Investing in real estate can seem daunting, especially for those new to the scene. Platforms like Fundrise are making it easier for everyday investors to enter a market previously only accessible to big players.

Recently, Fundrise has taken a step further by introducing venture capital investing to its suite of services. As both a financial writer and an investor, I was intrigued to see what Fundrise has to offer.

I’ve since explored Fundrise firsthand, diving into its real estate and new venture capital options. Today, I share my experiences with the platform’s costs, potential returns, and risks involved. If you’re considering investing or looking to diversify your portfolio, understanding how Fundrise works can mean the difference between appreciable returns and unwelcome losses. 

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$10 Account minimum $1,000 for IRAs

1-2% Annual Fees of AUM

DollarSprout Rating

Fundrise is an online real estate and venture capital investment platform that allows individuals to access investments generally not available to the general public. By pooling investments, Fundrise provides access to these markets with a low minimum investment, making it accessible to a broader range of investors.

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Pros:

• Open to non-accredited investors
• Low investment minimum
• Historically strong returns with lower volatility

Cons:

• Limited liquidity
• High fees
• Methodology hasn’t been tested in a strong market downturn yet

Three Main Offerings from Fundrise

Fundrise provides a range of specialized funds that include real estate private equity, venture capital, and private credit—investment opportunities that, in the past, were typically available only to institutional investors.

The idea here is that since Fundrise has such a large pool of investors, they have more collective power and can access these more exclusive investments. However, exclusive doesn’t always mean better. More on that later.

Investors who choose Fundrise can customize their portfolios based on their specific goals. The offerings include a variety of strategic options such as:

• Developing rental housing in the Sunbelt region,
• Investing in late-stage, high-growth private technology companies, particularly focused on artificial intelligence and machine learning,
• Acquiring industrial properties, including last-mile distribution warehouses and data centers, and
• Engaging in bridge loan financing for real estate deals.

Regardless of which portfolio you choose, Fundrise is designed for long-term investors, especially those who can invest for at least five years. The platform focuses on real estate and venture capital, areas typically not easy to pull money out of quickly. Since it’s not liquid, that also means won’t see your portfolio value fluctuate daily like you would for a normal portfolio of stocks or ETFs.

Recognizing that some investors might occasionally need to access their funds, Fundrise does offer a chance to cash out quarterly without penalty. This setup is designed for people who are prepared to commit their money for the long haul and understand that while their money may grow, accessing it isn’t immediate.

Related: How to Start Real Estate Investing (Beginner’s Guide)

Fundrise Cost & Portfolio Performance 

At the end of the day, these are the only two things that I really care about when it comes to investing.

Cost and performance are also the two reasons that I primarily invest in index funds: they are extremely cheap and they match the performance of the market. Beating the market is hard, but matching it is easy. So how does Fundrise stack up?

First off, investing in Fundrise is not cheap.

Every fund has a 0.15% advisory fee, which is already higher than most index funds, but it’s not unreasonable. The real kicker though is the management fee, which is an additional fee on top of the advisory fee. And this is not a small fee.

For real estate funds with Fundrise, the yearly management fee is 0.85%, which means the total fee is 1% of your invested assets, every year, for as long as you invest.

Think of this as compound interest, but instead of working for you, it’s working against you. 

The venture capital fund (the Innovation Fund) is even more expensive, with a 1.85% management fee. Add in the advisory fee and you are looking at a 2% yearly fee, which, in my opinion, is almost a deal breaker.

A headwind that strong is difficult to overcome. I know the idea is that it takes significant research and skill to find these possible unicorn tech companies, but this fund tends to invest in late-stage, more mature companies (which have higher valuations to match).

To be fair, none of the companies in the Innovation Fund have gone public yet, so we haven’t had the chance how big those private-to-public valuation jumps will be.

Fee Summary

I do want to note that the fee structure for the Innovation Fund is in line with what other venture capital funds charge, and in many cases, is actually better.

Many VC funds operate on the “2 and 20” model, which means a 2% yearly fee + 20% of the profits.

But just because it’s better, in my opinion, doesn’t necessarily make it worth it. It’s somewhat of an open secret in the financial industry that these fees are ridiculous (I used to work at a firm that charged 1.5 – 2% per year), but the lay investor often knows none the better.

The chart above from Fundrise is a cool feature that I haven’t seen used very often, but I recommend seeing it at this link since it updates daily. The main point that Fundrise wants you to take away from it is that the longer you invest with them, the higher the likelihood that you will achieve a positive return (and the higher those returns will be).

Even with the fees, many investors were able to see positive returns, but it’s important to point out that Fundrise has only been in existence since 2012 and has operated in one of the biggest bull runs in history. That’s not a shot against Fundrise, I just want to point out that some of this performance is likely linked to the fact that the entire market has been pumping.

Since Fundrise is primarily focused on real estate, I don’t think it’s exactly fair to compare it to the S&P 500 index (which is composed of 500 U.S. companies in all industries). When I look at the chart above, here is what stands out to me:

• Avg. income return is higher for Fundrise than both the REIT index and public stocks. Good
• Fundrise appears to be somewhat less volatile. Good
• Fundrise has missed out on some major upswings in the market (2023 and 2019 mainly). Really not good
• Downside protection was great in 2018 and 2022. Good

Overall, a mixed bag of results. The question is, is a mixed bag worth a 1-2% yearly fee, especially when the alternative is to match the market performance (whether it’s a REIT index or the S&P 500 index) with the appropriate index fund at a fraction of the cost?

