Get Rich 50 Cents at a Time

A new micro-investing service aims to help people save more without feeling it. Can you turn spare change into wealth?

Mar 17, 2014 at 2:10PM

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.

Piggy Bank

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.

Dan Caplinger owns warrants on Wells Fargo and Bank of America. The Motley Fool recommends Bank of America, BlackRock, and Wells Fargo. The Motley Fool owns shares of Bank of America and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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