Who Should Consider Acorns?
Acorns is best suited for those who are drawn to its unique “round-up” feature, where purchases on linked accounts are rounded up to the nearest dollar, and the extra amount is invested. For example, if you buy something for $4.50, Acorns will round it up to $5.00 and invest the additional $0.50. This system encourages small, incremental savings without the user needing to think about it.
While Acorns offers a simple way to build savings, it may not be as cost-effective or comprehensive as other robo-advisors. Acorns is ideal for users who find its savings method motivating and prefer a streamlined, hands-off approach to investing.
How Acorns Functions
Acorns provides five key products for saving and investing:
- Invest: A taxable investment account that uses ETFs selected based on the user’s risk tolerance and goals. Funding options include round-ups, recurring deposits, or on-demand contributions. Recurring deposits, starting as low as $5, help users practice dollar-cost averaging.
- Later: A tax-advantaged individual retirement account (IRA) that operates similarly to the Invest account, but focuses on retirement savings.
- Debit Card: A checking account with a debit card, featuring no minimum balance fees and ATM fee reimbursements. The Smart Deposit feature allows automatic transfers from direct deposits to other Acorns accounts.
- Earns: An online marketplace where users earn small cash-back rewards from purchases at major retailers. The rewards are added to the user’s Invest account.
- Early: A UTMA/UGMA account that allows parents to set up savings for their children, included in Acorns’ highest-tier plan.
How Acorns Manages Investments
Like other robo-advisors, Acorns builds diversified portfolios based on a user’s risk tolerance, goals, and basic financial information. The portfolio is made up of a selection of ETFs, with Acorns choosing from around 25 options. For example, a user with a long-term investment horizon might receive an "Aggressive Portfolio" with allocations such as:
- 55% to large domestic companies
- 30% to international stocks
- 10% to mid-cap stocks
- 5% to small-cap stocks
Acorns’ simplified portfolio makes it easy to understand while still aiming for solid returns, although it may offer fewer options than competitors like Wealthfront.