That’s for you to decide. Personally, I don’t see the value, but I recognize that every investor is different. 

Related: 20 Best Passive Income Ideas to Make Extra Money

My Experience Investing with Fundrise

Even though I’m not sold on Fundrise quite yet, I was intrigued by the idea of being able to invest in a venture capital fund. Typically, VC funds are only available to accredited investors. 

I also wanted to go through the onboarding process for the purposes of this review. 

From start to finish, opening an account took me less than five minutes. 10/10 easy.

After answering a few questions about what my investment goals were (like how long my investment horizon is, what level of risk I am comfortable with, etc.), it recommended the Innovation Fund for me:

I imagine their recommendation algorithm is fairly simple since they only have three open funds at the time of this writing. In all likelihood, here is what I think they recommend:

• Income-focused investors (meaning people who primarily want dividends) will be funneled into the Income Real Estate Fund, with the Flagship Real Estate Fund as an alternative. Lowest risk appetite investors will likely have similar recommendations.
• Growth-focused, higher-risk investors, like me, will be funneled to the Innovation Fund, with the Flagship Real Estate Fund as an alternative.
• Investors primarily focused on real estate will be put in the Flagship Real Estate Fund or the Income Real Estate Fund as an alternative. 

These are just my guesses, but I don’t think I’m far off. 

Here are some details of the Innovation Fund that was recommended to me:

At first glance, it looks like a great portfolio of companies. But since the fund is so new (it only launched in 2022), I can’t imagine that it got in super early on any of these companies. So my expectations are somewhat tempered. As I mentioned earlier, none of the companies in the Innovation Fund portfolio have IPO’d yet, so we will have to wait and see just how big of a valuation jump we get once that happens. 

I wasn’t looking to put a lot of money into Fundrise, at least to start, just because I wanted to test out the platform first. Strictly from a user experience perspective, I would give it a 10/10. Everything is neat, clean, and easy to navigate. 

One thing I like about the Account Dashboard in Fundrise is that it contains a feed of cool resources and articles, including content that is specific to the fund I am invested in. I was able to read the Annual Letter to investors of the Innovation Fund and found it quite interesting and accessible for most investors. You might have to look up some terms here and there, but it’s a well-written letter that is meant to be read by normal people.

Liquidity & Redemption Options

Fundrise, catering mainly to long-term investors, does not offer the same level of liquidity as more traditional investments like stocks or bonds. Here’s what you need to know about how Fundrise handles liquidity and redemptions:

Quarterly Redemptions: Fundrise provides a redemption program that allows investors to request withdrawals every quarter. This feature is designed to give some flexibility in what is otherwise a long-term investment. However, it’s important to note that these redemptions are subject to availability. The three open funds do not charge a liquidation fee, but previous Fundrise funds have charged a 1% fee if you liquidate within five years of your initial investment. It’s unclear if waiving the fee is going to be a permanent change going forward, but it’s something to be aware of. 

Limitations and Conditions: The ability to withdraw funds is not guaranteed. Fundrise reserves the right to suspend or restrict redemption offers under certain economic conditions. This means if the market is under stress, you might not be able to withdraw your funds during that period.

Planning Ahead: Given these conditions, investors should consider their cash flow needs and regard their investments in Fundrise as illiquid. It’s wise to have a financial cushion elsewhere that you can access easily if immediate needs arise.

Fundrise Advantages

• Low Minimum Investment: Fundrise makes real estate investing accessible with a relatively low minimum investment (only $10 for taxable accounts and $1,000 for retirement accounts), opening up opportunities that were traditionally available only to institutional investors or those with significant capital.
• Diversification: By investing in a variety of real estate projects, including residential, commercial, and industrial properties, Fundrise offers a diversified portfolio that can help reduce risk and enhance potential returns.
• Passive Income: Fundrise provides the potential for passive income through dividends, which are distributed from rental income and other earnings from its real estate investments.
• Transparency: The platform offers high transparency with regular updates on investment performance, property acquisitions, and comprehensive reporting, allowing investors to stay informed about where and how their money is being used.
• Tax Benefits: Investors can benefit from various tax advantages associated with real estate investments, such as depreciation and the potential for tax-deferred or tax-free returns in certain scenarios.
• Professional Management: The investments are professionally managed by Fundrise’s team, reducing the burden on individual investors to manage and make decisions on properties.
• Liquidity Option: Although primarily a long-term investment platform, Fundrise offers a quarterly redemption program, providing an option for liquidity that is not typically available in traditional real estate investments.

Fundrise Disadvantages

• Fees Hurt Returns: Depending on the fund, Fundrise charges between 1-2% of your account balance each year, regardless of whether your account balance goes up or down. Over time, these fees can significantly hurt your overall returns. 
• Limited Liquidity: Unlike stocks and bonds that can be sold on the open market relatively easily, Fundrise investments are much less liquid. The quarterly redemption program offers some level of liquidity, but it comes with limitations and potential fees, and redemptions are not guaranteed.
• Long-Term Commitment: Fundrise is best suited for investors who can commit their capital for at least five years. This long-term investment horizon may not be ideal for those who need or prefer quick access to their funds.
• Market Risk: All real estate investments carry inherent market risks, including economic downturns and fluctuations in property values. Fundrise’s investments are no exception, and the value of your investment can decrease (sometimes rapidly) depending on market conditions.
• Dependency on Management Decisions: Since the investments are managed by Fundrise’s team, investors have limited control over individual investment decisions. The success of your investment heavily relies on the management’s ability to choose and manage properties effectively.
• Tax Complications: Real estate investments can lead to complex tax situations. For instance, dividends may be taxed as ordinary income, and the tax benefits of depreciation might require more complicated tax filings.

