigh their appreciation of Acorns passive savings approach against potentially higher costs. It is perhaps best utilized by folks most in need of a nudge to save a bit more.

Who Should Choose Acorns?

Acorns’ robo-advisor features make the most sense for someone who is drawn to the platform’s “round-up” savings claim-to-fame: Purchases made in linked accounts are rounded up to the nearest dollar, and the balance is saved in an investment account. For instance, if you spent $4.50 on a latte on a linked credit card, $.50 would be reserved for investment. If you’ve experienced joy with this pro-savings gimmick, you may be inclined to save for retirement with Acorns as well.

Still, other robo-advisors provide more robust services at a lower cost. So only those who think they’ll be enticed to save more with Acorns need apply.

How Acorns Works

Acorns offers five distinct robo-related products for Invest, Later, Spend, Found Money and Early.

•  Invest: A taxable investment account that puts your money into exchange-traded funds (ETFs), depending on your risk tolerance and financial goals. There are two ways to continually fund the account: Round-ups and dollar-cost averaging. (Of course, you can always add in money ad hoc.) The latter allows you to set up recurring contributions to your account for as little as $5. The former, as mentioned above, invests the so-called “spare change” from a linked account.

•  Later: This is how Acorns refers to retirement. (We found this nomenclature a bit confusing: It’s not as if your “Invest” funds are meant for day-trading or immediate use. You’re supposed to invest for the long haul and it’s costly to sell your investments too often. Perhaps Acorns should trust its customer base knows what “retire” means.) In any case, “Later” is just a way to put money in an IRA, a must have for any robo-service.

•  Spend: A checking account that comes with a debit card and eschews many fees, such as one for minimum balances. It also reimburses some ATM fees. Another feature, called Smart Deposit, allows you to siphon money automatically from a direct deposit in your Spend account into other accounts, like Invest. (Although since you’re setting up how much goes where, it’s not altogether “smart.”)

•  Found Money: An online marketplace that offers a small percent back on purchases made at hundreds of major retailers, including Walmart. The cash back that you earn shopping on Found Money is placed in your Invest account.

•  Early: Available to those paying Acorns’ most expensive tier, “Early” provides access to a UTMA/UGMA account, allowing parents to set up accounts for their children without dealing with sticky red tape.

How Acorns Invests Your Money

Like most other robo-advisors, Acorns sets you up with a diversified portfolio of low-cost ETFs that suit your risk tolerance and goals based on how you answer a handful of questions. For instance, you’ll be asked your age, net worth, income and when you may need to access the funds.

Whatever money you have directed to “Invest” will flow into that mixture of exchange-traded funds.

For instance, a profile that Forbes Advisor ran for a young, upper-middle-class worker with a long investing horizon came back with an “Aggressive Portfolio” that allocated:

•  55% to large domestic companies through Vanguard S&P 500 (VOO)

•  30% to international stocks through iShares Core MSCI International Stock (IXUS)

•  10% to mid-cap stocks through iShares Core S&P 500 Mid-Cap (IJH)

•  5% to small-cap stocks through iShares Core S&P 500 Small-Cap (IJR)

Refreshing, and unlike other competitors such as Wealthfront, the profile consisted of just four low-cost ETFs, all with miniscule expense ratios, or operating fees charged by the funds you invest in. This simplified approach makes your investments much easier to understand without sacrificing returns. Acorns picks your portfolio from a roster of nearly 25 ETFs.

On the other hand, a portfolio consisting entirely in equities, even for a risk-tolerant younger worker, may be a bit too much. You can change into a different portfolio if that’s the case, but be careful: Your customized portfolio is based on the questionnaire, so by going against the grain you may end up holding too much risk, or too little.

Those so inclined may opt for Acorns’ new socially responsible investing (SRI) portfolio. This is a pretty standard course of action for robo-advisors, especially as younger investors have shown an interest in them. Wall Street loves these funds because they have higher fees. The problem is many of the companies you end up investing in often fail a common-sense SRI test.

