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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 philosophy in teaching your kid(s) and how these annual meetings came about.
Thanks for the idea Ben, but it’s pretty simple, and really not long enough for an article.
After her divorce she had money in several 401Ks from employers early in her career. Her ex was in charge of some investing and he used a broker with high fees. We worked to get all accounts combined into Vanguard accounts. We gave her some money from my inheritance from my parents, that lead to a brokerage account at Vanguard. Also we used to go through her open enrollment options, that lead to an HSA, and finally her 401K at her current employer. All retirement money is in 2050 funds. She has just learned to max all contributions. We just started maximizing Roth contributions (that was main focus of this past meeting) after reading Ed Slott’s opinion that with tax rates so low all young people should be maximizing Roths, even if it cuts a little into 401K contributions above the matching amount. This is what we did this year, with the hope that next year she can max out 401K.
Over the years she just got interested in finance. My son and his wife not so much.
in retrospect, maybe it was long enough for a Forum Post. 🤷
My compliments to the whole family! From David Powell’s analysis, one thing caught my eye: if your daughter chose #2, the IRA option, she might inadvertently over contribute.
Thanks Ed. Her’s is an Invest account, her IRAs are in Vanguard, and we checked 2024 contributions to date
Wasn’t familiar either but queried ChatGPT:
Acorns is a micro-investing app that helps users save and invest money automatically. It is known for its “round-up” feature, which rounds up purchases made with linked debit or credit cards to the nearest dollar and invests the spare change into a diversified portfolio of ETFs (exchange-traded funds).
Acorns offers several financial products, including:
1. Acorns Invest – A robo-advisor that automatically invests users’ spare change and additional contributions.
2. Acorns Later – An IRA (Individual Retirement Account) option for long-term retirement savings.
3. Acorns Early – An investment account designed for kids.
4. Acorns Checking – A banking product with no overdraft fees and an integrated investment component.
5. Acorns Earn – A cashback program where users earn investment rewards from partnered brands.
It is designed for beginner investors who want an easy way to start investing without needing to actively manage their portfolio. The app charges a monthly subscription fee, typically ranging from $3 to $9, depending on the plan.