Alternatives to Fundrise

While investing in real estate is often most easily and cost-effectively achieved through buying REITs within your existing investment accounts, other popular investing apps like RealtyMogul, CrowdStreet, and Roofstock offer specialized alternatives that might suit different investment needs.

Each of these platforms presents unique opportunities and fee structures that could be more aligned with certain investment strategies or preferences. 

Is Fundrise Worth It? Here’s My Take

While Fundrise offers an innovative approach to real estate and VC investing that democratizes access to previously inaccessible markets, the platform’s fee structure is a notable drawback. Investors should carefully consider the impact of these fees on potential returns, especially given the other challenges such as limited liquidity and the long-term nature of the investment.

Unless the platform drastically improves its fee structure, I think I will stick to my passive, low-cost index fund strategy for now.

Related: 7 Best Short-Term Investments for Growing Your Money

The post Fundrise Review 2024: Risks, Returns & How It Works appeared first on DollarSprout.

Robinhood Overview

How It Works: Robinhood is a financial services platform that allows users to invest in stocks, ETFs, and crypto commission-free. Its user-friendly interface is designed for beginners, and it primarily generates revenue through order flow payments, margin lending, and interest on uninvested cash.

Cost: 100% commission-free.

Available Asset Classes: Stocks, ETFs, Options, and Crypto.

• Benefits: Easy to use, best-in-class fee structure.
• Drawbacks: No mutual funds, no tax loss harvesting.

Promotion: 1% brokerage account transfer bonus (no cap); 1 free stock sign-up bonus (valued between $5 and $200).

Best for: Beginner investors who don’t have access to an employer-sponsored account.

Rating:

App Design: 4.5 out of 5
Ease of Use: 5.0 out of 5
Fees: 5.0 out of 5

Asset Classes: 4.0 out of 5
Tax Strategy: 2.0 out of 5

Overall: 4.5 out of 5 stars

>> Visit Robinhood

Robinhood has become the go-to investing app for the younger generation in recent years, largely due to its free trades and snazzy user interface. The app has gained widespread popularity, but it has also faced significant criticism from the media. The main concern is that the app “gamifies” investing, subtly prompting users to trade more frequently than they normally would.

As people have learned from free social media apps, whenever something is free, in most cases, you are the product. Robinhood is no different. But that doesn’t necessarily mean you shouldn’t use the trading platform. In fact, there are many benefits to Robinhood that can make it a better option for investors than other apps.

In this review, I’ll dive into my own experience using Robinhood and share my thoughts on what I think investors should look out for when deciding on an investing app.

What Is Robinhood?

Launched in 2013, Robinhood is a commission-free trading app that allows investors to trade stocks, exchange-traded funds (ETFs), options, and cryptocurrency. The app offers individual brokerage accounts as well as retirement accounts (Traditional IRA and Roth IRA).

They offer a Robinhood Cash Card as well, a debit card helps users grow their investment account. It does this by rounding up your purchases to the nearest dollar and investing the difference into your Robinhood account (similar to how Acorns works). 

There’s no opening minimum for brokerage accounts, but there is a $2,000 minimum for margin accounts. This is a regulatory requirement, so it’s not unique to Robinhood.

Open Account

$0 Account minimum

$0 Cost per trade

DollarSprout Rating Free stock with new account

Robinhood is a commission-free mobile trading app that lets investors trade stocks, cryptocurrency, options, and ETFs with a $0 opening balance. Its streamlined design makes it easy to use, and no annual fees make it a good choice for new investors.

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Pros

• Trade with no fees
• No minimum balance requirements
• Easy, mobile-friendly interface
• Trade a variety of securities
• Margin trading available

Cons

• Can’t trade certain popular securities, including bonds and mutual funds
• App may become addicting
• Difficult to receive customer support

Is Robinhood safe to use?

Robinhood is a member of the Securities Investor Protection Corporation (SIPC), which protects its members up to $500,000, including $250,000 for cash claims. Keep in mind that this only means that your assets are insured should Robinhood become insolvent; it does not mean that your investments are safe from dropping in value. Investing always comes with the risk of losing money.

While the company offers commission-free trading, a simple, streamlined mobile app, and no opening balance requirement, users report multiple complaints ranging from customer service to frequent outages (including one in March 2020 that is subject to a Securities Exchange Commission investigation) to problems with trades, account closures, and money transfers._[1] They also have more reported user complaints than many of their competitors.

Because they don’t provide much guidance or make stock recommendations, and customer reports indicate that support is substandard, it’s important that you learn the basics of investing before signing up for an account. Understanding how the stock market works, including the risks, will help you navigate the platform and make informed choices about your trades and investments.

Portfolio Options

Robinhood offers four primary trading options: stocks, ETFs, options, and cryptocurrency. Although there are no commissions involved when trading with Robinhood, other fees may apply. Be sure you review their fee schedule so you’re not surprised or confused when they appear in your account.

Buying and selling stocks

Stocks are one of the most basic securities you can invest in, and Robinhood is a solid choice for novice investors. They provide a streamlined platform that makes it easy to buy and sell stocks. Open the app, search for the company’s name or ticker symbol, and enter the number of shares you want to purchase. You can sell stocks from your portfolio in the same way. 

