For years I have been going on about the power of investing small sums of money. It could be paying your home mortgage fortnightly, using small change to create a savings program, or simply signing up for a program where share dividends are reinvested automatically.
But I have long wished for some simple investment strategy that could be used by anybody with a few dollars to invest, where investment could be automatic and your money placed in share-based investments without the hassle of going through a broker, paying brokerage or trying to save a big lump sum to get going.
I'm delighted to announce that such a strategy is now at hand in the form of a relatively new product called Acorns. It's been running successfully in the United States, where there are nearly 3 million members, but was launched in Australia only early last year and now has more than 250,000 sign-ups.
It is designed to be an entry-level investment product for anybody who wants to dip their toe in the water. It offers low fees, no minimum balances and the ability to deposit and withdraw any time with no penalties. Even though people will inevitably use Acorns for a range of purposes, the company encourages a long-term strategy built on regular small contributions.
You can make investments using lump sums or recurring deposits (daily, weekly or monthly), but a feature that particularly appeals to me is "round-ups". This helps people to save and invest their small change. For example, if you bought a cup of coffee for $3.50 on your credit or debit card, Acorns would round that up to $4 and invest the surplus 50c into your Acorns investment account.
When I first heard about Acorns in February 2016 I decided to test drive it by making an initial deposit of $1000 and linking the round-up mechanism to my ING debit card, which I use for small payWave cash transactions. When you make the first deposit you will be asked in which investor category you would place yourself – there are five choices that range from conservative to aggressive. I started with "moderately conservative" but have recently changed it to "aggressive", just to experience how the program works. The sum you invest is then automatically spread across an asset allocation in line with the risk level you have chosen.
Looking at my statement from Acorns while writing this, I am amazed at how the account has grown.
The total deposits from the round-up program have been $601, and in addition I have received $51.90 from dividends from the ETFs (exchange traded funds) in which my money is invested. The portfolio is now worth $1803.74, so in just 16 months I have enjoyed $51.90 of dividends and $150.84 of capital growth. That's equal to 11.17 per cent a year before fees.
Acorns is far more than just a method of investing small sums – it is also a brilliant educational tool and has recently launched a My Finance feature that analyses your spending to give you tips to help you manage your finances. You can roam about the five investment categories and look at how the portfolio changes as you change your risk level. If you decide to use the program as a saving tool it will give you a projected balance at any date in the future you choose.
I also see it as a major tool for retirees who are risk adverse. I regularly receive emails from retirees with more than $400,000 in the bank who are too scared to move it into shares in case the market falls. They could get invaluable experience by moving, say, just $30,000 into Acorns and watching how it performs. There are no entry or extra fees, but of course the investment will move up and down in line with the performance of the underlying assets.
Photo: Simon Letch
Acorns is free to download and no fees are charged if you do not decide to invest. Once invested, they charge $1.25 per month for accounts with a balance under $5000. For balances greater than $5000 there is an additional management fee of 0.275 per cent a year (charged monthly, computed daily). There are no exit fees and no withdrawal fees.
This is one of the greatest products I have seen in my career. I suggest you go to https://acornsau.com.au and have a look for yourself. It would make for some wonderful conversations around the dinner table.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: noel@noelwhittaker.com.au. He has no financial interest in promoting Acorns.