Sorry for being so blunt, but I really don’t like people or companies who take advantage of others. These apps are not made to make you successful, they are designed to make the company money – not you.
The App Basics
What are these apps? Acorns and Stash run on the same principle. They link to your bank accounts and every time you make a purchase, they round up to the nearest dollar and invest the change. So if you make a purchase for $1.75, your total price will be $2.00 and the app will invest $0.25 in the investment you have chosen. That’s it – just watch your money grow right? Wrong.
Acorns and Stash each charge a monthly fee to your account when you use their program. Here is a break down of their fees:
So here at Arrest Your Debt, I firmly believe in being intentional when you save, spend, pay down debt, and invest. With these apps, you are only saving a small amount of money at a time and therefore compound interest is not working in your favor. You’re going nowhere fast. Invest little, earn little.
It also depends on where you currently are in the The Debt Payoff Playbook. Are you still in debt? If so, you should be putting all of your extra money towards debt, not investing your change. That change should be going towards your debt. If you have paid off your debt, why would you waste your time investing such a small amount of money? You should be investing intentionally whether it be in an employer sponsored retirement plan, or a Roth IRA where you make regular deposits. Wasting your time with change is just that – wasting your time.
Can Acorns And Stash Make You Money?
Maybe – and maybe not. Let’s look at how these businesses operate. How many times do you swipe your card each month? Hopefully you have cut back since reading my blog. If you are smart and intentional with your money, you shouldn’t be buying something with plastic each and every day. But for argument sake, let’s say that you make a purchase every single day.
Let’s also be generous and assume that on average, your purchase results in $0.50 being deposited into your Acorns or Stash App. After 30 days, you would have deposited $15.00 into your account. At the end of the month they will charge you $1.00, lowering your amount to $14.00. They just charged you 6.67% on your money, not including the expense ratios of the investment funds! This may not mean much to you, but when you consider you can invest with a Vanguaard or Charles Schwab Index fund for .08% or less, the 6.67% is insane!
How long would it take you to get up to $100 invested in your account by investing your change? Assuming you don’t lose any money in the market, it would take you almost 7 months to get $100 in your account (if you swiped your card every single day and deposited $0.50 into the app), not counting the $7.00 they would have taken from you in that time. If you get to that $100.00 amount, you will still be paying them 1% each month. They have a long way to go to get anywhere near the index funds .08%… Why do I keep bringing up index funds? Because actively managed funds rarely beat the index over a sustained period of time. For more info, refer to my related article Exposing The Mutual Fund Industry
If you were able to invest $1,000 in a years time (unrealistic only investing change), you would have paid them $12.00, which is still 1.2%! Again, if you understand how compound interest works, that 1.2% fee is heavily eating away at your investment. This also doesn’t count the possibility of a market drop. Your $1,000 could drop to $750 yet you still pay them their dollar every month.
When Do These Apps Make Sense?
Never… well OK, obviously I’m very opinionated on the subject. Let’s look at it mathematically. If you could get up to $2,000 saved up in the account, you would be charged .05% on your money with the $1.00 they charge each month. That is a reasonable number and something I could get on board with… except for their fund sources. Acorns and Stash only have a limited number of funds you can invest in and they categorize them by conservative to aggressive. You can not simply pick the fund you want to invest in, it will be a fund selected and recommended by the apps. Again, another reason to avoid these “investment apps.”
As far as Stash, if you invest too much and get up to $5,000, your fees will jump up to .25%. So with stash, if you have $4,999 invested, you will pay only .02% (excellent!) but if you invest one more dollar, it jumps up to .25%!
The Benefits of Acorns and Stash
I will admit, there are a couple of positives to Acorns and Stash. The biggest benefit I see is the ability to get millennials interested in investing. Millennials are quite distrusting of the market due to the recession in 2008, so using technology like this to get them investing is a good thing. Unfortunately, I worry they may not see the benefit of investing when they struggle to even get up to $100.00, due to the app fees eating away all their money.
The other benefit is if you are able to get over $5,000 saved with the apps, they actually charge low fees in comparison to other investing platforms. The negative is their small pool of funds you can choose from.
Wrapping It All Up
All in all, I think the Acorns and Stash apps have an interesting business model, but I wish they would have set up their businesses to benefit the investor more than they do. I would venture to say that the vast amount of people never get over $1,000 saved in Stash or Acorns – and this benefits the companies.
If you want to invest, don’t play around with your change. Get intentional and invest in index funds with low expense ratios. Invest for the long term with companies and funds that won’t eat away at all your profits.
I hope you found this article beneficial. I believe investing is confusing enough and I strongly dislike companies that try to unevenly profit off of well meaning investors. They have a great business model that looks great on the surface. What is one dollar a month? One dollar is extremely small, but it’s huge when it’s coming from your spare change investments. Please share this article across social media and don’t forget to subscribe below by email!! Keep learning my friends, you will get the hang of this! You work too hard to be this broke!