In addition to being a good choice for novice investors, Robinhood is also good for those who don’t have a lot of money to invest initially. In fact, you can start investing in stocks with Robinhood for as little as $1. Robinhood offers approximately 5,000 stocks to choose from and more than 250 global stocks not listed on American exchanges.

Robinhood also gives users the option to make trades in after-hours or pre-market trading, which is appealing to some investors (but comes with extra risk since there is usually less liquidity).

Fractional shares

A fractional share is what it sounds like — it’s a piece of a stock. When you buy a fractional share, you’re buying a piece of a stock rather than a whole one. Companies like Robinhood offer fractional shares to investors as a way of helping them afford a stock they couldn’t otherwise purchase. 

For instance, if you want to buy a share of Apple stock but don’t have enough money to pay for one full share, you can buy a piece of that stock for an amount that fits your budget. However, if you want to sell your fractional share, you must wait until the company has enough pieces to make a whole stock; these smaller pieces cannot be traded on their own.

Fractional shares are a way to diversify your investment portfolio even when you don’t have a lot of money to invest.

Buying and selling ETFs

If you’re interested in buying or selling exchange-traded funds (ETFs), you can do that with Robinhood as well. You can buy and sell ETFs in the same way as stocks. Like all of the trading services offered by Robinhood, ETFs are free to buy and sell. However, ETFs charge management fees to the people who own them.

You’ll pay anywhere from .03% to 1% or more, depending on the ETF you invest in. ETFs are a great way to easily diversify your portfolio without having to buy a bunch of individual stocks. Just make sure you pick funds that have low expense ratios to preserve your returns. 

Buying and selling options

Robinhood also allows users to invest in options. Options are a way to bet whether a stock will increase or decrease in value. If, for example, you think a stock that currently costs $10 increase in value, you can buy an options contract that allows you to buy said stock for $10 at any point before the option’s expiration date. If the stock goes up to $12, you can exercise your option to purchase at $10, and instantly earn a profit of $2 per share. 

Buying and selling options with Robinhood is commission-free, and you conduct your trades directly from the app, just like ETFs and stocks. However, investing in options is much riskier than stocks or ETFs, so if you have a low risk tolerance, you might not want to take advantage of this product. Think of options like a casino – there is a very high chance of ruin. In fact, most options traders end up losing money. Beware. 

Buying and selling cryptocurrencies

Unlike many of its competitors, Robinhood allows users to buy and sell cryptocurrency including Bitcoin and Ethereum. Like other trading options, it’s commission-free to buy and sell cryptocurrency and you can do it right from the app. Keep in mind that you will still need to pay any network fees (or “gas” fees) on a transaction for a particular blockchain. 

Should you choose to invest in cryptocurrency using Robinhood, it’s important to note that Robinhood Crypto — which oversees the cryptocurrency branch of Robinhood — is not a member of FINRA, the Financial Industry Regulatory Authority. Additionally, investing in cryptocurrency involves significant risk, so if you are risk-averse or don’t fully understand the risks, this might not be the best investment option for you. 

How to Open an Account

Robinhood is a mobile-focused brokerage, so the best way to get started is to download the app and sign up for an account.

After downloading the app, you’ll need to complete an application, which can be done directly in the app. If you’re approved, which typically happens instantly, you’ll receive an email with further instructions on getting started. If you’re not immediately approved, Robinhood will ask for additional information. They’ll provide instructions on what you need to send and how you can do it securely, protecting your personal data.

Once that’s received, you’ll know within five to seven days if you’ve been approved for an account. 

Since there’s no minimum balance requirement to open an account, you don’t have to save or commit a substantial chunk of your money to the opening deposit. And if you don’t have money right away, Robinhood gifts new users a random dollar amount between $5 and $200 that can be used to purchase from a list of 20 large-cap stocks. According to Robinhood, “The cash value you receive could be anywhere between $5 and $200. Keep in mind that approximately 98% of the participants will receive a reward having a value from $5 to $10.”

You can sell the stock three days after you claim it, but you cannot withdraw the funds to your bank account until 30 days later. 

Other Notable Robinhood Features

In addition to trading stocks, options, and cryptocurrency, Robinhood offers a number of other features for its users.

Robinhood Gold

Robinhood Gold is Robinhood’s version of a margin account. This means that you can trade with borrowed money, commonly known as “on the margin.” 

If you want to opt into this service, you can try it free for 30 days. After that, it costs $5 per month. However, the free trial only covers the $5 monthly fee, not the margin interest. This means that if you borrow more than $1,000, you will need to pay the interest. Should you try Robinhood Gold and decide it’s not for you, you can cancel it at any time. 

As with cryptocurrency and options trading, margin investing can be quite risky. Your losses could end up being larger than the value of your account, meaning you will have to deposit more money to clear the difference. You must understand what you’re getting into. Robinhood offers an explanation; make sure you read it in full before signing up for Robinhood Gold.

Additionally, to have a Robinhood Gold account, you must have a $2,000 minimum balance, per FINRA regulation. 

Robinhood Gold members also earn 5% APY ** on their uninvested cash balance, as opposed to 1.5% APY for non-Gold members. ** As of the time of this writing. Be sure to check the site for the most up-to-date APY information.

Refer a friend and get free stock

For each friend that you invite to Robinhood who signs up, makes a deposit, and links a bank account, you (and your friend) will each receive a free stock. This works similarly to the free stock promo for when you initially sign up for Robinhood; Robinhood will notify you of the specific dollar amount that your gift stock is, and then you can choose which stock you would like to buy with that voucher. If the stock you want costs more than the value of your gift, you can buy a fractional share. 

