One of the beauties of increased computing power of smartphones and the development of AI is how the investing landscape is changing. I was lucky (or unlucky) enough to have worked in the markets from 1996 through about 2007 in one way or another. I had a front row seat to how technology ws changing.
I remember working on a derivatives desk in Chicago and getting to watch the wholesale changes going on in the market, and to be honest, it was fascinating. It started with every 3 months getting new computers, moving away from a Bloomberg terminal to on the computer, to the advent to Tradeweb and FXAll. Many of those technology solutions trickled down to the retail sector and saw the growth of platforms like eTrade and Ameritrade.
Technology has continued to disintermediate traditional brokers. I know several retail stock brokers that have left their traditional insurance companies, brokers and financial advisors to set up shop as fee only financial advisors. They know its extremely hard to justify the fees old school investments charge. Indexing is the way to go and they know that as well. In fact if you look at one of my former articles (beginners guide to investing) you will see I myself invest in low cost index funds from Charles Schwab which perform very well with minimal fees. Fees are the scourge of long term wealth.
Interestingly enough as I try and keep my finger own the pulse of technology and finance, I see there are now a lot of apps that are helping with those that are new at investing. One particular one that caught my eye was Acorns. At its core, Acorns rounds up your transaction and then invests the proceeds into an investing account. So if you go to Starbucks and pay $4.65 for a latte, the app rounds up to $5.00 and uses that $.35 to invest in funds. Given how much we use our credit cards, this can be a simple and easy way to start investing.
As I looked at the app, there were a lot of things I really liked about the application, as well as things that I didn’t. So lets take a look at the pros and cons, and see who is better off using this app.
Good selection of low fee index ETF’s
While I tend to use Index funds, ETF’s are another way of investing in the market at low fees. Acorns has model portfolios based on a variety of Vanguard and Blackrock ETF’s. They are not a whole lot different than the Boglehead thee fund portfolio.
The more funds you have, the greater the need for rebalancing. The mix has anywhere between 5 – 7 different investments that will need to be rebalanced to keep the model portfolio in alignment.
Found money is a program that they set up with retailers that as long as you purchase with a linked card, they will contribute money to your account. This could be a flat fee or percentage of your transaction. So if you are buying an Apple computer, you could conceivably make an additional $40 (the maximum allowed) to add to your account.
Wave fees for college students.
If you are a college student and have a .EDU email address, you can sign up and not pay the fee on the regular Acorns account. So if you are a college student and just want the regular account, there is little risk or cost to you.
While $1 a month doesn’t sound like much, if your balances are low, it can be very expensive at first. As an example, if you are contributing $40 a month, that $1 is 2.5%. Now add that up over 1 year and it gets pricey. It is even worse if you use the retirement part of the program which is $2 a month. Those numbers make a lot more sense if you have large balances.
If you do book keeping or use a book keeper, its an accounting nightmare. Because not only do you have your typical transaction, but another one rounding up to the next dollar. Essentially, you are doubling the number of transactions you need to handle.
Less control on investments
When you sign up you are given a choice of 5 portfolios to choose from. You are not allowed to change those portfolios or exclude particular investments from it. For example, I would want to lower the percentage of international and emerging to lower percentages. You can not do that.
Found Money needs work
Found Money is a neat concept and at can be a complete value add that offsets the monthly fee, especially if you travel or use things like Lyft or Walmart a lot. The big issue I had is the small selection of companies and (at least on their website) programs were showing as expired.
Who should use this investing app
If you can afford it and have a .edu account, then it is almost a no brainer. Get started using it and worst case, transfer it to a separate brokerage account later.
If you have a hard time saving but make decent money, than this program could work well for you. I find that as long as you make even decent money the extra $60 a month (according to Acorns) you contribute won’t really be missed.
If you shop at brick and mortar stores a lot. This makes a ton of sense based on the found money portion. I know a lot of people buy staples at Walmart and Sams so it could pay for itself that way.
If you travel a lot, there seems to be a lot of found money programs that deal with travel including AirBNB, Lyft, Expedia, Hilton, etc.
Can you do this yourself?
Being the cheap ass that I am, I was curious if I could duplicate the functionality without causing my book keeper nightmares and not paying the monthly fee. I am going to show you what I did and then how I simplified it to the point of stupidity.
So I went into one credit card account and downloaded the transactions into excel. They showed up as negatives so I used the function Absolute to turn them positive. I then did another column, and rounded up to the nearest dollar and then finally took the difference. For two different months the amount came out to $10.90 and $11.92. Averages were between $.45 and $.54 per transaction.
So there is consistency month to month. If I just deposit an extra $10 a month per credit card into my Schwab account, I could get the same benefit without all the accounting nightmare. And in addition have the control I want over investments. I follow the boggleheads theory of three distinct funds. For me, its Total Return or S&P 500 Index funds, Small Cap Index funds and an International Index Fund.
As for the found money programs. While it is not as slick as Acorns or as widespread as Upromise, there is another program that you can use. eBates is just one of those. And the great thing about eBates is the rebates tend to be higher, and if you sign up from the link below, they give you $10 just for signing up.
I love the idea of an investing app and automating as much of your financial decision making as much as possible. And while I will not be using this app, I do recommend you give it a look, especially if you are a college student and have a .EDU email address. If you have used this, what has your experience been using it?
If you are interested in automation or investing, take a look at the books below.