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Just finished my annual investing phone call with my daughter. We hold this meeting annually before she files her taxes to make tweaks to her portfolio for the upcoming year. With Vanguard she has a brokerage account, traditional IRA , and a Roth IRA. She also has a 401K, and HSA through her work. These I am all familiar with.
The one component of her portfolio I am not familiar with is Acorns. I hadn’t paid much attention to this component as it was just rounding of purchases from her credit card. However, she has accumulated thousands of dollars in this account, so it has peaked my interest.
Are other HD readers familiar with how Acorns works?
It appears the only fee is the monthly subscription?
She has picked an aggressive portfolio which is 80 equities both domestic and foreign, and 20% bonds; but we were unable to see what companies are invested in, and the details of the bond portfolio.
I assume that if she withdraws money she will have to pay capital gains taxes.
Any input would be greatly appreciated.
I would say these round up apps are an unnecessary middleman but they do provide a function in helping people develop investment habits and removing the friction of just not getting round to it. I can’t see overall harm but maybe just sweeping surplus current account balance into an IRA/general investment account at a fixed point once a month would be a better play or the more sophisticated.
The flat monthly fee is certainly better than the more typical AUM for robo-advisors. It’s on top of the ERs that the ETFs they buy generate, so it’s going to be a bit more expensive than a do it yourself system.
My 10 second analysis, you’re paying for the round up function to create a kind of painless savings mechanism. You can just as easily open an account at M1, set it up for rebalancing when making deposits, pick the ETFs you like, and get the same result. Without knowing the ETFs it’s hard to know if there are significant savings on the table.
Generally speaking, a low cost automated savings function is a good thing especially if you’re unlikely to set up an automated savings function from your main checking/cash management account.
The important acorn here is the one you planted that is now a mighty oak.
Your relationship with your daughter is the envy of the world. Bravo, dad!
Thanks for the compliment Ben. Towards the end of our session I had the feeling she has been so focused on saving she couldn’t see the forest through the trees, ie she had no idea her total savings. I totaled it up while she was talking. In the year she is turning 40 it is in the multiples of six figures. Waaaay ahead of my wife and my balance at that age. Of course we were 10+ years into raising two children and she is single.
More tree metaphors! I think the HD community would benefit from a post about your philosoph