There is a difference between saving and investing.
I tend to be impulsive, so saving money doesn’t come naturally. For me, saving means putting aside money for a future expenditure, whereas investing is about making your money work for you, and hopefully building a path to independence.
To be clear, this isn’t only about the merits of saving money. I want to talk about Acorns, the hyped-up US micro-investing app which launched in Australia last year. I hate to be cheesy but it democratises investing – particularly for younger people.
What does Acorns do?
Acorns gives anyone on the street access to the share market, with minimum investments as low as $5. I love investing and love playing with the latest gadgets, so I downloaded the app and set up my accounts. I think it took the best part of 3 minutes.
The app gives investors several options. One, the standard boring regular contribution. The other, a voluntary contribution whenever I have some spare money I’d like to save. But the easiest and most exciting is the option to round up all of my purchases.
Once activated, every single transaction which takes place on your personal credit card (or nominated account) will be rounded up to the nearest dollar. For example, I spent $66.50 on some new jeans – that’s 50 cents into my Acorns. I bought a $3 coffee, so that’s $1 into Acorns. A parking fine at $93.70. Rubbish, but that’s 30 cents in my Acorns. Seamless, effortless and not taxing on my limited attention span.
How and where does it invest?
Based on the preferences selected on sign up, my money is invested in a broad selection of shares, bonds and deposits around the world. You can change the mix of your investments by selecting one of five pre-set investment strategies.
You get a limited view on what the underlying investments are. I would prefer a bit more detail on where my money is actually going. I don’t want my savings to be used by BHP Billiton, but I’m quite powerless when it comes to following the chain of investment. I also don’t have any ethical or sustainable investment options.
The app is able to help with visualising the long-term by projecting where my savings are headed and what my account will look like 5-10 years from now based on my current trajectory.
Multi-million-dollar hovercraft, here we come!? No, the projections seem reasonable and so I’ll probably be looking at a house deposit instead…
How much does it cost?
The fees are reasonable, with no dramas for joining or closing your account. I also appreciate the flexibility with no extra costs around switching my strategy around.
If you have less than $5,000 in there you’ll pay $1.25 per month in maintenance fees, and if you have more than $5,000 you can expect to pay 0.275% in account fees. In addition, you’re paying an underlying issuer fee of between 0.254% and 0.342% per year.
Personally, I feel it’s a reasonably fair fee. I’ve been happy with my performance so far. I’ve dipped my toes in the water here with a small initial investment and I’ve made $55 over the last 8 weeks. That’s 1.9% or 12.35% annualised. Not bad.
And that doesn’t even consider the benefit of me just growing my wealth in an engaging and seamless way – without having to get off my backside.
Financial literacy is important for the entire population. I think anything that encourages engagement with your finances, and promotes the right kind of decision making can only be a good thing.
I’m not going to lie, Acorns is an interesting project. They’ve had 160,000 sign-ups in Australia and they’ve tapped their own users for a capital raising of up to $6 million despite the highly liquid and speculative nature of the investment.
It’s different and definitely cool enough for you to check out for yourself.
Omar Khan is a co-founder of MR. KOYA – the men’s shirt brand that does away with boring. They combine quality and style with a healthy dose or irreverence. While he is not doing that, he runs First Quay Capital, sits on a couple of Boards and was the recipient of the AFR’s 2014 Emerging Leader Award.
Omar Khan does not hold a licence to provide personal financial advice and the information in this article is of a general nature. None of the information in this article intended as an investment recommendation or statement of opinion intended to influence a person or persons in deciding in relation to investment. The information does not take account of any person’s objectives, financial situation or needs and before investing, an investor should consider the appropriateness of the investment having regard to their objectives, financial situation and needs. We strongly recommend you seek personal financial advice before making an investment decision.