Is Acorns a Good Investing App for Beginners? (Pros & Cons)

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Acorns is an investment app with low-cost investment options and a beginner-friendly interface. The main draw of Acorn lies in its ability to round off a user’s expenses and help them invest a few cents into diversified portfolios. And for those new to saving and investing, this app may be a great place to get started.

Acorns is a good investing platform for beginners because it allows you to make micro-investments in company stocks and ETFs (exchange-traded funds). Additionally, users do not require a minimum balance and don’t have to pay any transaction fees.

In this article, we’ll take an in-depth look at how Acorns works and its advantages, why it’s ideal for beginners, and a few drawbacks of this investing platform.

So, if you’re thinking about giving Acorns a try, this guide might be of good help to you, and make sure to read it all the way through!

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Why Acorns Is Ideal for Beginners

Most first-time investors approach investments with great reluctance and apprehension. The fear of not knowing how investments work can make investing seem like a risk.

However, while there are some risks involved, fintech apps like Acorns are designed to mitigate risks and create an investment portfolio suited to your particular financial requirements.

For example, if you’re looking for greater stability, the app will invest in funds that provide steady returns over time without fluctuating much. On the other hand, if you’re looking for massive returns, Acorns creates a more aggressive portfolio depending on your requirement.

The main feature of Acorns is the ’round up,’ which is an attractive feature to those who want to start saving small amounts of money before getting deeper into investments. Let’s take an example.

Acorns is linked to your credit/debit card and monitors your purchases. Let’s say you buy a $3.50 cup of coffee on your way to work at least thrice a week. Acorns rounds off your purchase to $4, takes the extra $0.50 and invests it for you.

That’s $1.50 invested every week, every time you buy a cup of coffee. And that’s just one of many purchases! By rounding off the many purchases you make throughout the month, Acorns can help you save a significant amount of money in the long run.

Therefore, Acorns is the ideal platform for those looking to enter the world of investments with minimum investment. However, the platform is also an excellent way to save spare change, even if you’re a veteran investor.

Here I’ve listed a few more reasons why Acorns is an excellent investing platform for beginners.

1. Diversified Investment Portfolio

When you first sign up on Acorns, you’ll be asked a bunch of questions to determine your appetite for risk, financial goals, and the kind of wealth you’re hoping to generate.

The app will ask for your age, net income, and how liquid you want your investments to be (or how quickly you need cash in case of an emergency).

Using this information, the app will create an investment portfolio suited to your unique financial situation. Additionally, the app also provides automatic rebalancing, adjusting your portfolio in case market fluctuations cause things to go off-course.

2. Zero Withdrawal and Deposit Fees

This feature is probably one of the most attractive on the app as most investing apps charge a commission on each deposit and withdrawal you make. While Acorns charges a monthly subscription for using the app, you can freely withdraw and deposit funds in the app without paying anything extra.

And when you’re dealing with micro-investments, a zero-fee policy can help you save a ton of money in the long term.

The best part of Acorns is that, unlike a debt fund, which typically has a specific lock-in period, the app allows you to withdraw your funds whenever you want to.

3. User-Friendly Interface

This feature is especially helpful to new users who can get confused and intimidated by all the charts and jargon that make up the world of investing. The app’s interface has an easy-to-navigate design, making it easy for beginners to keep track of their investments.

Additionally, the interface also neatly collates all investment data and presents it to users in an easy-to-understand format. And if you’re just getting into investing, the information presented in this way can help you understand your finances, allowing you to allocate funds better for future investments.

Finally, Acorns also offers some instructional videos on how to get started on investing.

4. Round-Up Feature

It’s been mentioned already, but the round-up feature of Acorns requires a special mention, considering how it helps users save money without noticing much change in their bank balances.

This feature also distinguishes Acorns from most other investing apps that typically have a more hands-on approach to investing. By adding the Acorns round-up to your life, you can potentially save hundreds of dollars in the long run and multiply this by adding to your investment portfolio.

Note: Round-up isn’t the only option available on Acorns, as users can also invest lump sums or set up an autopay feature to transfer a certain amount from their account every month.

How Acorns Works

As a beginner in the world of investing, you want to have clear distinctions for each portion of your income and where it’s allocated. Fortunately, Acorns offers five different services that make the complexity of investing much easier to understand.

Spend
Invest
Later
Early
Found money

Each section deals with a specific type of investment and can help you save money while learning how to allocate money to different aspects of your life.

1. Spend

Acorns Spend is like a separate bank account on Acorns, and you can transfer money from any bank account to this one. This feature works like a regular checking account, and you also get a neat, metal debit card with it.

The round-up feature is automatically linked to your Spend account, so any purchases you make using your Acorns account are rounded up, and the extra money is saved. Additionally, using this account can help you avail attractive offers from certain stores.

