As dividend growth investors, we are always looking for easy ways to invest as much as possible! Google “dividend investing products” and you will find countless apps and services to help get your investing proposition started, in order to reach financial freedom as soon as possible. Heck, that is how we stumbled on our app review of Robinhood, the “no trade fee,” easy to use investing platform favored by so many millenials and new investors.
One product that has gained a lot of publicity and is growing in popularity is the Acorns app. Acorns is a great way for beginning investors to start growing their portfolios. I know several people that have the app downloaded and linked to their credit cards. They love seeing their portfolio, and income producing assets, grow in an automated fashion. Those are the two keywords for the app: Easy and Automated.
So what we decide to do? Open up Acorns’ website, review the product, and put together a pros and cons list to help any potential users make a decision. Let’s jump right in to our product review!
What is Acorns?
Acorns is an investment App that allows users to “round up” their purchases and invest the spare change into various portfolio structures. The concept is pretty simple. First, you link your credit card and bank account(s) to Acorns to allow the company to receive your purchase activity. Each day, the amount of spare change remaining after a purchase is added into your investment account. You are then free to invest the spare change in any one of the investment products offered.
For example, Let’s say you purchase Band-Aids (produced by Johnson & Johnson – One of our Top 5 Foundation Dividend Stocks) for $4.50. Acorns will review the transaction and add $.50 to your portfolio to round up the transaction to $5. If the Band-aids were a larger pack and cost $9.89, Acorns would add $.11 to your investment portfolio and round the total transaction up to $10. I told you, the concept is pretty simple and automated, right?
Acorns Investment Options
On their website, Acorns touts five different portfolio buckets that investors can choose from based on the investors risk portfolio, ranging from conservative to aggressive. Within each bucket, Acorns has selected six ETFs to help investors achieve their desired investment strategy and displayed their respective asset allocations.
Acorns has a very cool way of showing what makes up a “Conservative” and “Agressive” portfolio and the allocation between different investment types. We included screenshots of the allocations for each so you can see a comparison of the ends of the company’s risk spectrum. Obviously, the other three portfolio blends will fall somewhere in between.
Looking at the two portfolios side by side, you can see a very stark different between the investment options. If you select the conservative option, expect lower returns due to the fact the investments are predominately in short term government bonds. The yield on those bonds are also ultra low given this low interest rate environment. Comparatively, the aggressive option invests solely in equities. Large cap stocks (which wil mostly pay a dividend) account for 60% of the portfolio. I know the fund I would pick. However, it is important to review your investment strategy, desired risk level, and potential returns compared to other investment opportunties before selecting your Acorns investment options.
Earlier, I mentioned that Acorns invests your funds into selected ETFs. I set out on a journey to find the ETFs that Acorns invest their products into. Finding this information on their website was not the easiest task, which was slighty surprising. Luckily, Investor Junkie published the listing of Acorns ETFS on their website. It is encouraging to see that Acorns has selected low- cost investment funds to invest in. The following are the funds used by Acorns.
- Large Company Stocks — Vanguard S&P 500 ETF (VOO)
- Small Company Stocks — Vanguard Small-Cap ETF (VB)
- Emerging Markets — Vanguard FTSE Emerging Markets ETF (VWO)
- Real Estate — Vanguard REIT ETF (VNQ)
- Corporate Bonds — iShares iBoxx$ Investment Grade Corporate Bond ETF (LQD)
- Government Bonds — iShares 1-3 Year Treasury Bond ETF (SHY)
Acorns Account Types
A fair question to ask is “What type of accounts does Acorns offer?” One of the cons of Robinhood is that the investment account types are limited compared to a traditional brokerage such as Fidelity. Robinhood doesn’t even offer an IRA or retirement option for investors. That’s a huge deal!
Recently, Acorns has expanded their product offerings. Initially, Acorns only offered a traditional investment account. Now, the company has expanded their account types to include a retirement account and a checking account. Below is the snazzy name for each account type and a brief description of each account, per there website. For more information about each, here is the webpage that includes and informational video.
- Acorns Core – Invests your spare change in a traditional brokerage account
- Acorns Later – The IRA account for the brokerage. This can include a Traditional, Roth, and SEP IRA
- Acorns Spend – A checking account and debit account, allowing users to invest while spending on purchases.