You can receive up to $1,500 in stocks per year through this program.

Instant transfers

Thanks to Robinhood’s relationship with a number of national banks, users can transfer up to $1,000 which is instantly available for investing. This is great for people who want to act fast on a trade idea and don’t want to have to wait for funds to clear. 

Larger deposits may take up to five business days to process and become available. You can transfer up to $50,000 into your account, and you can only transfer money via direct deposits. They do not accept mailed checks. 

Robinhood Alternatives

If you’re about to download an investing app and you are doing your research correctly, you probably came across several other apps that are competing for your business. Here are my thoughts on how Robinhood compares to some of its most noteworthy competitors. 

Robinhood vs. Acorns

There are two big differences between these apps: 1) Robinhood is free, whereas Acorns starts at $3 per month, and 2) Robinhood does not have pre-made portfolios to choose from like Acorns has. If you are a true beginner and have no idea what you are doing (and you don’t have any desire to learn), then Acorns might be a better option. If you know the basics and want to reduce your costs, Robinhood is the smarter option in my opinion. Also, if you are investing less than $5,000, the monthly fee for Acorns is a big drag on your portfolio, so Robinhood is definitely better.

Robinhood vs. M1 Finance

Both apps offer commission-free trades. M1 is more focused on overall portfolio management and even offers model portfolios that don’t have any additional fees (outside of the ETF fees, which is standard). M1 also offers a high-yield savings account, as opposed to just offering interest on cash balances in your investing account like Robinhood does. Both of these factors tilt my opinion in favor of M1 slightly over Robinhood. Robinhood is ideal if you want a hands-on trading experience, while M1 Finance is great for those seeking a more set-and-forget, automated investing strategy.

Robinhood vs. Fidelity

Fidelity, a well-established player in the investment world, offers a more comprehensive range of services and a depth of resources ideal for both beginners and experienced investors. It provides extensive research tools, a wider range of investment options including mutual funds, and advanced trading platforms. Fidelity’s strength lies in its educational resources and customer support, making it a solid choice for beginners who seek a more traditional, full-service investment experience. Both offer commission-free trading. Robinhood’s design may appeal to a younger audience than Fidelity, but either one is a solid platform for investing.

Robinhood vs. E*TRADE

E*TRADE appeals to a broader range of investors, from beginners to more experienced traders. It provides a more traditional online brokerage experience with a comprehensive set of tools and resources. E*TRADE offers free stock and ETF trades, a wide range of investment options including mutual funds and bonds, and advanced trading platforms with more in-depth analysis tools. If you’re a beginner who anticipates evolving needs and might require more comprehensive tools and resources as you gain experience, E*TRADE is a more versatile option. 

FAQs

Robinhood Review: Final Verdict

Robinhood is a solid product and, in my opinion, is perfectly suitable for investors who want to take a more hands-on approach to managing their portfolio.

The commission-free trades and easy-to-use interface are great features, but always remain cautiously on guard; if you find yourself getting “hooked” on the app, take a step back and reconsider what you are getting yourself into. Investing is a long-term game and, if done right, it should be boring.

Related:

• 4 Best Micro Investing Apps for Beginner Investors
• 17 Best Passive Income Apps to Earn Extra Money
• How to Invest $100 for Maximum Return

The post Robinhood Review 2024: Pros, Cons, Fees & How It Works appeared first on DollarSprout.

Acorns Overview

How It Works: Acorns makes it easy for beginner investors to get started with investing in stocks. Set up one-time, recurring, or Round-Up deposits and watch your brokerage account balance grow.

Cost: $3, $5 or $9 per month plans.

• Pro: Round-Ups feature automates investing (incremental gains can reinforce desire to save).
• Con: Higher fees than competitors.

Promotion: Exclusive $20 investment bonus for readers that set up recurring investments.

Best for: People who need to be forced into saving money.

>> Visit Acorns

I’ve always been skeptical of micro-investing apps. Can they really make a difference in my financial journey? With 15 years of investing experience under my belt, I’ve come to realize that I get the best results when I do the least amount of work. The less that I touch my investments, move money around, or even look at how I’m doing, the better things go. The minute I start micromanaging is usually the exact moment that I end up making a mistake.

So when it comes to investing apps, I prefer apps with fewer bells and whistles. I don’t need – or even want – all the fancy charts and second-by-second data. I just need something that will help me stay consistent and let me accumulate assets in low-cost index funds.

Acorns is an investing app that caters to people like me who want an easy-to-use interface and a hands-off investing experience. I recently decided to give Acorns a test drive and see for myself how it could fit into my financial life.

What Is Acorns?

Acorns is a financial technology and investment app — launched in August 2014 — geared towards making investing more accessible to the general public.

It automatically rounds up users’ everyday purchase amounts to the nearest dollar and invests the spare change into diversified, computer-managed portfolios. Acorns has amassed over 10 million users and claims $15 billion in assets under management.

Users generally appreciate the app for its user-friendly design and the ease with which it allows them to start investing, but some have raised concerns over the fees charged and the overall value for more experienced investors.

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$0 Account Minimum

$3 - $9 Monthly Fees

DollarSprout Rating 3.5 out of 5 stars

The Acorns app is best for new investors still learning the ropes. Notably, Acorns rounds up card-linked purchases to the nearest dollar and invests the extra change. Users can also set automatic recurring investments on a daily, weekly, or monthly basis. Current Promotion: Exclusive $20 bonus for new users.

