There’s a plethora of mobile applications on the market designed to help consumers build a nest egg for e
Walter Cruttenden and his son Jeff came up with one of those innovations in 2012. Acorns, a platform to promote incremental, passive investments, is now used by 3.7 million people worldwide and manages over $1 billion in assets. Their market value passed Betterment in 2018.
Walter Cruttenden didn’t just come out of nowhere. He previously founded two successful investment banks, Cruttenden Roth and eOffering (formerly iBank). He’s the chairman of the Binary Research Institute in California, where they investigate the causes and consequences of solar system motion. On top of all that, Walter is also a best-selling author and filmmaker.
Walter’s son, Jeff Cruttenden, who is just twenty-nine years old, is a fintech entrepreneur who has already founded a second company called SAY, a platform where shareholders in companies can communicate with each other and access their full ownership rights. The idea came from insights he gained while developing and managing Acorns.
In addition to the Cruttendens, Acorns also contracts with Harry Markowitz, a Nobel Laureate, to build investment portfolios, and has attracted some serious star power for investors. Jennifer Lopez, Bono, Kevin Durant, Alex Rodriguez, and Ashton Kutcher are all on the list. The company’s current valuation, last assessed in January 2019, is $860 million.
What is Acorns and How Does it Work?
The simplest explanation is that Acorns is an investment platform that uses passive-investment ETF portfolios to build wealth for their clients. An ETF, or exchange traded fund, is a pool of stocks in a specific sector or industry. The ETF portfolios are constructed by financial professionals either employed directly by Acorns or working as paid consultants.
The reason they call it Acorns is the way in which those investment funds are deposited by the users. When first launched, Acorns described it as investing your “spare change.” What they do is “round up” any purchases you make and then deposit those funds into your account. If you buy something for $11.25, the round-up makes it $12.00, putting 75 cents into Acorns.
The concept of “pennies add up” is not new, but the technology Acorns introduced to do it with is. Acorns came to market with it in 2014 when they launched a mobile app on both IOS and Android. Since then, they’ve added a number of new features, which now include Invest (the original product), Later, Spend, and Early. We’ll review each of them for you here.
You’ll be asked some questions about your annual income, investment goals, and financial knowledge when you first sign up to use Acorns Invest. These questions help the application choose which type of portfolio to invest your money into. All Acorn portfolios are composed of ETFs, but you can choose conservative, moderate, or aggressive, based on risk tolerance.
Connect a credit or debit card and Acorns Invest will start tracking your spending. Each time you make a purchase, the spare change will be marked for deposit into your investment account. The change isn’t taken out each time you buy something. It needs to accumulate to increments of at least $5.00 before Acorns will transfer money from your credit card or bank account.
You can withdraw money from your investment account at any time, but it takes several business days for Acorns to sell your holdings and make the transfer. In my experience, it will be roughly a week from the time you initiate the withdrawal until the time you see money in your bank account. Obviously, Acorns does not recommend withdrawing if it can be avoided.
Users are not limited to depositing only spare change. You can add one-time deposits at any time, and you can set the app to do regular weekly deposits of set amounts if you like. The mobile app will notify you of this option periodically when you log in, but the communication is definitely non-invasive. Acorns does a good job of not badgering their customers.
Pro: Ease of use. It’s basically set it and forget it.
Con: It takes a week to withdraw money when you need it.
For those looking for a simple individual retirement account (IRA) to save for your golden years, Acorns Later is a good fit. You can set a recurring deposit for a weekly or monthly cycle and Acorns will invest it in an IRA for you. The IRS currently determines retirement age to be 59 ½, at which point you’ll be able to take disbursements from your account.
Acorns Later is a duly registered and legitimate IRA, so certain guidelines apply. The IRS maximum IRA contribution for 2020 is $6000 per year, $7000 if you’re over fifty years old. There’s also a tax penalty if you withdraw the money early, despite it being post-tax income that you’re depositing. To avoid that, keep your contributions at a level you can afford.
Pro: No minimum deposit amounts and ease of use.
Con: Your money is tied up until retirement.
Acorns Spend is a personal checking account that comes with a metal debit card. It’s FDIC insured for up to $250,000 and it’s connected to both Acorns Invest and Acorns Later. Use it and your spare change will automatically be invested for you. Acorns Spend even allows you to set up direct deposit, so you can get paid and invest money all in one application.
