Acorns: Is it this new Uber of financial world?

AN app which allows people to round up their credit card or debit card purchases and invest their spare change' in a share portfolio has been launched in Australia.

Acorns, one of the most popular Fintech apps in the United States with more than two million downloads, is available on iPhone and Android smartphones. 

Acorns allows users to invest their virtual spare change into an investment portfolio, automatically rounding up transactions to the nearest dollar when purchasing on a credit or debit card. The app then allocates the spare change into one of five self-selected diversified portfolios.

George Lucas, managing director of Acorns Australia predicts a surge in sign-ups.

"We've seen huge interest from the Australian market with over 23,000 pre-launch registrations,'' Mr Lucas said.

"There's a real excitement about the app coming to Australia, largely due to the fact that it breaks down the barriers associated with investing such as high start-up costs and being fully invested with the minimum balance of $5.00."

"The ethos behind Acorns is using technology to make it easier for people to save and invest.  The app is perfect for those who know little about investing or don't know how to start.

"It's about levelling the playing field and opening the market up, particularly to younger generations.  It is also about educating people about the benefits of regular small investments into the market"

Users select one of five portfolios that range from conservative to aggressive portfolios, and pay an annual flat fee of AUD$15.00 for accounts holding under AUD$5,000, less than brokerage charged by many brokers.

We asked Colton Dillion, Acorns, Company Global Director, some questions about the app.

1.       How did you come up with the idea in the first place?

The idea was first conceived by co-founder Jeff Cruttenden while he was in college studying finance. His fellow finance majors talked about investing all the time, but very few actually owned a brokerage account of their own.

Jeff worked with his father, Walter Cruttenden, an experienced financial markets innovator and the creator of E-trade's IPO platform, E-offering, to create the Acorns concept.

Together they saw that the mobile app brokerage would bring costs below those of the online brokerage, just as the online brokerage gradually replaced the phone broker and the office broker.

To make the account as easy as possible to open, they thought to bring investment minimums to $5 with a streamlined sign-up process, and wanted to create a way to invest people's spare change.

2.       How much of a difference can your 'small change' make over a long time?

On average, US customers will invest $30 per month just from round-ups. Many customers choose to supplement these investments with lump sums and recurring deposits, increasing contributions to $50 per month on average.

After just one year, the average customer will invest $600. Over 20 years with a 7% annual return, one could expect to have more than $25,000 in their account after fees.

3.       Given the volatility in the share-market, is this the time to be investing?

We like to say that it's not timing the market, but time in the market. History shows that on average over the long-term, markets tend to grow even if they have dips and dives along the way.

One of the biggest factors in the future value of your account is how early you get started, along with how much you choose to invest and how often.

The key is not to wait, and Acorns makes that easy by offering a $5 minimum investment combined with a painless way to keep investing your spare change regularly.

4.       How do you decide on what is in the diversified portfolio?

The portfolios were constructed with Dr. Harry Markowitz, a Nobel Prize-winning Economist and author of Modern Portfolio Theory, one of the foundational works of modern portfolio construction.

Modern Portfolio Theory uses historical performance to draw expectations about the risk and return involved with certain types of assets.

Once you have done this work, you can combine these assets to create portfolios with an optimal expected return for any given level of risk.

We sought to use funds that Australians would want to invest in, which had the lowest possible expense ratios, the greatest possible liquidity, and the lowest possible tracking error to their underlying benchmark.

In other-words, we try to use inexpensive funds that move closely with the market and let you deposit and withdraw funds easily.

5.       Could this become the Uber of the stock marketing industry?

If by that you mean a successful global company and a household name, then we certainly hope so.

We really believe we're making a difference in the financial industry and putting power into the hands of people who haven't historically had access to the shares markets.

6.       What sort of impact will it have on stockbrokers in the long term?

We hope that Acorns AU will have a positive effect on stockbrokers in the long term. If we can make investing available to younger audiences with less money, and then educate them about financial freedom early, they'll be more successful in the long run and more able to utilize existing financial products.

Who knows? Maybe we can all forge a path to less expensive and more intuitive financial products that really help people to achieve their dreams.

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