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Pros:

• Completely automated
• No account minimum

Cons:

• Limited portfolio options
• Monthly fee can be a high percentage for those with smaller account balances

The mobile application itself holds a 4.6-star (out of 5) rating on Google Play (284,000 reviews) and a 4.7-star rating on the App Store (875,000 reviews). It is #73 on the list of most downloaded Finance apps on the App Store with over 20 million downloads.

Acorns Subscription Plans & Features

As with many products in today’s subscription-focused environment, Acorns offers several different pricing tiers, each with its own set of additive features.

1. Acorns Personal

• Cost: $3 per month

I signed up for the cheapest plan with Acorns, which they call “Acorns Personal”. For $3 a month, here is what users get with an Acorns Personal account:

On the surface, it seems like you get a lot for $3 a month with Acorns, but I’ve found that almost everything on this list can be found for free elsewhere. But I don’t think the real value that Acorns delivers comes from its features, per se, but more from the overall behavior changes and habits that it can help you form.

For instance, a similar Round-Up feature is available via the Robinhood app for free, but many users find that Robinhood is a much more addictive app because of certain gamification tricks they use to get you to keep coming back. So while you might save $3 a month by using Robinhood instead of Acorns, you might end up wandering down a rabbit hole that you didn’t intend to go down — which can become much more costly.

2. Acorns Personal Plus

• Cost: $5 per month

The next membership tier is Acorns Personal Plus, for $2 more per month. This plan comes with all the same features as the $3 Acorns Personal plan, with the addition of:

I personally don’t think these features are worth an additional $24 per year in subscription fees, but some users may appreciate these options more than I do.

3. Acorns Premium

• Cost: $9 per month (the Family Plan)

Acorn’s top-tier plan is dubbed Acorns Premium, and is geared towards families with children. Acorns Premium comes with everything that is included in Acorns Personal and Personal Plus, with the addition of:

The Acorns Portfolios

Acorns isn’t really built for people who want to trade individual stocks or do anything sophisticated with their investments, which is something to be aware of if you are considering opening an account. Instead, Acorns has five “model portfolios” that are each built with a particular risk profile in mind.

For instance, after I answered some basic questions about myself — things like my age, income, risk tolerance, etc., — and Acorns recommended a portfolio that consisted of 80% stocks and 20% bonds, which is moderately aggressive. This made sense based on my answers, so no complaints there. It is important to note, however, that if you have any special circumstances that fall outside the scope of their basic questions, there are no human advisors that you can speak to directly.

Acorns offers five different portfolios based on five levels of risk, and each one is composed of exchange traded funds, or ETFs. Think of an ETF as a basket of many different stocks and bonds. In addition to the five core portfolios, Acorns also offers four ESG portfolios, which stands for “environment, social, and governance” issues. If these are causes you care about, you can elect to invest in an ESG portfolio instead, however, the expense ratios of the funds within these portfolios may be slightly higher.

Benefits

For people who are just starting out with investing and getting their financial lives in order, Acorns can be a decent choice. For those types of people, Acorns offers the following clear benefits:

• An all-in-one solution: Some people might get overwhelmed by having their money in so many different places. Acorns gives customers the opportunity to have pretty much everything within one central location, which can give some peace of mind.
• Tools for building strong financial habits: If the thought of regularly scheduled contributions to your investments feels constricting, the Round-Up feature is a neat way to achieve a similar outcome in a more psychologically appealing way. For some reason, it’s easier to digest the thought of investing $1 a day than it is to invest $30 at the end of each month.
• Cookie-cutter options, by design: Acorns wants you to be as hands-off as possible, unlike competitors like Robinhood, M1 Finance, etc. By recommending simple yet professionally constructed ETF portfolios, customers are less likely to risk financial ruin by diving into options trading and other speculative (and risky) trading strategies.
• Teaching your kids about money: For $9 a month, the Premium Plus plan is a good option for parents who want to invest in their children’s future, both financially and educationally. The debit card for kids and the chore tracker are great ways to prepare children for financial responsibility one day.

Drawbacks

No investment app or website can be everything to everyone, and Acorns is no exception. From my own investigation, these are a few of the biggest drawbacks of Acorns:

• The monthly fees are way too high, unless you are investing a large amount. As a general rule of thumb, you should aim for your yearly investing expenses to be less than 1% of your total portfolio value (at the most), but ideally, you should strive to get your investing expenses under 0.50%. With Acorns’ flat monthly pricing model, here’s what the math looks like:
  • Personal ($36 per year): You would need a $7,200 portfolio for the yearly fees to be at 0.50% (not including the ~0.06% fees for the ETFs themselves).
  • Personal Plus ($60 per year): You would need a $12,000 portfolio for the yearly fees to equal 0.50% (not including the ~0.06% fees for the ETFs themselves).
  • Premium ($81 per year): You would need $18,000 invested in order for the yearly fees to equal 0.50% (not including the ~0.06% fees for the ETFs themselves).
• The bonus investments from Acorns brand partners could be a conflict of interest. Acorns is financially incentivized to promote those offers to customers, which is something to be aware of when using the app.
• Lack of investment options. While some will see this as a good thing, I still can’t get over the fact that you have to be on the $9 a month Premium plan if you want to buy an individual stock for your portfolio.
• Transfers are expensive. Most brokerages charge a flat fee per account if a customer wants to transfer to another brokerage, but Acorns charges $50 per ETF. So what is somewhere between free and $75 at most brokerages, Acorns charges $300 for the 6 ETF portfolio that it recommended for me. This essentially traps a lot of customers with Acorns. Not cool.

