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Get Rich 50 Cents at a Time

The secret of successful investing is realizing that saving even small amounts adds up over time. Although initiatives from a number of fronts have helped those with modest savings find ways to invest better, a new platform aims to take amounts of less than a dollar and turn them into long-term wealth.

Last week, a company called Acorns Grow announced it would come out with a new mobile app to help users boost the amount they save and invest. The app, called Acorns, has a very simple strategy: Every time you buy something, it looks at the amount you spend and rounds it up to the nearest dollar. As a result, Acorns will take an additional amount between a penny and $0.99 from every purchase and earmark it for investment.

Doing the legwork
Acorns isn't the first company to take this tack with card purchases. For years, Bank of America (NYSE: BAC  ) has allowed customers to round up their purchases to the nearest dollar and transfer the difference to a savings account. Not only did the B of A initiative help deliver a useful service for debit-card customers, but it also helped cross-sell savings products that helped Bank of America get its customers involved in a wider array of bank services. Similarly, Wells Fargo's (NYSE: WFC  ) Save As You Go plan uses a transaction-based automatic-transfer strategy, although it transfers a full $1 from each transaction, rather than rounding purchases up.

The difference between Acorns and the banks' offerings, though, is that the Acorns program saves the extra step of transferring money from a savings account into a higher-return investment. Rather, Acorns automatically takes the money and invests it in a portfolio of index funds from money-managers Vanguard, BlackRock (NYSE: BLK  ) , and PIMCO. Those investments are commission-free, avoiding the fees that so often make investing impractical for those who can save only small amounts.

Following the trend
Acorns is one more attempt to get people to save more. For years, the government's Savings Bond program has been aimed at small savers, allowing people to buy bonds with face values as small as $25. Similarly, the newly proposed MyRA program from the Obama administration would allow workers to start Roth-IRA-like accounts with as little as $25 to start and $5 in additional contributions.

Yet MyRAs and savings bonds don't offer diversified exposure to the stock market, which is a key element of Acorns. As the company's advisory-board member Harry Markowitz notes, "Investing in a broadly diversified portfolio for the long term is the right choice for most people. Acorns enables this to happen automatically in tiny increments with minimal cost."

When it comes to cost, Acorns' fees are fairly reasonable for a small-saver-oriented product. A service fee of $1 per month to facilitate the transfer of what co-founder Jeff Cruttenden estimates could be 50 to 100 small-change amounts every month isn't out of line. Although charging a 1% management fee for index funds would be excessive for larger accounts, it's not unreasonable when you consider that it amounts to $0.50 per year for the $50 that Acorns estimates those who make frequent purchases could save using the service.

Invest early and often
Especially for younger investors, who are most likely to feel comfortable with an app-based program, Acorns could have the positive impact of encouraging those who have traditionally shied away from investing. If Acorns succeeds as an incubator for savers just getting started, it will have fulfilled a valuable educational service to its customers as they learn more about investing and find other ways to build wealth in the future.

Unfortunately, millions of Americans of all ages have missed out on the huge gains in the market since 2009. Too scared to invest and put their money at further risk, they've put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.

Read/Post Comments (15) | Recommend This Article (19)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 17, 2014, at 5:31 PM, Mega wrote:

    Their average customer will probably save around $200 per year and pay $14 in fees. 7%. That's highway robbery.

  • Report this Comment On March 18, 2014, at 2:39 PM, TMFVelvetHammer wrote:


    You call that highway robbery, but by looking at just those basic numbers, ***you ignore everything that matters.***

    $14 gets someone who may not normally be investing into the market.

    Figure 3.5% ONE TIME to get that $200 to work, with a 8% annualized rate of return in the stock market.

    After paying that $14 once, that $200 initial deposit in the first year would be worth almost $1000, after 20 years.

    If that same person could keep investing $200 every year for 20 years, their $4000 investment would be worth $10,285.

    And the $280 in fees paid over that 20 years?

    2.7% of the amount earned.

    That's not highway robbery. That's economic opportunity.

    Jason Hall

  • Report this Comment On March 18, 2014, at 2:42 PM, TMFVelvetHammer wrote:

    >>Figure 3.5% ONE TIME<<

    This should read, "Figure 7% ONE TIME"


  • Report this Comment On March 18, 2014, at 3:19 PM, Mega wrote:

    Does TMF recommend any load mutual funds? No, because there is never any benefit to paying a load.

    This is just like that, only a lot more expensive.

  • Report this Comment On March 18, 2014, at 3:37 PM, Mega wrote:

    The total fees paid over 20 years would not be $280 - they would be more like $880 since the principal would grow.

    The principal would realistically only grow to around $8200 since Acorns' exorbitant fees would reduce it.

    If you invested $200 a year in an index fund which cost 0.1% , the principal would grow to around $9700. That's $1500 out of your pocket.

  • Report this Comment On March 18, 2014, at 3:57 PM, tchams wrote:


    You appear to be someone who can save money on their own over time.

    This app appears to be targeted to those who honestly believe they do not have any money to save (let alone put in the stock market). By automating this, it will allow people to have a balance of >$0 by the time the year is over, which is a good start, regardless of the fees.

    If this person finally realized they could do it better on their own, they would avoid the extra fees associated with this service.

    It is a great idea, but it doesn't seem to be a good idea for Fools who already have an investing plan in place.



  • Report this Comment On March 18, 2014, at 4:29 PM, Mega wrote:

    "This app appears to be targeted to those who honestly believe they do not have any money to save (let alone put in the stock market)."

    Those people deserve fairly priced services too. I don't think this is it. Particularly since the monthly fee hits poorer, less active users even harder. If you only save $5 a month, that's a 20% fee for saving your own money.

