Acorns: Small change investments

Whenever my friends mention on Facebook that they have a bit of savings and they're wondering what to do with it, I'm always the first to pipe up with an opinion. The problem is that most services require a hefty amount to get started (Looking at you Vanguard and your $5,000 minimum buy in) or you need to leave you money there for a long time for a decent return (RateSetter) or the fees are just so appalling you lose half your investment paying someone to manage your tiny nest egg.

Enter Acorns, an absolutely fabulous little platform for getting started.


When I was twenty I took my first foray into the stock market. I bought 20 bonds in a medical supplies company. I figured people were always going to be getting sick, and according to their website, their main target market was GP's, chemists, physios and other first-call health care providers. The bonds paid 8% per annum with quarterly distributions, at a time where my bank account was paying only 5%. I paid $97 each for them, and sold them three years later for $100.

At the time I was making roughly $15 an hour and studying full time. It took me close to six months to save my first $2,000 to get into the stock market. After that I had a big elaborate spreadsheet put together that told me how far away I was from buying another set of bonds (I moved up to spending $5,000 each time), how many hours at work I would need to pick up to be able to earn this much money, and I started cutting everything I could out of my budget. At that time, living at home not paying rent, cutting down meant snacks and energy drinks. Back when interest rates were nice and high (I had no debts, high rates were great for me) I was quickly earning $1,000 a year of free money.

But it was hard. Waiting six months between each purchase was demoralising, and I was constantly lamenting the missed earning times. The price of bonds fluctuates, leading up to a dividend payment the price spikes, then after the payment is crashes down before slowly climbing back up. Each time the price would drop on my chosen 'next buy' and I didn't have the money I would grit my teeth and grumble at myself and cut harder into my budget. As much as I loved the investing and the free money that came out of it, I absolutely hated how big the buy in was. As a twenty-year-old full-time student, putting aside $5,000 was a huge endeavor.

In 2012 someone else who must have had the same gripes with investing and a wonderful grasp of application development and business wandered onto the finance scene with Acorns. In February 2016 they kicked off in Australia. Acorns embraces the concept of building great things from humble beginnings, and lets you start investing for a mere $5.

Basic concept

You can link up Acorns to all your transaction accounts (credit cards, debit cards, etc) and it will monitor your transactions, rounding up each purchase and investing the difference. So if you spend $4.50 on a latte, another $3.75 on lunch and $2.25 on a KitKat, you will have $1.50 invested. It all happens quietly in the background without you lifting a finger.

That money is then invested into a balance portfolio including Australian and international shares, as well as government and corporate bonds. The whole thing comes bundled in a friendly phone app that lets you deposit or withdraw money with a few quick taps.

Pros: Easy to start, easy to use, low risk, quick access to withdrawals/deposits

Getting started with Acorns is appallingly easy. Download the app, tap in your bank details (they use super fancy bank level encryption to keep all your data safe) and deposit some money. The whole thing can be set up by the least tech savvy people in under ten minutes. There are no transaction fees so you can deposit bonus amounts anytime you want and the money will be invested within 3 business days.

Withdrawals are just a simple, in just two taps you can reach the withdrawal menu. Simply type in the amount you want an hit withdraw. There are no limits so if you want you can pull all your money out in one go.

Something I find super appealing it the ability to set your own risk profile. Higher risk always equals higher rewards in the share market game, but equally it exposes you to the potential for greater losses. Acorns will ask a few questions about you, where you are financially and how you feel about the potential for your investment to tank and recommend a risk profile for you. This is open for you to change at any time, and once again the interface is so simple you can do it in just a few clicks.

Cons: The fees, deposit structure, possible bank fees

Let's start with the fees:
$1.25 a month on accounts under $5k
0.275% on accounts over $5k

Acorns makes a big fuss about letting you start investing for as little as $5, but then they slug you fees of $1.25 a month. If you were to start with that small $5 investment and not add any more, you would be paying 25% a month. Equal to 300% per annum!! My account right now is showing approximately 7% p/a return and I bought in right before the Trump rally (absolute fluke that has set my investments off to a great start). My bank account is offering a 3% return, which means if I'm paying more than 4% in fees then I'm better off leaving the money in my bank account. This means that your minimum 'buy-in' for Acorns to be a viable investment is just over $300. While it's still significantly less than most other products, it's a lot more than they put on the flyer.

Next, my other pet peeve is the deposit structure. The claim is that you spend $3.50, Acorns rounds that amount up and take 50c for themselves. Which sounds to me like I'll have a $3.50 and a 50c charge on my card at the same time. That would be the ideal mindless investing. But that's not actually what happens. Acorns tracks your spend, and when the rounded up amounts equal $5, then they take $5 in one hit. If you're like me and keep an eye on your account balances, it ruins the illusion.

The bigger risk with the deposit structure is if you don't keep an eye on your balance. If you're someone who regularly drains your account just before pay day you could be in a lot of trouble. Acorns doesn't know how much you have in your account, so when the time comes, they will attempt to withdraw a contribution. If you don't have $5 in your account, then your bank is going to slug you a dishonor fee.

Conclusion

After reading the cons you might be a bit put off, but this is a great tool as long as you can throw in $300-400 in seed money, and you keep a decent amount of cash in your funding account. Anything above $10 will be enough to avoid those dishonour fees. I have my account set up with a regular deposit of $5 a week, which also adds in my round-ups. In a month I squirrel away roughly $30 without noticing. If you're just starting out investing it's a fantastic way to dip your toe in the water with a small buy-in and easy withdrawals.

Get started today with this referral link and Acorns will drop $2.50 in your account (and mine) as a welcome bonus. 

**Disclaimer: All the links to Acorns in this post are referral links. If you sign up through them we both get $2.50 added to our accounts. They aren't paying me for this post, this is a deal that Acorns runs for all it's customers. If you open an account, you to will have a referral link to share with your friends. Offer ends 30th March, 2018.