As a high school or college student, you may remember the craze where most banks started offering automatic savings accounts. The way it worked was that every time you made a withdrawal, whether from writing a check, or spending money with your debit card, the bank would round your purchase up to the nearest dollar, and sweep the loose change into a savings account for you automatically.
There wasn't much money involved on an individual basis, but it was a brilliant, innovative idea that fostered good savings habits. I know I made good use of mine and missed it when the banks stopped offering the program. It was a great use of technology. If you also have fond memories of those days, then you'll be pleased to know that the concept is making a comeback in a whole new way. That's where Acorns comes in.
What Is Acorns?
Acorns is a California based start up that's targeting millennials, who have been called the most fiscally conservative generation since the Great Depression. For entirely understandable reasons, this generation takes an extremely dim view of Wall Street types, and prefers to keep their money in cash, Acorns is hoping to change their minds.
To do that, they've made an app that does the same thing that those bank accounts of days gone by used to do. You tie the app into your bank account, and it rounds your purchases up to the next dollar. It takes the loose change thus created, and rather than tossing it into a savings account, it invests the money for you, a few cents at a time.
Personalized For Your Attitude To Risk
When you fill out your profile, the app makes recommendations about which of the preset portfolios you should use based on the information you provide, and the profiles themselves buy exchange funds, providing you one-click access to an extremely diverse pool of investments.
There are five pre-designed portfolios in all, ranging from aggressively risky to extremely conservative, and all designed with the help of Dr. Harry Markowitz, Nobel Prize winner and the father of modern portfolio theory. So Acorns isn't some run of the mill, or fly by night outfit that seeks to bolt a shady investment scheme onto your bank account, but a system grounded in Nobel Prize winning work.
Fees Seem Reasonable
You might think that in order to gain access to a system like this, designed with such expertise, the app's fees would be high, but you'd be mistaken. For a dollar a month, and 0.25 to 0.5 percent of your earnings, you can tap into the power of Acorns. So far, returns vary from portfolio to portfolio, but are averaging in a range from 4 to 9 percent, which is hugely better than you'd ever get from a tired old savings account, making Acorns well worth a look.
In practice, the average Acorns user invests an average of $0.57 per transaction, with around three transactions a day, so this alone isn't going to make anyone rich. On the other hand, it is entirely possible that Acorns could be the gateway to further investing for an entire generation. If so, that's a fairly impressive accomplishment.
