4 min read · Aug 2, 2019
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Note: in this article, I mention several investment brokerages by name. I am not being compensated to mention them. My purpose for semiretireplan.com is to help connect you to the resources that will best serve you.
Have you seen a real-life acorn? They’re cute, in a way. But if you’ve ever been hit by an acorn falling from a tree, you know they can sting!
The Acorns investing program is much the same.
As you’ve likely heard, Acorns is an app and website that invests extra change from your checking account transactions. When you make purchases, it “rounds up” to the next even dollar amount and adds the difference to your Acorns account once it totals $5. The popular system (with over 3 million users ) has as a way to engage millennials to help them start investing. garnered praise from the media
I myself am a millennial, so I feel it’s appropriate to give this reality check.
The Acorns website and app are sleek and user-friendly, and it’s a fun concept. When you break down the details, though, the program just doesn’t make sense for users, financially.
For any investing, It’s always best to first consider your goals before choosing an account type. Is this money for a specific purpose? How much time will pass before you need to access it? Should you expose the money to risk? Will the investment vehicle incur taxes?
Ultimately, Acorns does not account for what your goals are. Even if you do have a clearly-defined purpose for your money, there are more affordable options to help you meet your goals.
Acorns Core accounts are taxable brokerage accounts. If you are investing for a long-term goal like your young child’s college expenses or your retirement, there are better-suited account types available.
For college savings, you should consider a 529 plan or Education Savings Account. You could even use a Roth IRA — your contributions can be withdrawn early without penalty, if needed. These three accounts will all give you tax advantages and efficiencies that a taxable brokerage account will not.
Personally, I would not invest money unless I was planning not to need the money for 7 years or longer. I’ve seen other financial minds recommend 5 or 10 years as their rule of thumb.
If you will need to access your money in the next 5 years, I recommend that you invest it in a high-interest savings account instead.
I also recommend keeping 3–6 months of expenses in a readily-accessible “emergency fund” savings account, so that you do not need to draw down on your investments in the event of a surprise expense.
If on average the “round up” from each transaction is $0.50, that would be $20 invested in Acorns each month.
The $1 per month base plan subscription fee for Acorns, then, is costing you 5% of your monthly contribution. Any other brokerage that charged you 5% per month on your contributions would be written off as a scam.
We said before that a taxable brokerage account likely isn’t the best choice for long-term investing, and it’s too volatile for short-term investing. So, you might be tempted to think Acorns could be a good choice for medium-term goals. In a way, that is the best possible use case for Acorns, but it’s still not the best option for users with this time period in mind.
In this scenario, the $1 monthly fee is lowering your future account value by $378.41.
To me, the most dangerous effect from the media praise of Acorns is that it makes subscribers feel like they are doing something big for their future. Most of the positive coverage focuses on how it is inspiring young people to invest for the first time.
$19 per month is fine if you’re just getting started, but is not a long-term solution.
Honestly, Acorns is a fine product if you would like to use it for entertainment on top of already meeting your other financial goals.
I do want to caution you, though — other low-cost savings vehicles are likely more appropriate to help you meet your goals.
Do you use Acorns? How would you describe your experience and results with the program?