Acorns: easy way to grow your savings or expensive trap?


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1. What is it?

Raiz Invest (formerly Acorns Grow Australia) is a micro-investing product that lets you invest virtual "chump change" in a diversified portfolio of exchange traded funds (ETFs) listed on the ASX using an app on your mobile phone or the website.

Run by former RBS investment banker Brendan Malone, Acorns was launched in Australia in February 2016 through a joint venture between fast-growing US-based fintech start-up Acorns Inc (backed by payments giant PayPal) and Sydney-based structured products firm Instreet Investments.

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As a registered managed investment scheme (or managed fund), Acorns is overseen and regulated by the Australian Securities and Investments Commission (ASIC).

2. How does it work?

Acting like an automated coin jar for loose change, Acorns' default setting will round up the balance of your debit or credit card transactions to the nearest dollar. For example, if you spend $3.75 then 25c (having rounded the transaction to $4) goes into your Acorns investment account.

While 80% of Acorns' investors use the default round-up, you can round up to any amount up to $1. Every time another $5 accumulates in your account, it's invested in a mix of ASX-listed ETFs, based on a diversified portfolio that you've selected from one of six options that best reflects your risk appetite.

You can contribute to your Acorns investment account by either making a minimum lump sum deposit of $5 or activating round-ups, or through regular, daily, weekly or monthly deposits.

You can withdraw all or part of your investment from your Acorns account at any time through the app or website. Check your investment history, project future balances and compare performance in the portfolios through the app, or download monthly statements.

3. What are the pros?

Acorns is an effortless, low-fee way to enforce savings of small amounts every time you make electronic payments.

Newcomers to investing will find Acorns a great educational tool, allowing them to see how different investment categories change their risk levels. Acorns is also a gentle way for more risk-averse investors to gain confidence in the sharemarket without committing large amounts.

In response to criticism that it lacked clearly defined ethical investment guidelines, Acorns launched an environmental, social and governance (ESG) product in June.

Acorns is much more transactional than traditional managed funds, with an estimated $1 being withdrawn for every $2.50 coming in. Great liquidity means you can cash in part or all of your investment, based on the ASX's two-business-day settlement turnaround.

4. What are the cons?

Shoppers preferring to pay with hard currency and those who are neither tech-savvy nor keen to provide their internet banking credentials by default put Acorns beyond their reach. Unless you quickly get your investment balance over $2000, fees can erode your savings.

Beyond the six major banks, there is no guarantee that credit or debit cards held with smaller banks will recognise the Acorns app, so you'll need to check. Given that the performance of ETFs fluctuates daily, those who want to get out in a hurry risk exiting at a low point.

Similarly, given the limited control over the portfolio, those investing larger sums for longer periods may not regard Acorns as a primary investment tool.

5. What are the fees?

The app is free to download, and there are no brokerage, entry/exit or withdrawal fees.

However, there is a maintenance fee of $15 a year ($1.25 deducted monthly) if your account balance at the end of the month is under $5000.

Amounts greater than that don't attract a maintenance fee but there's an account fee of 0.275%, also payable monthly. Behind the scenes, an "underlying investment fee" is charged by the ETF issuer, ranging from 0.224% to 0.423% depending on the portfolio you choose.

Because the fee is charged by the issuer, it doesn't show up in your portfolio report but, according to Acorns, "these costs will reduce the value of the ETF units". Generally, the smaller your account the higher the fees as a percentage. For smaller amounts it can be more than 1%pa while above $2000 it gets increasingly lower.

6. How has it performed?

Since launching in Australia early last year, Acorns has over 320,000 sign-ups (70% of whom are under age 35) and $110 million in funds under management. Over the past 20 months the average Acorns account has achieved 10.5% (annualised) growth, and 12% for the year to June 30 (before the $1.25 monthly fee but including all other costs).

7. How safe is it?

If Acorns goes bust will I lose my investment? Given that the Acorns website and app are secured with 256-bit encryption, secure servers and privacy verified by physical security, it has no more intrinsic cybersecurity risk than any other financial product.

When it comes to market risk, the normal caveats such as "history is no determinant of future performance" apply.

Having assets held in custody by Australian Executor Trustees (a member of IOOF Holdings Ltd), ensures money is returned should Acorns cease to exist. Your money is also insured against fraudulent and criminal activity through Lloyd's of London. Acorns issues alerts in the event of unusual account activity.

8. How do I get started?

The three-step sign-up starts with downloading Acorns from the App Store. In the process of creating an account, you'll be asked your legal name, date of birth and address, plus personal details to help determine which investment portfolio you should be using.

You'll be asked for the username and password you use to access your online banking website so Acorns can identify the accounts you want the round-up mechanism linked to. This can take a few minutes, so be patient.

You'll be asked to provide your tax file number and to set up a security question. You'll also be asked to confirm your employment status, net worth, income, investment goals, time horizon and that you've read the product disclosure statement (PDS), and agree to all conditions.

Finally, you'll customise your Acorns investment account by selecting how much you want to round up and which of the six available portfolios you want to invest in. FirstStep is another mobile app also allowing you to automatically invest loose change, make voluntary contributions and set up a recurring transfer.

Your funds are invested in one of three low-cost, diversified portfolios of ETFs. There's no minimum investment limit and the fees are 0.275%pa paid monthly, subject to a minimum of $1.25 each month if you link your bank account.

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Mark Story is a freelance writer.