Mobile check deposit is available on the app, so you can deposit checks from anywhere. The debit card is made of tungsten metal and is virtually indestructible. It comes with an FID chip and an engraved image of your signature, so you’ll never have to worry about smudging. It’s accepted at over 55,000 fee-free ATMs globally, making it an ideal travel companion.
Pro: A complete mobile banking app that does it all
Con: Maximum balance limit of $250,000.
For parents with young children, Acorns Early is a UGMA/UTMA account. UGMA, which stands for Uniform Gift to Minors Act, gives a minor the authority to own securities without a prepared trust document. UTMA, aka Uniform Transfer to Minors Act, allows for wealth transfers to be made through inheritance to their UGMA account. Got it? Let me explain.
Acorns Early is an investment account for your child. Funds are invested and placed in trust so the child essentially owns them, though they can’t do anything with them until they’re of legal age. These accounts are similar to 529 education accounts, but the funds are not earmarked for a specific purpose. By opening a UGMA/UTMA account, you’re giving your child a head start.
A subscription to Acorns Early also gives you access to a financial wellness system and is part of a family option that includes Acorns Invest, Later, and Spend. You can add multiple children with no additional cost per child and watch financial literacy content sponsored by Acorns and CNBC. Acorns Early is also connected to Acorns Partner Network, which we’ll review below.
Pro: You’re giving your child a head-start in investing
Con: Money is tied up until the child reaches adulthood.
Acorns Partnerships: Found Money
Presented as Acorns Earn on their website, the Acorns Partnership Network gives you opportunities to earn additional funds to be invested into your Acorns Invest account. Simply shop at one of the merchants listed on the partnership page and you’ll be awarded “found money.” On top of that, Acorns periodically runs promotions where you can earn bonuses.
This might be the cleverest of all the Acorns features we’ve reviewed here. The network partners are all major names, like Macys, Walmart, Nike, and Chevron. They’re basically places we shop at regularly and Acorns is giving us a chance to pad our investment account when we spend money at these locations. It’s cashback reinvented.
The drawback, of course, is that you have to shop at specific merchants. That works for Acorns, because they no doubt have some kind of revenue sharing agreement in place with their partners. It works for the user also, but an article of clothing at Macys can typically be found for less somewhere else. Is the tradeoff worthwhile? That’s up to the individual consumer.
Pro: Instant investment dollars earned from shopping.
Con: You’re limited to shopping only at specific merchants.
Subscription Pricing and Competitors
What is the best feature of Acorns? I would have to say the pricing. Anyone can afford to use this application, which is no doubt the reason why they have been able to build their subscription base so quickly. The “Lite” option, which is just Invest, costs only $1 per month. Add Later and Spend, it goes up to $3 per month. The Family Plan is $5 per month.
How does this compare to Acorns’ competitors? Betterment (.40%), Wealthfront (.25%), and Personal Capital (.89%) all charge advisory fees. Robinhood is free, but nothing is automated. It’s purely a trading platform. No one, outside of bank and credit card cash-back programs, is giving you investment dollars in return for consumer spending.
Another advantage Acorns has over their competitors is the absence of a minimum deposit requirement. Betterment will open a basic account for $0, but you need $100,000 to access premium features. Wealthfront requires $500 to open. Personal Capital wants $100,000 just to get started. Robinhood wants nothing, but if you’re an investment newbie you’ll likely lose money.
Learning with Acorns Grow
Financial freedom comes from making the right investments and learning from others. As an aside from feature and price comparisons, I’d like to point out a section of Acorns main website titled “Grow.” It’s a compilation of free articles and information about investing and personal finance. I’ve delved into it pretty deeply and find it to be extremely valuable.
It’s difficult for me to come up with anything negative to say about Acorns. I’ve been a user for several years now and I’ve never had any issue with it. Even during recent volatility in the market, my accounts have remained fairly stable. Before writing this article, I looked at the balances and was pleasantly surprised at how much has accumulated from my spare change.
Active investing will always have a higher ceiling when it comes to big gains, but passive investing with ETFs, which is what Acorns does, has no downside and very little risk. I like that. As a long-time investor and part-time day trader, I deal with losses all the time. With Acorns, I don’t worry about that. My money just continues to grow, with no help from me.