Who Is Acorns Best Suited For?

While the fees are prohibitively expensive, for some people, they may be worth it. Here is who I think would most benefit from Acorns:

• People who need to be forced into saving money. If the alternative is not saving money at all, I would rather someone pay the fees to Acorns to have everything taken care of for them.
• Parents who want to take an active role in teaching their kids about money. If you simply want to save for your children’s future, you can probably find better options. But if you want to give your child a debit card, teach them about budgeting, etc., I think the features offered with Acorns Premium are worth it.
• Investors with at least $10,000 to invest that desire a hands-off approach. If you are a passive investor and have at least five figures to put to work, the monthly fees charged by Acorns are in line with what other robo-advisors charge.

Acorns Alternatives

Acorn’s relatively high fees are reason enough for some investors to look elsewhere. If you have $10,000 or less to invest, these options may be more suitable for you.

Robinhood

Robinhood may be more appealing to investors interested in active trading and a wide variety of investment options, including stocks, cryptocurrencies, and options. Unlike Acorns, which focuses on passive, automated investing through round-ups and recurring investments, Robinhood provides a platform that encourages direct, commission-free trades, allowing investors more agility and flexibility in their transactions.

Key Differences:

• Investment Options: Robinhood offers extensive trading options, including stocks, options, and cryptocurrencies.
• User Interface: Robinhood has a user-friendly interface catered to investors who prefer a more active trading experience.
• Fees: Robinhood offers commission-free trades, while Acorns charges a monthly fee for its services.
• Taxes: No automated tax savings options (same as Acorns).

M1 Finance

M1 Finance might be more suitable for investors who seek customization and control over their investment portfolios, allowing them to select and allocate specific stocks and ETFs in a “pie” format. Additionally, it offers features like automatic rebalancing and fractional shares, making it appealing to both beginner and experienced investors who want a personalized yet automated investment experience.

Key Differences:

• Investment Options: M1 offers a wider range of investment choices, including individual stocks and ETFs.
• Rebalancing: Automatic rebalancing is a feature in M1 Finance to maintain the desired asset allocation.
• Fees: M1 Finance lacks the $3 to $9 monthly fee that Acorns charges, making it more cost-effective for some investors.
• Minimum Investment: M1 Finance has a higher minimum investment requirement ($100) compared to Acorns.
• Taxes: Tax Minimization Feature (similar to but not the same as traditional tax-loss harvesting).

Verdict: Is Acorns Worth It?

When it comes to round-up investing apps, Acorns is among the best in the business, but it might not be right for everyone. It’s easy to use, has an excellent education platform for new investors, and simple, straightforward fees.

However, whether the $3 to $9 monthly fee is a benefit or a detriment really depends on your account balance. If you’re only adding a few dollars a month to your Acorns account, the $3 a month fee will hinder your investment growth.

Related:

• Robinhood Review 2024
• 4 Best Micro-Investing Apps for Beginner Investors 
• 15 Best Cash Back Apps to Earn Rewards
• Best Investing Apps for 2024

The post Acorns Review 2024: Pros, Cons, Fees & How It Works appeared first on DollarSprout.

Here’s what I’ve seen – just this morning – as I’m writing this:

• “Stocks are [UP or DOWN] on [FEARS or HOPE] of [INSERT EVENT].” Example: “Stocks down on fear that the housing bubble may be ready to burst.”
• “Hedge funds pull in record profits once again.”
• “Meet this 23 year old who got rich on [INSERT CRYPTO]”
• “Inside the wild world of day trading meme stocks”

Stories are what captivates us. The financial media knows this well and uses it to keep us glued to the screen. Unless you’re already plugged into the investing world, these types of headlines tend to alienate those of us on the outside.

To the casual observer, it looks like investing is something reserved for rich old men or trust fund babies with lots of money to burn. Or “geniuses” who sit in front of 7 different computer monitors and watch the lines on stock graphs move all day.

The average investor, though, looks nothing like these people. They are remarkably… normal. They are your coworkers, your neighbors, the person standing in line with you at Starbucks.

The average investor isn’t watching the stock market everyday, and they’re no smarter than me or you. They just put a little bit of money into the market when they can, then they go about their lives as normal.

And over years and decades, they slowly accumulate wealth. Often life-changing wealth.

That’s how most people do it, but you would never know that from watching CNBC or Fox Business.

The Best Micro Investing Apps for Millennials

There are several platforms that allow you to become a micro investor, but here are some of the best investing apps available.

1. Acorns

Acorns is probably the most well-known micro investing app. It’s an especially well-designed platform that almost anyone can figure out how to use. If you are truly starting from scratch, Acorns is a good place to start because it assumes you know nothing about investing. You can start investing with Acorns for just a $5 minimum deposit.

How it works: Acorns will recommend a portfolio for you based on your answers to a questionnaire about your financial goals. It uses a selection of low-cost exchange-traded funds (ETFs) rather than individual stocks and bonds to create your portfolio.

For an additional fee, you can sign up for Acorns Personal which allows you to open an Individual Retirement Account (IRA). You’ll also have access to an Acorns checking account syncs up to your investment accounts.

Unique features: Acorns allows automatic and manual deposits, but you can also use a “round-up” feature that rounds your purchases up to the nearest dollar and deposits the difference into your investing account.

If you link up a debit or credit card with Acorns, you’ll receive access to its Found Money partners. This will offer you cash back into your investing account for shopping at certain retailers, such as Lyft and Expedia.

