For many people, investing can seem extremely complicated and almost impenetrable. If you don’t know the ins-and-outs of the market, it can seem like you are lost at sea. Several investment services are oriented around dispelling the mystery of the stock market and making it easy for the average person to invest.

Acorns is a relatively new robo-advisor investment and finance app that is designed to encourage people to save and develop good financial habits. Like many robo advisor services out there, Acorns uses algorithms based on cutting edge economics to optimize and rebalance portfolios.

We love apps that aim to make investing accessible to the everyday person. So today we are going to take an in-depth look at Acorns. This is our Acorns review.

TL;DR: Acorns is a fantastic micro-investing app with some excellent banking features for saving and reinforcing good financial habits. These benefits are slightly offset by the relatively high account fees.

Acorns: Overview

Acorns is one of many new robo-advisor apps that combines automated savings tools with round-up purchases to invest. With Acorns, you can connect a payment option and the app will round up any purchases you make to the nearest dollar and invest the spare change. Roundup purchasing gives a painless and automatic way to build your investment account.

Acorns is aimed at a younger, more technological-literate audience than traditional investment services. The main service is all through the mobile app, although Acorns recently unveiled a web-based version of their service that works for desktop and mobile.

In addition to the round-up purchases, Acorns has a lot of nifty tools for saving and developing good financial habits. The website even has an entire blog section with articles and think pieces on topics in finance and investing.

Acorns is ideal for those who are new to investing and that need some guidance on where to allocate their funds. The emphasis on small micro-investments lowers the financial bar to entry in the market and is a great way to get used to investing without exposing yourself to too much risk.

How Does Acorns Work?

Acorns has a similar set up to most robo-advisor apps. When you sign up for an account, you will be asked to provide some personal information and link your bank account. You then take a short questionnaire so Acorns can get a fix on your financial goals and your risk tolerance. There is no minimum deposit for creating an account but you need at least $5 to start investing.

After that, the app will sort you into one of 5 pre-built portfolios based on your preferences: conservative, moderately conservative, moderate, moderately aggressive, aggressive. Each profile has a predetermined allocation of assets that is based on a specific risk tolerance and investment horizon. Acorns portfolios are built out of ETFs that include a diverse range of asset classes across industries, including stocks, corporate bonds, and private bonds.

Here is the allocation breakdown for each portfolio:

• Conservative:
  • 40% Short Term Bonds
  • 40% Ultra Short Term Corporate Bonds
  • 20% Ultra Short Term Government Bonds
• Moderately Conservative
  • 24% Large Company Stocks
  • 4% Medium Company Stocks
  • 12% International Company Stocks
  • 60% Government & Corporate Bonds
• Moderate
  • 35% Large Company Stocks
  • 5% Medium Company Stocks
  • 2% Small Company Stocks
  • 18% International Company Stocks
  • 40% Government & Corporate Bonds
• Moderately Aggressive
  • 47% Large Company Stocks
  • 6% Medium Company Stocks
  • 3% Small Company Stocks
  • 24% International Company Stocks
  • 20% Government & Corporate Bonds
• Aggressive
  • 55% Large Company Stocks
  • 10% Medium Company Stocks
  • 5% Small Company Stocks
  • 30% International Company Stocks

As you can see, portfolios on the conservative end of the spectrum focus mostly on bonds with s small stock allocation. Conversely, the aggressive side of the spectrum consists mostly of international and domestic stocks.

Acorns’ stock portfolios are crafted using algorithms built on Nobel Laureate Harry Markowitz’s Modern Portfolio Theory (MPT). MPT as a theory defines the appropriate allocations to maximize returns while minimizing risk. MPT is the cutting edge of economic science so Acorns’ portfolios are optimized according to the best knowledge we have of economics.

Acorns’ main feature is the round-up purchase. Whenever you make a purchase with a linked payment method, Acorns will round up the purchase to the nearest dollar and invest the extra amount.

So for example, if you pay $2.50 for your morning coffee, then the app will round up the purchase to $3.00 and invest the extra $0.50 into your brokerage account. It’s not very much, but these round-up purchases can add up fairly quickly. You can also turn off automatic roundups and manually pick which purchases you want to round up.

Acorns allows you to link multiple payment methods to a single account, including credit and debit cards. You can turn off the roundup feature in your profile settings and can just invest lump sums if you want.

Other Acorns Features

The roundup purchases and investing are just the tip of the iceberg. Here are some more of the awesome features that Acorns offers.

Portfolio Rebalancing

Like any good robo-advising app, Acorns offer automatic portfolio rebalancing. If your portfolio allocations fall out of your pre-defined proportions, Acorns will automatically buy and sell assets to maintain your established preferences. This happens automatically and you don’t have to do anything. Portfolio rebalancing is practically a standard feature in robo-advisor apps, and a welcome one at that.

Found Money

One of Acorns’ most useful offerings is its Found Money feature. Whenever you use a linked payment method to make a purchase from a partner retailer, that retailer will put some extra money in your account. It’s essentially a cash-back feature for investments. That’s right: with Acorns, companies will invest their money for you when you buy stuff. That’s a pretty good deal right?

Here are a couple of examples of the kinds of contribution partners Acorns currently has or has had in the past:

• Airbnb – 1.8% booking total
• Blue Apron – $25 for sign up
• Disney+ – $5 at sign up
• Chevron – 25 cents for $20 in gas
• Expedia – 4% of purchase
• Levi’s – 5% of purchase
• Macy’s – 4% of purchase
• Liberty Mutual – $5 per auto or home quote
• Sephora – 3% of purchase
• Postmates – $5 per new customer

As you can see, there are a lot of companies that will dole out rewards for buying from them.