Additionally, Acorns checking accounts offer access to several fee-free ATM services around the world, and while they don’t provide interest, there’s no minimum balance required to start your account.

2. Invest

On Acorns, you can open an investment account and set up the app to invest for you based on the portfolio created when you sign up. You can fund this account using round-ups, lump sum amounts, or by setting up recurring payments.

Fortunately for new investors, Acorns allows recurring payments as low as $5, so you can start small and build your wealth while gradually increasing the amount you invest.

3. Later

The only difference between this feature and the previous one is that Acorns Later is an IRA (individual retirement account) where you can put away savings for when you retire. While it’s similar to the Invest part of your portfolio, this account offers certain tax advantages based on your income level.

4. Early

This is a UTMA or UTGA account allowing parents to invest on behalf of their kids without having to establish a trust. The funds are owned by the minors but operated by parents until the children are of legal age according to State jurisdiction.

5. Found Money

Found Money is an additional service by Acorns that adds funds to your Invest account depending on where you shop.

For example, shopping at Walmart can help you earn $2 in Found Money that goes directly into your Acorns Invest account. Setting up a gig on Fiverr can add up to $8 to your Invest account!

So while it may not seem like much when you consider single purchases, regularly using Acorns partner services can help you save a lot more in the long run.

Aside from Found Money, these are the four main features/services on Acorns, and you can set up the round-up feature on all of them to boost your monthly savings.

The Drawbacks of Using Acorns

We’ve looked at the numerous benefits Acorns offers to its new investors and seen how the platform is ideal for those dipping their toes into the world of investment. And while the app provides several benefits, there are a few drawbacks of using Acorns everyone should be aware of.

1. Subscription Fees

While you don’t require a minimum account balance, and there are no processing fees, Acorns charges a minimum fee for using their services. The basic version of Acorns charges $3, while the family plan (where you can invest for your kids) charges $5 monthly.

And considering that most other investment apps charge a percentage of the annual investments as fees, Acorns is pretty expensive. Unless you have a significant balance in your account, the subscription fees can cut away a big chunk of what you save.

For example, if you’re only saving on round-ups and don’t purchase much, your annual investment balance may come up to $100. Again, this is an example; the amount will vary depending on the individual and their spending habits.

Most other investment services may charge you a 0.25% fee on your total investments. So for $100 a year, you will have to pay a cost of $0.25. On the other hand, $3 a month comes up to a whopping $36, which is roughly 36% of your investments that year!

Of course, this subscription fee must be taken in a more wholesome context before deciding whether it’s good or bad. If you’re using Acorns Invest and Later services and investing significant amounts of money, the subscription fee may be worth it.

For example, if you save and invest $10,000 on Acorns, a subscription fee of $3 ($36 annually) equates to 0.36% of your total investment. So while the subscription fee is too expensive for those investing little, it can be deemed negligible over the years as your account balance grows.

2. Non-Personal Financial Advice

On Acorns, you’ll get asked a bunch of questions to determine the kind of funds you should invest in and assess your risk appetite and investment portfolio. While this information gives the app a clearer picture of how to invest your money, this type of service lacks the personal touch required to ensure each investor feels safe with where their money is going.

Most other fintech apps also allow investors to get in touch with a human financial consultant, sometimes for an additional fee. Having someone to consult and speak about problems specific to your situation is the key to investing correctly and ensuring you feel secure about your investments.

The lack of a personal financial advisor can make the app feel a bit dodgy, making it less likely for people to invest significant amounts of money. In turn, this means the subscription fee forms a more substantial percentage of your total investments.

3. Less-Flexible Family Options

While the Acorns Early feature allows you to invest now for your kids’ future, this type of investment is not the best way to save for your kid’s education. Most college educations require massive amounts of money, and putting away small quantities in the form of round-ups isn’t the best way to do this.

More importantly, unlike 529 plans, the Early option on Acorns isn’t designed to bear massive financial burdens.

4. Lack of Tax Planning Options

We mentioned 529 plans in the previous section, and these plans are designed to help you save for a college education while reaping tax benefits for each dollar saved. By investing in a 529 plan, you can save enough money for your child and cut back on expenditures by limiting the amount you’re taxed.

Acorns also doesn’t offer tax-loss harvesting, which is a strategy to help reduce the tax you have to pay when you sell investments. Without this policy, you can lose a significant amount of money through taxes.

Conclusion

Using Acorns is an excellent way to get started with investments and grow your wealth in a low-risk, low-cost way. The app also makes investing a more straightforward task for new users, helping you understand how to manage money and help with future investments.

However, just like any investment app, Acorns comes with its own set of pros and cons. Assess the risks and rewards before you sign up and check whether their services suit your financial situation.

Luckily, the app doesn’t require a fortune to test its water out and see if it’s a good fit for you. Sign up, claim your $10 bonus, and always do your own due diligence before investing your hard-earned money!

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Cheers,
Odeh Ahwal