Why you should avoid Acorns investing platform
Dec 2, 2020
I've been using Acorns for many years now, 2014 to be precise. For many investors who are new to investing in general, it's a great way to get started in investing. Most people especially college students don't think about investing until later on in life. Since investing is an afterthought for a lot of people, Acorns offers a huge benefit by letting you invest based on round ups or small monthly contributions. It's a great option if you don't know what you should invest in and don't know how to get started in investing.
I'll start off by briefly mentioning the benefits. The biggest benefit to using Acorn as I mentioned is it automates the process of investing for you. It gives you a starter set of portfolio that are solid and most are based on stocks in the S&P 500. The monthly contribution and round ups essentially takes away the guesswork of frequency as far as funds contribution. They also partner with tons of companies that offers a percentage investment if you purchase their products.
With the benefits out of the way, I'll be discussing a few reasons why Acorns is not a good platform for you and should be avoided.
Long term investment
This is probably obvious to most people but worth mentioning that Acorns is meant to be used for long term investment. Since Acorns purchases stocks based on market value and set schedule, you can't just trade whenever you want. The platform is not designed for moving cash in and out.
High cost relative to return
For starters, it costs money to invest in Acorns and they charge $1 per month at a minimum to maintain your account. At the cheapest plan, they essentially charge you $12 per year. If your account is less than $1,000, the fees associated with the account would easily eat up all your unrealized gains assuming that you stop contributing. As you grow your account, the dividends pay out and gains will eventually offset those costs.
When you sign up with Acorns, they provide you with 5 different investing portfolio based on your risk (conservative, moderately conservative, moderate, moderately aggressive and aggressive) to invest in. Each portfolio provides a set of stocks or bonds that are chosen automatically for you. For beginners, this is a good thing since they pick and choose which options would best fit your situation including investing in bonds if you're somewhat on the conservative side. If you know what you're doing, you might want to look elsewhere so you can have more choices while not being tied to their monthly fee.
At some point in time when you're a much savvier investor and know what you're doing, transferring an account out to a different broker account will cost you. According to their terms, there's a fee of $50 per ETF which means that you will have to pay for each one that you own. In my case, since I have an aggressive account, I will have to pay $200 since I have 4 ETF associated with my portfolio. If you have a moderately aggressive account, you will have 5 ETFs which will cost $250 to transfer out.
Another thing to keep in mind when transferring is, they will only transfer whole shares and the rest will be liquidated back to your account. For instance, if you own 5.005434 shares of large company stocks (VOO), they will only transfer 5 and the fractional shares is sold. This is not entirely their fault as a lot of broker accounts don't support fractional shares and only allow you to buy and sell whole shares.
In the end, those are some reasons why you should avoid Acorns. It boils down to your level of experience with investing. Regardless of your age, there's a portfolio that will fit everyone. As long as you're investing, it's all that matters. If I would do it over again, I would 100% use Acorns as it gave me an incentive early on to start investing. When you're contributing $5 or $10 here and there, the impact on your account is minimal while putting you on a path to financial growth.
If you would like to get started with Acorns, please usemy link to get $5.