Is Acorns Investing Worth It? Pros and Cons to Know Before You Invest

Introduction

Investing can seem intimidating and overwhelming for many people, especially those just getting started. Fortunately, there are now apps like Acorns that make it easier for anyone to begin investing with little effort or financial knowledge. But is Acorns investing worth it? In this article, we’ll explore what Acorns investing is, how it compares to traditional investing, how to get started with Acorns, and the pros and cons to consider before investing with the app.

Definition of Acorns Investing

Acorns is an automated investment app that makes it easy for anyone to invest in the stock market. The app works by allowing users to link their bank account and credit cards to Acorns, and then rounds up each purchase made with the linked cards to the nearest dollar. For example, if you purchase a coffee for $3.50, Acorns will round up the purchase to $4.00 and automatically invest the remaining $0.50 into your Acorns account. This allows users to build their investments with minimal effort.

Overview of Benefits

The main benefit of Acorns investing is its convenience. By linking your bank accounts and credit cards, you can build an investment portfolio without having to manually transfer money. Additionally, Acorns also provides educational resources and advice to help users make informed decisions about their investments. Finally, Acorns offers tax-advantaged accounts such as IRA’s and 401K’s, which can help users save on taxes while investing.

Comparison of Acorns vs Traditional Investing

It’s important to understand the differences between Acorns investing and traditional investing before deciding whether Acorns is right for you. Here are some key points to consider when comparing the two:

Differences in Fees

One of the biggest differences between Acorns and traditional investing is the fees charged. Acorns charges a flat monthly fee of $1-$5 depending on the type of account you have, while traditional investing typically involves paying trading commissions and other fees. Additionally, Acorns does not charge commissions for any trades that you make through the app.

Risk Profile

Another difference between Acorns and traditional investing is the risk profile of each. Acorns invests in a diversified portfolio of stocks and bonds, so it carries less risk than traditional investing where you choose individual stocks. However, Acorns also has higher potential returns than a traditional savings account, so it can still be a good option for long-term investors.

Investment Strategies

Finally, Acorns and traditional investing have different strategies for choosing investments. Acorns uses a robo-advisor to automatically select investments based on your goals and risk tolerance, while traditional investing requires more research and decision-making on the part of the investor. This makes Acorns a great option for those who don’t have the time or expertise to actively manage their investments.

Getting Started with Acorns Investing

If you’re interested in trying out Acorns investing, here are the steps you should take to get started:

Setting Up an Account

The first step is to set up an Acorns account. This is a simple process that only takes a few minutes. All you need to do is provide some basic information such as your name, date of birth, and Social Security number. Once you’ve completed the sign-up process, you’ll be ready to start investing.

Understanding Your Goals

Before you start investing, it’s important to think about your financial goals. Are you looking to save for retirement, buy a house, or just build wealth? Knowing your goals will help you decide which investments are right for you and how much money you should be investing.

Choosing a Portfolio

Once you know your goals, the next step is to choose a portfolio. Acorns offers several different portfolios tailored to different risk levels and time horizons, so you can choose one that best fits your needs. You can also adjust your portfolio at any time if your goals or risk tolerance change.

Maximizing Returns with Acorns

Once you’ve chosen a portfolio, there are several things you can do to maximize your returns with Acorns:

Diversifying Your Investments

Diversification is a key component of successful investing, and Acorns makes it easy to diversify your investments. The app offers several different portfolios that invest in a variety of assets, so you can spread your risk across multiple asset classes. Additionally, Acorns allows you to add additional funds to your account at any time, giving you even more flexibility to diversify your investments.

Rebalancing Your Portfolio

Over time, the performance of different investments in your portfolio can shift, resulting in an imbalance. Acorns makes it easy to rebalance your portfolio to ensure that your investments remain in line with your goals. The app will notify you when your portfolio becomes unbalanced, and it’s easy to make adjustments as needed.

Utilizing Tax-Advantaged Accounts

Finally, Acorns offers several tax-advantaged accounts such as IRA’s and 401K’s. These accounts allow you to save on taxes while investing, making them a great option for long-term investors. Additionally, Acorns makes it easy to set up and manage these accounts, so you can focus on growing your investments rather than worrying about paperwork.

Pros and Cons of Acorns Investing

Now that you know the basics of Acorns investing, let’s take a look at the pros and cons of the app:

Advantages

The main advantage of Acorns investing is its convenience. With the app, you can easily set up an account, choose a portfolio, and start investing with minimal effort. Additionally, Acorns offers educational resources and advice to help you make informed decisions about your investments. Finally, the app offers tax-advantaged accounts such as IRA’s and 401K’s, which can help you save on taxes while building your wealth.

Disadvantages

One potential downside of Acorns investing is the fees. The app charges a flat monthly fee of $1-$5 depending on the type of account you have, so it may not be cost-effective for those with smaller investments. Additionally, Acorns does not offer as much customization as traditional investing, so it may not be the best option for those who want to actively manage their investments.

Questions to Consider Before Investing with Acorns

Before you decide to invest with Acorns, ask yourself the following questions:

What Are Your Financial Goals?

Knowing your financial goals is essential to successful investing. Think about what you want to achieve with your investments, such as saving for retirement, buying a house, or just building wealth. This will help you decide which investments are right for you and how much money you should be investing.

How Much Money Do You Have to Invest?

Another important factor to consider is how much money you have to invest. If you have a small amount of money to invest, Acorns may not be the best option due to the monthly fees. However, if you have a larger amount of money to invest, the fees may be worth it for the convenience and educational resources offered by the app.

Are You Willing to Take on Risk?

Finally, it’s important to consider your risk tolerance when investing. Acorns offers portfolios with different levels of risk, so you can choose one that matches your risk tolerance. Keep in mind that investing always involves some risk, so it’s important to be comfortable with the level of risk you’re taking on before investing.

Conclusion

Acorns investing is a convenient app-based platform that makes it easy for investors to start building a portfolio. The app offers low fees, educational resources, and tax-advantaged accounts, making it a great option for those just getting started with investing. However, it’s important to consider the pros and cons of Acorns investing and ask yourself the right questions before deciding whether it’s worth it for you.