If you’re anything like me, you know you should be investing money for the future, but are put off by what seem to be a lot of complications and decisions that you need to make.
To make matters worse, most of us have this notion that you need $1000’s to invest. You can’t just invest your spare change!
So we delay doing anything about it, deciding we can start at a later date.
The good news is that both of these issues are no longer issues!
A father and son team based in California have created an app that tackles both of these issues and aims to make the process easier for people like me.
The app is called Acorns, and it’s available on iTunes and from the Google Play store for the Android.
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What will I learn?
Is Acorns Legit and Safe?
I have been seeing this question asked on a lot of financial forums and blogs lately. So let’s get this out of the way first.
Acorn is not a scam. It is 100% legit.
The company has nothing scammy going on. It’s a legitimate micro investing company that lets you start investing in an easy and quick way without needing hundreds of thousands of dollars to buy stocks, bonds or what have you.
What Is Acorn?
The Acorn app is claimed to be the first micro investment app that allows you to open an account on a smartphone.
It’s designed to start you investing, using spare change from purchases, in a similar way to other recent developments such as the Bank of America’s “Keep the Change” program.
How Does Acorn Work?
When you have the program up and running, the Acorn app simply keeps a check on your purchases and transfers the small change into an Acorn account set up in your name. Usually, it will take less than a dollar, just the change from whatever you buy.
For instance, say you buy lunch for $5.47. You pay with your credit card, as usual, Acorn takes note of it and earmarks $.53 (the change from a whole number of dollars) to be transferred to your investment account.
The Practical Application
It’s not quite as straightforward as the Bank of America equivalent, but you don’t have to worry about the mechanics as Acorn takes care of it all for you. Best of all is that it’s incrementally adding to your investments.
Acorn watches over any accounts you link to the application. When you make a purchase, it figures out the spare change, and this amount is counted towards what it calls the Round Up balance. But no money is taken out of any accounts at this time.
You carry on spending on the different linked accounts, with Acorn watching over your shoulder and automatically adding up the different amounts of spare change.
Once your total Round Up balance is more than five dollars, Acorn goes to your linked checking account and takes out the amount to put in your investment account. Your Round Up balance goes back to zero.
It’s important to note that the investment money will always come out of this linked checking account. It doesn’t matter what credit card or other accounts you used to make the purchases, they are simply a trigger to tell Acorn how much to take.
How to Sign up
You can sign up via the website or through any of their two apps:
- To sign up on the site go to https://www.acorns.com/
- To get the iOS app go here.
- To get the app go here.
The system is only open to US residents at the moment.
You start by entering a four digit pin number that you will use for security when logging into the app.
1. Set up Your round up Account (S)
First, you have to set up your Round Up accounts, which are the accounts that Acorn will monitor and count up the change from.
You have a large selection of banks. Some of the banks in this list include:
- Wells Fargo
- Commerce Bank
- Bank of America
- US Bank
If your bank isn’t listed, you have the option to input it via the search box.
For each bank, you’ll be asked to sign into your accounts with your online password, and select which accounts at the bank (if you have several) you want to connect.
At this point, we should point out that Acorn uses the latest encryption techniques, and protects all your data with bank-level security.
2. Connect Your Checking Account
Next, you need to set up the checking account that the money will be withdrawn from.
If it’s one of the accounts that you’ve already designated for Round Up, you can simply select it.
If it’s another account, you go through entering the details and signing in online again, to give Acorn access. Alternatively, you can simply copy your routing and account numbers from your checkbook.
That takes care of getting the funds. The next step is to work out where you want them invested, and to do that you need to make an investment account at Acorn.
3. Create Your Investment Account
This process is similar to opening any account at a bank. You have to enter your name, address, phone number, and date of birth. You can pick a security question and give the answer.
As what you are opening is a “brokerage account”, it is regulated by the Securities and Exchange Commission (SEC), and you have to answer three questions for their records: –
- Are you affiliated with a broker?
- Are you subject to IRS withholding? and
- Are you a 10% or greater shareholder of a public company?
Most people will leave all these unchecked.
You then have to answer some financial information, which will allow the Acorns app to create customized advice and recommend a portfolio for you. The app asks for your employment information, your annual income, and your net worth.
The final question concerns why you are investing – do you have long or short term horizons, is it for a specific purchase, for your children, or just investing in general?
Once again, this information helps the Acorn app with its recommendations.
Inevitably, the final question is asking for your Social Security number so that tax requirements can be met, and to avoid any fraud.
The Acorn Magic
With all that information available, Acorn goes to work determining what sort of investor you are and setting parameters. It churns out a host of tips and ideas for your circumstances.
There is a choice of five different portfolios, including:
- Moderately Conservative
- Moderately Aggressive
The app will automatically assign one to you based on your income, net worth, and goals, but you can choose whatever you want.
Your final decision is to pick what sort of asset class you want your investment to be made in. Acorn puts the funds in basic index funds which are offered through Vanguard and BlackRock.
This may seem like a lot of work for what is, in its basic form, simply small change investing. I found it interesting to see Acorn’s assessment of my investing ideas, and to study the recommendations. But for serious investing, you need to do more than simply accept the input from this program.
Fortunately, Acorn allows you to fund your account in other ways, so if you want you can use the app and its recommendations as a part of your lifetime investing strategy.
If you have a rewards card, you can direct the rewards to be deposited with Acorn, and you can invest any other amount you want.
You can even schedule regular transfers on a weekly or monthly basis.
Acorn permits you to make your withdrawals at any time, so the cash is not locked away. You can use it like a savings account, but hopefully get a larger return than the interest rates currently available.
With the Acorn app, you can keep a check on your money every day, if you want. There are no deposit minimums and no penalty for withdrawing your funds at any time.
All you pay is $1 per month if your account is up to $5000.
Of course, if you simply let Acorn take the change from your transactions, even $1 per month may be a high percentage of what you have invested. But if you choose to use Acorn for some meaningful investment, its rates are 0.25% per year which compares very favorably to many other investment funds. For instance, the average mutual fund management fee works out to over 1% per annum.
Compared to a savings account, it is important to point out that your funds are invested in the equity markets, and therefore don’t come under the FDIC insurance scheme. They do however fall under the SIPC insurance. And no one is going to guarantee the returns that you will get, even though it seems that the funds that Acorn recommends you invest in are fairly conservative and therefore not likely to crash.
Is Investing with Acorn Worth It?
If you’re a veteran investor and know what you’re doing, then it’s probably not for you.
But if you are a novice it is certainly worth it, if you’ve been dragging your feet about starting to invest for the future. It will make you think about the whole topic of savings, and will incidentally educate you on the sort of savings vehicles that are available to you.
The plus point, that the amounts are so small you will hardly notice them going, is also a minus point, in that you will achieve little meaningful saving or growth of your capital if you rely on Round Up amounts. But having no minimum amount can start you saving without being intimidated by having to find a significant deposit.
The negatives include the possibility of losing some of your money, if the markets go down, but this is possibly no worse than you would face if you chose to start investing through another avenue.
Another negative is that you cannot allocate the money to a retirement account, so any gains you make will be subject to tax in the ordinary way.
If this is for you, a procrastinator who keeps meaning to get round to it, then sign up straight away.
If you have already started investing, you should look at it as another way of putting money aside, with low service costs and helpful advice.
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