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While reading through J. Money's blog, I found a nifty investing app that he is reviewing. The name of this app is Acorns, as you might have surmised from the title of this post. The idea is to make investing in a highly diversified portfolio of investments accessible to everyday folks who are curious about investing but don't have the lump sums necessary to do so (that would be me). So how exactly does this work? 

Essentially, for a low fee of $1 a month, the app links to any credit or debit cards you use for spending. It tracks your expenses and then deducts the difference, rounded to the nearest dollar, from your checking account. Given my extremely limited budget, I decided to give this a spin and see how dollar cost averaging my way into the market works out over the next few months. Most of my free cash for investing is currently tied up securing the put option trade I sold, so this seems like the easiest way to invest in an automatically balanced portfolio of diversified assets gradually and build up some equity over the long term.

The transfers have been pretty painless. Indeed, even though I work my checking account out pretty rigorously, I've barely noticed the money leaving my account. I started with an initial deposit of $20, and since I linked it to my debit card which I use for EVERYTHING, it has already transferred an additional $48 in change this month. Who knew I collected so much change!?! (actually I have about $210 in actual change sitting in my room right now and trying to think of something epic to spend it on, if you have any suggestions I'd love to hear them).

Acorns quite helpfully provides users with the option to invest their assets in a variety of risk profiles, adjusting your exposure to stocks, bonds, and real estate according to your preferred risk amount. Typically, I'd just chuck all my cash into the stock market to maximize growth, however I discovered that the bond ETF's you can buy partial shares in provide monthly dividends, which naturally caught my attention. I therefore, switched over to the conservative, low risk portfolio with the intent of determining what sort of dividends I'll be receiving (given that I don't even have $60 in this portfolio yet I doubt I'll be earning much in the way of dividends). In any case, monthly dividends compound faster than quarterly dividends and they compound even faster than no dividends at all. So I aim to keep my portfolio in these and contribute all the roundups towards achieving some sort of dividend income. 

Handily, Acorns automatically re-balances your portfolio and reinvests all dividends. By re-balancing and reinvesting, you automatically capture any growth experienced in your holdings by selling them off while the prices are rising and purchasing the weaker performing sectors that are declining in price (selling high and buying low). I have apparently captured $0.06 in the short time I've been doing this solely through rebalancing. This is an extremely valuable service. On top of the fact that you pay no other fees or transaction costs outside of the monthly $1, this becomes quite a powerful wealth building program for folks who don't want to think about investing overly much. 

Now it is a bit too simple for me in that I actually enjoy researching stocks and definitely feel that, with the proper due diligence and understanding an investor can make better returns investing in individual securities with solid balance sheets and growing revenues, margins, and cash flows. That being said, this type of investing typically requires much larger cash outlays than I am able to put up presently. Therefore the Acorns app will serve quite nicely to store and grow cash while I pay down my debts. I may even access it to help accelerate my debt payments as it is essentially just extra cash that is being invested presently and they have it set up to be a highly liquid account making both contributions and withdrawals painless. 

If I do not need to access my balance in Acorns, I'll end up experimenting with their portfolio settings over the long term. My thought processes concerning this run along similar lines to the re-balancing concept explained above. Right now, the stock market is extremely expensive. So if you purchase stocks in a company, you'll in general be purchasing fewer shares for more money. On the other hand, the bond market is pretty cheap right now given everyone's concern over the Fed raising interest rates over the next year. This could lead to a drop in bond prices meaning more for less. So at the moment I am using the conservative portfolio as I want to A) preserve my capital B) purchase more bonds while the market is down and stocks are expensive. When we enter the next recession and stock prices decrease, I'll probably reverse this portfolio allocation and sell off my bond ETF at a premium as investors all seek to buy bonds and their relative safety driving up their prices as stocks tumble. I am uncertain to what extent the effects of the market are translated through the ETF's I am investing in via Acorns, but it should pose an interesting experiment at the very least. We shall find out if I have the guts to do this when everyone claims the stock market is doomed. :)
 


Comments

06/18/2015 4:18am

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04/22/2016 2:14am

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08/07/2016 2:57am

We really shall find out if you have the guts to do this when everyone claims the stock market is doomed)) Right))

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09/09/2016 12:00pm

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