Acorns Spend

Acorns recently launched Acorns Spend, their take on personal checking accounts. Acorns Spend has all of the features of a full-scale checking account, such as digital banking, free deposits/withdrawals, retirement accounts, and more. One feature we thought was especially cool is the Smart Deposit feature that lets you set aside saved money for a particular fund. You even get a pretty slick tungsten-metal debit card with your signature custom engraved. All Acorns Spend accounts are FDIC-insured up to $250,000 as well, so you don’t have to worry about your money.

Child Investment Accounts

Acorns also recently launched Acorns Early, investment portfolios for kids. Acorns Early is designed to teach your children about the fundamentals of saving and investing early. Kids can get started saving with as little as $5 and the service includes financial education content produced by Acorns and CNBC. We can’t think of another service that offers a financial literacy program designed specifically for kids, so hats off to you Acorns!

Acorns Pricing and Fees

The next logical question is to ask: How much does Acorns cost?

Management fees. Unlike many other investment apps, Acorns does not charge a percentage of your total assets under management in the form of an annual fee. Instead, they charge a monthly flat rate.

There are 3 pricing tiers for Acorns accounts:

• Lite – $1/month ($12/year)
• Personal – $3/month ($36/year)
• Family – $5/month ($60/month)

The Lite account is the basic offering and only comes with investment capabilities. That includes roundup purchases, automatic rebalancing, and the Found Money Program. It does not include banking features or retirement accounts, unfortunately.

The Personal account offers the investment service, retirement accounts, and checking accounts. Lastly, the Family plan includes everything in the Lite and Personal plans, along with child accounts and multiple checking accounts.

Now, these prices sound very low at first. But you need to consider that you will be investing very small amounts at first, and even $1 can be a large proportion of your invested funds. For example, if you only have $100 invested, a $3 monthly fee would represent 3% of your assets under management.

To put that number in context, two of the most popular robo-advisors on the market Wealthfront and Betterment have a 0.25% annual management fee and offer a more diverse array of financial options such as tax assistance and a higher level of service.

Stash is another investment service in the same vein as Acorns and has a similar pricing structure. With Stash, for $3 a month, you get an investment account and banking account, plus retirement accounts, like Acorns’ Personal plan. Between the two, we would recommend Acorns because it has automatic portfolio rebalancing, a feature that is noticeably absent with Stash.

Transfer fees. Acorns will also charge you if you want to move investments from Acorns to another provider. Acorns charges $50 per ETF, which is an unreasonably steep price in our opinion. Many other services allow you to transfer all of your investments out for around $100. Of course, you could always just sell your investments and cash out to get around these fees, though you would have to worry about capital gains taxes in a taxable account.

Expense ratios. As is the case with all mutual funds, Acorns’ ETFs incur expenses on the asset level. Thankfully, these ratios hover around reasonable ranges between 0.03%-0.18%. For comparison, Wealthfront’s average ETF expense ratio is between 0.07%-0.16%. Acorns manages to keep expense ratios so low thanks to its automated approach to investing.

How Does Acorns Perform?

So, here is the big question that has probably been on your mind: How does Acorns perform?

A few preliminary notes. Acorns manages to keep expense ratios low so those will not eat too much into your returns over the long run. Moreover, Acorns ETFs are mostly index funds so there is no pressing move to try to “beat the market.”

Now, the exact return rate that you will get depends on the specific portfolio that you choose as they have different growth and risk parameters. Unfortunately, we could not find any official information from the company about its historical track record. Nonetheless, through our research into customer reviews and testimonials we pieced together that the average acorns user sees anywhere between a 7%-10% average return.

Considering that the average market return over the past 30 years is around 10%-11%, Acorns’ returns seem just about as good as any other passive wealth management service. Like we said earlier, Acorns portfolios are mostly based on index funds so the fact that their growth is about equal to the average market return is not a bad thing; it’s exactly what you’d want to see from index funds.

Moreover, Acorns has some interesting portfolio choices. For example, the more aggressive portfolios place a larger emphasis on international stocks in emerging markets specifically. Similarly, Acorns allocates a large portion into REITs for more aggressive strategies. These choices are neither inherently good nor bad but are unique for an investment app. One thing we did notice is the lack of mid-cap stock allocation, which may be a drawback depending on your preferred investment strategy.

All of this is to say that Acorns’ portfolios are perfectly competent and do what they are supposed to do. The rebalancing option ensures that your allocations are optimized too so you don’t have to spend time micromanaging your accounts.

Acorns Pros

• Excellent savings options. Acorns makes it incredibly easy to save and invest without thinking about it.
• Simple portfolios selection. You don’t need to be a stock genius to get something out of Acorns.
• No account minimums. You don’t have to deposit anything to create an account, although you do need at least $5 to start investing.
• Great automation options. Portfolio rebalancing is extremely useful and there are options for automatic saving.
• Banking and savings options designed for kids,
• Large library of educational resources.

Acorns Cons

• High management fees. Acorns’ flat monthly rates can be a large chunk of your invested funds, especially if you have a low account balance.
• No tax assistance. This is not a huge issue, but several other investment apps offer some kind of tax assistance whether it is documentation or tax-loss harvesting.

Conclusions

So, is Acorns worth it? We say yes. Acorns is an excellent robo-advisor app for micro-investing and makes a great place for newbies to start their investment journey. We would recommend Acorns for younger people who want a little bit of guidance with their finances.

If you are a bit more experienced with investing, then you may not get very much out of Acorns, However, if you are new to the saving and investing world, Acorns can give you a leg up. Most individuals don’t save enough for a rainy day and Acorns can help you out on that front.