Costs: Acorns charges the following monthly fees for its packages:

• Acorns Lite: $1 per month
• Acorns Personal: $3 per month
• Acorns Family: $5 per month

Related: Acorns Review

2. Betterment

Betterment is one of the original robo advisors. Although it does offer an app, most people use its website.

How it works: When you set up your account, Betterment will ask you a series of questions about which types of accounts you want to open, such as IRAs or personal investment accounts. It’ll also ask about your goals and risk tolerance. From there, it’ll handpick a portfolio composed of low-cost ETFs and manage it for you.

All you have to do is add money. You can do that whenever you want or you can set up automatic deposits. Betterment has no investment minimums, so you can open an account today and fund it whenever you have the money — even if it’s only a penny.

Unique features: Betterment may not be as flashy as some of its micro investing competitors, but it does offer a more holistic way to invest. You can rely on Betterment for all of your investing needs. Betterment is also backed by solid investing techniques such as tax-loss harvesting to save you even more money.

Costs: Betterment charges a 0.25% annual management fee for its main investment service. If you want to upgrade to the Premium plan so you can contact a live CFP® for advice on your non-Betterment retirement accounts such as your workplace 401(k), you’ll pay a 0.40% annual fee. For Premium, you’ll need at least a $100k balance.

3. Robinhood

Robinhood’s goal is to make investing in stocks as cheap for individual investors as it is for big companies. This app requires a bit more knowledge than most beginning investors have, so you might want to avoid this one if you’ve never tried investing before.

How it works: This app lets you buy individual stocks, ETFs, cryptocurrencies, and even has options for no trading fees. It’s a bit more bare-bones than Acorns and Stash, and it offers fewer features.

There is no option to have Robinhood choose the best investments for you, for example. It’s entirely your call, and that’s why it’s best for more advanced investors. Robinhood allows you to buy fractional shares of stock and ETFs, which is a great way to start building positions in higher-priced stocks, like Amazon or Google.

Unique features: Robinhood’s biggest asset is that it offers free trades. Normally, trades can come with hefty fees of $10 or more per trade, especially at some of the bigger brokerage firms. Free trades can save you a lot of money if you trade frequently.

Costs: Robinhood is free to use. If you want to advance your investing and trade on margins, you can pay $5 per month to do so with Robinhood Gold.

Related: Robinhood Review

4. Stockpile

Buying an individual stock can sometimes be very expensive. This poses a problem if you don’t have enough money to purchase an expensive stock yet, and even if you did, it’s not a good idea to tie up all your money in one single investment. Stockpile offers a unique solution to this problem through micro investing.

How it works: Stockpile offers one simple way to invest: by buying fractional shares of individual stocks and ETFs. This app won’t tell you what to invest in; you’ll need to decide for yourself.

Unique features: Stockpile specializes in one thing: offering fractional shares in individual stocks and bonds. This means you don’t need to commit a huge amount of money to buy investments with a high price tag, such as Amazon stock. Fractional shares allow you to buy a portion of one stock or ETF for an equally reduced price. In fact, you can get started for as little as $5.

Costs: All stock and ETF trades are free.

Important Considerations

• Low deposit requirements. One of micro investing’s strengths is that you can get started with whatever money you have today. That’s great for reducing the barrier to entry, but it has other side effects, too. “I’m hesitant to discourage anybody from saving money for the future,” says Justin Pritchard, a CFP® and founder of Approach Financial, “but to reach goals like education funding, financial independence, or a major purchase, you need significant dollar amounts. My concern is that people feel like they’re ‘doing’ more than they actually are with these apps.” In other words, micro investing is a great start, but you shouldn’t rely on occasionally depositing a few dollars into it as your primary way of saving.
• Investment returns can be impacted by performance and fees. Many people use micro investing sites to invest in stocks and funds that sound fun, interesting, or progressive to them. That’s a good thing because it gets people interested in investing. It also means that you’re not necessarily choosing the investments that will help your money grow the most in the long term. A fund could be interesting but grow poorly or even decline in value. That’s not what you want to see, and it’s not good for your money. Furthermore, many micro investing apps charge relatively high fees compared to their more traditional counterparts. These fees can eat away at your earnings, causing you to earn less over time.

Related: How to Start Investing with Your First $100 

Why Millennials Love Micro Investing

“The rise of many micro investing platforms like Stash and Acorns has introduced millions of millennials to investing,” says Dallen Haws, a CFP and founder of Haws Financial Planning, “because they’re so easy to use, they’ve become almost game-like.”

Indeed, micro investing syncs well with modern lives. These investment platforms are often available on apps, so you can use your smartphone to manage your account. It’s definitely not your grandpa’s investment platform.

Registering with most micro investing sites is easy. They generally take only a few minutes to set up, and you won’t have to speak with a representative. It’s all handled through a sleek investment app, and you only need a small amount of money to get started.

Micro Investing: A Small Portion of a Long-Term Strategy

Micro investing has helped make investing more accessible, particularly to novice investors and those intimidated by the stock market. But although it’s a good tool, it shouldn’t be your entire investing strategy.

Make sure you’re considering how micro investing fits in with your bigger wealth-building picture.

Use these apps as a springboard to take your investing journey further. Learn how to invest, and then use online brokers, robo advisors, or investment advisors to create a winning portfolio for your long-term goals.

“Overall, these apps are a great thing,” says Haws, “but like always, it’s how we use the tool that makes the biggest difference in our lives.”

Related: 7 Best Short-Term Investments for Growing Your Money

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