For instance, Acorns uses the iShares ESG Aware MSCI USA (ESGU) that comes with a 0.15% expense ratio, which is five times as high as the Vanguard S&P 500 ETF (VOO) that Acorns uses in its non-SRI fund.

To get a sense of how much, consider the following: if you seed your account with $1,000 and contribute an additional $300 monthly for 30 years with a 7% return, you’ll pay nearly $10,500 in fees with ESGU compared to more than $2,100 with VOO.

Perhaps you’re fine forgoing those funds in the name of socially responsible investing. But you should ask yourself what that really means. ESGU’s top investments include Apple, Alphabet (Google) and Facebook, all of which have engaged in questionable social practices (from claims of inhumane work conditions to pilfering privacy to facilitating child pornography). Maybe you’re better off going with the cheaper ETF and donating the savings to a cause of your choosing.

Acorns Fees and Costs

Acorns bills itself as charging low fees, but that really depends on how you measure it. There are three Acorns membership tiers, each of which charges a monthly fee:

•  Lite: $1 per month

○  Lite gives users access to Invest and Found Money.

•  Personal: $3 per month

○  In addition to Invest and Found Money, Personal gives users access to Later and Spend.

•  Family: $5 per month

○   In addition to all the features of Lite and Personal, Family grants access to Early, Acorns’ UTMA/UGMA investment accounts. These are essentially investment accounts for kids.

While those fees appear manageable, they’re actually pretty expensive on an annual percentage basis, which is how many other investment apps and robo-advisors charge their fees. Younger workers just starting out—the types of investors who Acorns is trying to attract—will end up paying more than they would at other robos.

Imagine you opened a new investment account with just $100. If you used Betterment, which charges an annual percentage of 0.25% for its basic Betterment Digital offering, your annual cost would be $0.25. If you opened an Acorns Lite account, the one-year cost for that $100 investment would be $12.

Consider a $10,000 investment in an Acorns Personal account—$36 annually, or 0.36%, which is still more expensive than Betterment.

Naturally, the fees become a smaller and smaller proportion of your balance the more you invest, but that could take a while.

In terms of investment costs, the expense ratios range from 0.03% (VOO) to 0.25% (two ESG funds). This is what you’ll pay if you invest in Early, Invest or Later.

A quick note on Spend: While Acorns’ checking account is nominally no-fee, it’s less than ideal that you need to pay $36/year to gain access to it since some robos, like Betterment, give you access without such barriers.

Still, you may view the checking account as an add-on to get into the $3 tier, in which case the fee matters less to you.

Acorns Advantages

The best way to invest is to not wait and start investing right now—Acorns tries to make that as easy as possible. With no account minimum, you can start recurring contributions pretty quickly and also round-up your purchases on linked accounts to get money in the market even if you don’t think of yourself as an investor.

An easy-to-use interface makes setting up your savings rather simple, and you won’t be overburdened with a complicated array of ETFs. If you stick with a core account, absent ESG funds, you’ll pay very little in fees. If you’re someone who needs a nudge to get going, Acorns’ robo service makes a good deal of sense.

Acorns Disadvantages

There are a couple of big drawbacks to Acorns. Foremost is the tiered-fee structure, which is too high for people starting out with low balances. Paying $36 a year when you have a few hundred invested just to access an IRA is a bad deal. While many robo-advisors have an account minimum of $500 or $1,000, Betterment provides a no-minimum, lower-fee alternative.

Needing to cough up $3 to get access to the checking account is a tough pill to swallow, plus there’s no mechanism to talk to a real-life financial advisor.

Meanwhile, some parents may like having access to a UTMA/UGMA account, but anyone saving for college may wish there was access to 529 accounts. Plus there’s no tax-loss harvesting features, which will come in handy once you’ve accumulated more money in your account and need to offset the tax implications of selling winners.