Acorns

Understanding Acorns: A Comprehensive Guide to Passive Investing

Jose Ramirez

26 Nov 2024 — 5 min read

Acorns is revolutionizing the way individuals approach investing. If you've ever thought about starting to invest but felt overwhelmed by the complexities, Acorns offers a solution by allowing you to invest your spare change seamlessly. In this blog post, we'll dive deep into what Acorns is, how it works, its features, pricing, and who it's best suited for.

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What is Acorns?

At its core, Acorns is a robo-advisor designed to simplify the investment process for beginners. It allows you to invest your spare change from everyday purchases automatically. By linking your bank account and debit cards to the app, Acorns takes the guesswork out of investing by creating personalized portfolios tailored to your financial goals and risk tolerance.

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How Does Acorns Work?

Getting started with Acorns is straightforward. The app is available on iOS, Android, and desktop, making it accessible for everyone. Once you sign up, you'll be prompted to select one of five pre-made investment portfolios based on your risk tolerance and investment timeline. The portfolios range from conservative to aggressive, allowing you to choose one that aligns with your financial goals.

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The Investment Process

Acorns automates your investment journey by utilizing a feature called Roundups. Every time you make a purchase, Acorns rounds up the total to the nearest dollar and invests the difference. For example, if you buy a coffee for $2.75, Acorns will round it up to $3.00 and invest the extra $0.25 into your account.

Setting Up Recurring Investments

In addition to Roundups, Acorns allows you to set up recurring investments. You can link your bank account and decide how much to invest and how frequently, whether it's weekly, bi-weekly, or monthly. This feature ensures that you are consistently investing without having to think about it.

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Key Features of Acorns

Acorns offers several features designed to help users grow their investments effortlessly:

Automated Portfolio Rebalancing: Acorns regularly monitors your portfolio and automatically rebalances it to maintain your desired asset allocation.
Dividend Reinvestment Plan (DRIP): Any dividends earned from your investments are automatically reinvested back into your portfolio, enhancing the power of compound interest.
Fractional Shares: Acorns allows you to invest in fractional shares, meaning you can invest in high-cost ETFs without needing to buy a full share.
Acorns Earn: This feature partners with retailers to offer cash back on purchases, which is then automatically invested back into your Acorns account.

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User Experience

The Acorns app is designed with simplicity in mind. Its user interface is clean and easy to navigate, making it beginner-friendly. You can track your portfolio performance anytime via the app or desktop site. Additionally, there’s an educational section called Acorns Learn, providing guides on investing and personal finance.

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Acorns Investment Portfolios

Acorns currently offers five diversified portfolios:

Conservative Portfolio: Heavier on safer assets like government bonds.
Moderately Conservative Portfolio: A balanced mix leaning towards bonds.
Moderate Portfolio: Equal parts stocks and bonds.
Moderately Aggressive Portfolio: Skewed higher towards stocks.
Aggressive Portfolio: Primarily stocks, with no bonds involved.

Minimum Investment Requirements

One of the standout features of Acorns is its low barrier to entry. You can start investing with as little as $5, making it one of the most accessible investing apps for beginners.

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Account Types Offered by Acorns

Acorns provides various account types to cater to different needs:

Acorns Invest: An individual taxable investment account.
Acorns Later: Retirement accounts including traditional and Roth IRAs.
Acorns Early: Custodial accounts for children.
Acorns Banking: A checking account integrated within the app with no hidden fees.

Is Acorns Safe?

Yes, Acorns is a member of the SIPC (Securities Investor Protection Corporation), which protects your investments against brokerage failures. Additionally, Acorns checking accounts are FDIC insured up to $250,000, ensuring your cash is safe.

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Pricing Plans

Acorns operates on a subscription model with three different plans:

Core Plan: $3/month for an investment account, checking account, and retirement account.
Personal Plus Plan: $5/month includes enhanced banking features.
Premium Plan: $9/month adds the ability to customize your portfolio with individual stocks.

Pros and Cons of Acorns

Like any tool, Acorns has its strengths and weaknesses:

Pros

User-friendly app for beginners.
Automated investing with minimal effort.
Low minimum investment requirement.
Cashback program that invests your rewards.

Cons

Limited investment options compared to other apps.
No tax-loss harvesting feature.
Monthly fees can be high for small balances.

Who is Acorns Best For?

Acorns is ideal for new investors and those who prefer a hands-off approach to investing. If you're looking for an easy way to start investing without the hassle of managing individual stocks, Acorns is a great choice. It’s particularly suitable for young adults and beginners who may feel intimidated by traditional investing methods.

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Conclusion

Acorns offers a practical and accessible way for beginners to start investing with minimal effort. Its automation features, low starting investment, and user-friendly design make it a compelling option for anyone looking to grow their savings passively. If you're ready to take the plunge into investing, consider giving Acorns a try. For more information and to sign up, visit Acorns and start your investment journey today!