The free trading app Robinhood opens doors for beginning investors, or any savvy investors for that matter, looking to get their feet into the game without paying trading commissions.
About ten years ago, two friends and roommates (and aspiring finance wizards) at Stanford University launched Robinhood. Following graduation, they headed to New York City, where they had great success building two finance companies selling trading software to hedge funds.
Along the way, as they gained familiarity with the system in the world of finance, they realized that big Wall Street firms pay effectively nothing to trade stocks, while most Americans must pay up to $10 for every trade.
They made it their mission to find a way to give everyone – yes, even people without significant wealth – access to getting into the financial markets. Two years later, they headed back to Cali and founded Robinhood, a company that leverages technology to encourage everyone to participate in the larger financial system.
Robinhood has had such an impact on the brokerage industry, it is now referred to as the “robinhood effect.” By lowering the barriers to entry, millennials and Gen Z members are flooding into the stock market. Almost every brokerage out there has also followed suit by eliminating trading commissions entirely.
What Is Acorns?
Acorns aims to look out for the financial best interests of the up and coming generations of investors, harnessing the strength and empowering step of micro-investing.
Acorns invests your spare change into an expert built stock portfolio to help clients grow their wealth. Depending on the client’s investment style and time horizon, they can choose between 1 of 5 different portfolios of stocks and bonds.
How much does it cost to sign on? There’s a monthly fee of just $1 for Acorns Core, the basic platform. Other offerings are slightly more each month.
Acorns Core facilitates micro-investing of as little as one cent. Buy something for 99 cents, and Acorns will round it up to $1, with that extra coin tossed into your investment account. This spare change comes from any purchases made from a linked debit or credit card or even your PayPal wallet.
Acorns is an excellent tool for those who are bad at saving money or forgetful. It runs behind the scenes 24/7, automatically rounding up and investing. You can accelerate this investing tool by putting a multiplier on your round up or by making additional recurring or one time deposits.
The Verdict: Acorns vs Robinhood
Both Acorns vs Robinhood offer cutting-edge opportunities to get into the game of investing.
Robinhood puts you in the driver seat. It is 100% up to you to decide what you invest in. There are no prebuilt portfolios and no investment guidance of any kind. That being said, Robinhood is completely free while Acorns charges a small monthly fee of $1 to $5 depending on the plan you choose. While this may not sound like a lot, these fees do add up, especially for small accounts.
Consider this… If you had just $100 invested with Acorns, that $1 fee would add up to $12 per year. That’s a 12% fee just for managing your money! Most robo-advisors charge an asset management fee of less than 0.50% for comparison. The more you invest with Acorns, the lower the percentage fee becomes.
Robinhood does not offer retirement accounts, while Acorns offers them through Acorns Later. There are also ways to accelerate your investments through Acorns Earn, similar to a cash back program. Robinhood does not offer anything like this. Acorns automatically rounds up your purchases and invests the spare change. There is no guesswork involved, and it is impossible to forget about it.
Both platforms offer free dividend reinvestment for investors. That means that when investments you own distribute dividends, they can be immediately invested back into buying more shares of the stock. By doing this, you’re able to minimize the cash drag on your portfolio and maximize your compound interest earning potential.
With Robinhood, it is up to you to budget your money and contribute to your account on a weekly or monthly basis. If you have trouble budgeting and saving money, Acorns was designed for you.
Both Acorns and Robinhood have a $0 minimum fee. With Robinhood, you can buy individual stocks or ETFs. Acorns, on the other hand, gives you the option to choose from 5 portfolios based on your risk tolerance. These portfolios are curated and monitored by dozens of financial experts.
It comes down to whether you want to be in charge or not. If you want to build a portfolio from scratch and pay zero fees, Robinhood allows you to do exactly that. If you are looking for some hand-holding for a small fee, or you are bad at saving money, Acorns was designed for you.