Why is Acorns a bad Idea? What are the downsides of Acorns? Acorns and other micro-investing apps have replaced the conventional idea that investing is only for wealthy people or experts in finance.
These investing apps have resulted in increasing confidence in smaller investors who can invest with just $5 or less.
What is Acorns?
Acorns is a widely-used micro-investment app that allows users to effortlessly invest their spare change. The app achieves this by rounding up everyday transactions to the nearest dollar and investing the resulting difference. Designed to simplify and make investing accessible, Acorns caters to individuals with limited initial capital.
Here’s a concise breakdown of Acorns’ operational process:
- Linking Accounts: Users establish a connection between their credit and debit cards and the Acorns app.
- Round-Up Purchases: As users conduct their daily transactions, Acorns automatically rounds up each purchase to the nearest dollar, investing the leftover change.
- Investment Portfolios: Acorns provides a range of diversified investment portfolios, tailored to the user’s risk tolerance and financial objectives. These portfolios typically include low-cost exchange-traded funds (ETFs).
- Automated Investing: Acorns streamlines the investment process with automated, hands-off features. Users have the flexibility to schedule recurring contributions or make one-time deposits to further enhance their investment portfolios.
- Fees: Acorns applies a modest monthly fee for its services, typically calculated based on the user’s account balance. Many users find these fees reasonable, especially considering the convenience and automation that Acorns brings to the investment experience.
It stands out for its non-hands-off controlled portfolio and Round-Ups feature which automatically help you increase your wealth in markets.
Acorns will automatically adjust your portfolio to ensure your investments stay on the right track. Round-Ups is a simple way to automate investing. Since your contribution can be minimal, this program makes investing more accessible to anyone.
But is Acorns the right choice for gaining some extra choice? Continue reading to find out!
Is Acorns the right choice for you?
If you’re looking to get the most value from your spare change, and also earn some retailer rebates there’s no more ideal place to get that done than Acorns.
Automatic roundups at Acorns makes investing easy. Most investors will be amazed by the speed at which those dollars are accumulating.
But what about its downside? With small balances, Acorns charges can reduce or eliminate investment returns. Additionally, the different higher-cost levels don’t provide significantly more value than the basic one.
Why Acorns is a bad Idea?
While Acorns can be a useful tool for some individuals, there are certain aspects that might make it less appealing or even a potentially “bad idea” for certain users. Here are a few reasons why some people might consider Acorns less suitable for their financial needs:
- Fees: Acorns charges a monthly fee for its services, and this fee structure can be a concern for individuals with small balances. The fees could potentially outweigh the returns, especially for those who are investing only small amounts or just starting out.
- Limited Control: Acorns operates on a set-it-and-forget-it model, which means it provides limited control over specific investment choices. If you prefer a more hands-on approach to managing your investments or want to choose specific stocks or funds, Acorns might not be the ideal platform.
- Risk Tolerance: The automated nature of Acorns may not be suitable for everyone’s risk tolerance. If you prefer more control over the risk level of your investments, you might want a platform that allows you to customize your portfolio more extensively.
- Small Returns on Small Investments: Acorns’ round-up feature is designed to invest spare change, and while this can be a convenient way to start investing, the returns on very small investments may be minimal. For some, the potential gains may not justify the effort.
- Alternative Fee Structures: Depending on your investment strategy and preferences, there might be alternative investment platforms with fee structures that better align with your financial goals.
Before deciding whether Acorns is a good fit for you or not, it’s essential to consider your individual financial situation, goals, and preferences. Additionally, exploring and comparing different investment platforms can help you find one that aligns more closely with your needs.
Downsides of Acorns (Disadvantages)
Lack of Account Options
A retirement account that was added to the platform was huge. It was, in fact, an important addition to the platform. However, there are various account offerings that may be available. The choices are restricted. If you require more account options to meet your financial needs, the most likely is that you will require another brokerage.
The Acorns Standard Account isn’t good for long-term investment goals
Acorns Core accounts are taxable brokerage accounts. If you’re investing to achieve a long-term goal, like your child’s college expenses or your retirement, there are more appropriate account types. Acorns offers Later IRA choices for accounts however, it comes with a huge price. The price may not appear to be too big, however, it’s not necessary since other IRA service providers offer no cost for monthly subscriptions.
There are no tax benefits
Harvesting tax-loss is not part of the account you have with Acorns. There is no tax aid and no information or education on it. In reality Acorns will only notify you regarding taxes when you get the 1099 in the mail. A majority of robo-advisors now offer this service to allow clients to reinvest their profits and help clients avoid tax on capital gains.
Lack of Investment Options
The app aims to make investing simple for investors, reducing the pressure of making an investment decision. But what happens if you don’t meet one of these risk profiles? What if you prefer to choose specific stocks? For certain investors, the options for investing are too conservative, based on their personal preferences. The return you will get by investing in the entire government fund will be low.
While Acorns is similar to other robot advisors in the sense that it gets an idea to invest. However, Acorns also utilizes your information like income, age, your objectives to suggest one of five portfolios. There are only five portfolios that vary from super-conservative to aggressive and include only bonds. You can take the portfolio offered to you, or you can choose another one that is more appropriate to your level of risk.
Can I lose money on the Acorns app for investing?
Yes. Any investment in the market or in funds that have stocks is susceptible to fluctuation and risk which can cause you to lose value.
When investing, it’s always advisable to first look at your goals prior to choosing the best type of account. Do you need the money to be used for a specific reason? What amount will the time be before you can access it? Should you expose the cash to risk? Should the investment vehicle be subject to tax?
In the end, Acorns does not account for what your needs are. Even if you have a clear and established goal for your money, there are cheaper options that can assist you in achieving your objectives.
Although Acorns can make a great option for those who are just starting out because of its low minimums and easy structure, the fees can be higher than average for people who have a small amount to invest. Acorns doesn’t offer certain features that are common to other robo-advisors like advanced tools, for tax loss harvesting.
Acorns offers an easy and low-cost investment solution well-suited for investors who are just beginning their journey. The exciting features and easy interface for users are specifically hand-crafted for beginners but its flat-fee structure is quite a bit more costly than percentage-based fees for people who are just beginning. That’s it. Acorns is most likely to be ideal for those who are in need to make a little more cash but not for those with small balances who are looking for the least expensive alternative.