  • Report this Comment On March 18, 2014, at 8:50 PM, TMFVelvetHammer wrote:

    >>The total fees paid over 20 years would not be $280 - they would be more like $880 since the principal would grow.

    The principal would realistically only grow to around $8200 since Acorns' exorbitant fees would reduce it.

    If you invested $200 a year in an index fund which cost 0.1% , the principal would grow to around $9700. That's $1500 out of your pocket.<<

    Based on their 1% fee for account balances under $5 grand, yes you are right.

    However, I stand behind my point. 1% would be a lot for a larger balance invested in an ETF. However, the absence of any trading fees does, indeed, carry value because **it gets people investing and saving.**

    Do you know of a better way for people not currently investing to start tucking away at least something?

    Don't let perfect be the enemy of the good -- that's my point.

  • Report this Comment On March 18, 2014, at 10:08 PM, jlclayton wrote:

    Maybe I'm missing something, but Acorn's fees seem very reasonable to me when you consider that the investments are commission free. Also, this may be the only way that some people can save anything at all, and my guess is that once they see how small amounts can add up over time, it will encourage them to continue saving over their lifetime.

  • Report this Comment On March 19, 2014, at 12:07 PM, KayakerRW wrote:

    Many good low fee index funds require a minimum to invest (often $1,000 - $2,500) and then have minimum contribution amounts.

    Many non-investors see those numbers and think "It will take me years to save up that much; what's the use?"

    If Acorn gets those people in the market now so they can see an investment increasing over several years, then it's a plus for them.

    Many non-investors have lots of change sitting around losing value to inflation or spend all the money from their paychecks because its there. Even worse, some run up credit card debt.

    If Acorn gets some of that money into an investment account and perhaps gets some people to spend less on their credit cards, then the return on that alone could be worth the fees.

    It's not as good as saving, then finding a good low fee index fund on your own, but it is better than what many people do.

  • Report this Comment On March 20, 2014, at 7:21 AM, Mathman6577 wrote:

    Interesting concept but it will still require user intervention and a commitment to actually use the app when making purchases (and most people will probably be too lazy to do it). I think psychology will come into play and go against this sort of thing.

    And what purchases are targeted? Most people spend most of their money on mortgage/rent, taxes, car loans, food, etc. Will the app interface with all of those purchases?

    And some people (probably most of those the app really targets in the first place) live paycheck to paycheck and after a bunch of rounding their checking account might be overdrafted.

  • Report this Comment On March 20, 2014, at 3:26 PM, slotowner wrote:

    This might be better than nothing but I worry that using it might make people feel over optimistic.

    You can save money using Acorn but you don't save a lot. The normal non-savers can deceive themselves by saying, " Look, I'm doing the good thing by saving."

    It's sort of like the dieter who eats a 1,220 calorie salad with cheese, croutons, eggs, meat, & loads of dressing & thinks they are eating well because they have a salad.

    This is better than no saving & might add to other savings but it really does not cut it on its own.

  • Report this Comment On March 24, 2014, at 3:04 AM, SuntanIronMan wrote:

    If we're talking about first time investors, Loyal3 might be a good route to try.

    Individual stock investing with no commissions to buy, no commissions to sell, no account fees, and no transfer fees when/if you want to move your account to another broker.

    And you can purchase fractions of a share in increments as little as $5. So if you can't afford to buy a single share of Apple at $532, you can buy 0.00939 shares of Apple at $5.

    Because of their business model, the stocks they offer are limited to only 55 or so companies. But those 55 companies are familiar ones like Apple, Berkshire, Amazon, Starbucks, Disney, Coca-Cola, etc.

    They are rather limited service (by design), but good for what it is.

  • Report this Comment On September 03, 2014, at 1:19 AM, irishgirl4 wrote:

    Ok. Then can someone recommend a service for those who can't yet invest $1 500 but need to learn how? It's not just learning to save but it's also learning how to read the market.

    Mind you I'm a HNW tax accountant who understands all the tax rules (and is actually pretty well respected for it) but lacks the investing finesse that obviously many of the posters here have but have a strong desire to learn. Sadly the tax accountant in me is very scared to invest money unless I feel I can learn enough. I don't even buy scratch tickets.

    I was debating doing this to teach myself until I read the user agreement , listing fees that can be completely astronomical just for withdrawing. Tax liabilities on top of that aren't even addressed (that I could see on my iPhone). Unless you only invest and never withdraw, I don't see how you can really benefit from this other than using this as a teaching tool for the future only. The founders of this company though will be extremely successful.

  • Report this Comment On October 15, 2014, at 11:55 PM, thephoenyx wrote:

    As a young person, who is living paycheck to paycheck, and who is just getting a toe in the door of the investment world, I think this app is the perfect place for me to start. I have been wanting to start investing for over a year now, but I haven't been able to afford to begin because I don't have enough money all at once to fulfill the minimum requirements of most brokerage sites.

    This app not only saves and invests your pennies, but you can also save and invest any other amount at any time, which is what I plan to do. I have been saving 20% of my income, hoping to add up to enough to start investing, only to find myself just transferring the money back into my checking and spending it on something I don't really need. But now I can just transfer 20% directly into an index fund and watch it grow over time. If I save $200 a month this way, by the time I'm 26 (a year from now) I will have over 3 grand. By that point, I can look at different brokerage companies and find one that will have lower usage fees.

    All in all, it's a good place to start, especially for young people or people who are a bit intimidated by the whole thing. It's something that will help people become conscious of their spending in a new way, as well as enjoy the excitement of watching their money grow. I think this is a very good thing.

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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