Acorns – Pros and Cons
Of course, a product eview wouldn’t be a review without the pros and cons. By now, you should understand Acorns, how it works, the investment options, and the different account types offered by the company. We are going to do a dig into the Acorns app on what we like and dislike about the product. Let’s dive right in.
1.) Low Fee Structure for Accounts under $1,000,000 – The fee structure for Acorns investments has changed over the years. The most recent updated was in 2019, when Acorns announced a monthly charge for their products. As of Feb. 2019, the fee structure is as follows and is relatively simple: $1/month for an Acorns Core account, $2/month for Acorns Core + Acorns Later, and $3/month for Acorns Core + Acorns Later + Acorns Spend. The fee structure remains true until investors have over $1 million in assets. Acorns is also only $1/month for College students. So if you are a college sutdent or using a traditional account, it will cost you $12 per year to use Acorns.
2.) Can Invest Small Dollar Amounts Easily – Investing small dollar amounts has become easier than ever. Most brokerages have waived trading fees. Some, such as Robinhood, are now even allowing investors to purchase fractional shares. Still, one of the major deterrants to investing can be investing significant sums of cash into the market. Each person has a different definition of signficant as well. To me, $200 may not seem like a large investment. However, to someone that is just starting and worked their tails off to save $200, investing the full amount can be intimidating. Acorns literally allows you to invest your spare change into the market. If only automated, each investment will be less than $1. Of course, you can add more if you’d like; however, Acorns truly allows investors to invest small amounts of capital at a low cost.
3). App is Easy To Use – The design is sleek and very user friendly. It is easy to track the progress of your investments and review your investment options. A cool feature when selecting your investment options is that the app will easily project the market value and targeted income X number of years down the road based on which investment option you select. Acorns seems to strive to make the user experience as easy as possible.
4). No Minimum Deposit – The website touts that you can get started with as little as $5! Anyone can start investing at any time.
5). Your Investments Pay Dividends – Come on, this is the most exciting pro for the two of us. We are dividend investors by trade and only invest in dividend growth stocks or dividend paying mutual funds and ETFs. Each of the ETFs offered by Acorns also pay a dividend. My account balance is minimal, from past experimentation with Acorns. I haven’t contributed in years. As you can see, my initial investment is STILL paying dividends. That, my friends, is the beauty and power of dividend investing.
1). Lack of Investment Options – Part of the beauty of Acorns is the simplicity of the concept. The app prides itself on making investing easy for users and taking a lot of the stress of of the investment making decision. However, what if you don’t fit one of these risk profiles? What if you want to pick individual stocks? One item that jumped out at me was the investment options for the conservative portfolio. In my opinion, it was too conservative for my liking. The returns you will earn by investing in all government funds will be minimal.
2). Lack of Investment Account Options – Adding a retirement account to the platform was HUGE. Seriously, it was a big addition for the platform. However, still, there are some account offerings that could be offered. You cannot roll over retirement accounts, open custodial accounts, Self-401k, etc. The options are limiting; however, my gut says that is the overall point of the platform. If you need additional account offerings for your investment needs, chances are, you will need to find a different brokerage.
3.) Too Many Ways to Add More to Your Account – Over the years, Acorns has expanded the ways for you to add money to your account. I found this rather annoying when I was setting my account up for the first time. There are features that allow you to double and triple the spare change that is invested. Further, they offer deals with specific products and stores that would earn you additional cash back in your portfolio. Personally, I found this to be too much. I love the simple approach of the platform. If I want to earn significant cash back on purchases, I will opt for using Rakuten (formerly Ebates) or Swagbucks.
Are we opening Acorns accounts immediately upon completion of this review…no. In our opinion for the type of investors we are, the app would not be a bad fit. The two of us require a traditional brokerage that allows us to invest in individual dividend growth stocks and build our portfolios.
However, that doesn’t mean we do not like the app for the right audience. Acorns is a great app and investing platform for the right target audience. Student investors or beginning investors without a lot of disposable income would be a great fit for this app, since you can invest small dollar amounts and turn every day transactions into investments using the “Round Up” feature. It is a great idea and can be a great tool to build a portfolio for the right individual.
Have you used Acorns? If you haven’t, do you know anyone that has used the investing app? Are there any other Pros or Cons that we missed? What are your thoughts about our analysis? Are you signing up for the app after reading the review?
-The Dividend Diplomats
Photo Credit: Acorns
*Disclosure: there may be affiliate links above*
**Article was updated in June 2020 to reflect changes in the platform from the original posting**