Finance apps 101: Investing for (total) beginners

Rachel investigates whether an app can really turn you into a savvy investor.

Growing trees concept financial investment

The Acorns app is marketed as a way for everyday people to start investing, even if you know nothing about managing money or shares. Originally only available in the USA, earlier this year it was released for the Australian market. I’d been interested in the share market, and had been trying to learn how to get started by reading a series of ‘investing for those thicker than two short planks’ books, but it just wasn’t sinking in – I’m not a numbers person. After reading positive reviews of the Acorns app from American financial journalists, I decided to give it a try.

It seemed like the perfect app for me. I know next to nothing about money, beyond spending it on groceries and overpriced coffee. The app operates through my smartphone, and it didn’t require a big cash investment upfront. The app works like this:

  • you link the Acorns app to the bank account you use for everyday spending
  • the app rounds up your ‘loose change’ – every time you spend money with your debit card, it rounds up the purchase to the nearest dollar, and adds up those few cents
  • when it reaches $5, it transfers the $5 out of your account and invests it in shares on your behalf
  • you choose an investment portfolio – the options are conservative, moderately conservative, moderate, moderately aggressive and aggressive – and the app works within set parameters to invest money on your behalf
  • you can also choose to transfer a set amount of money every day, week or month.

And that’s it. You leave it to do its thing, it works in the background and before you know it you’re the proud owner of a portfolio of shares. So does it really work? Well, here’s what it looks like after nine months of being left alone – I often forget I’ve even set it up.

In total I have deposited $428 in the app. My total account value is $444. Over nine months I have made a profit of $15, or 3.6 per cent (which is more than I’m getting in interest on my savings account). At about the six month mark I adjusted my portfolio from ‘moderate’ (the default) to ‘moderately aggressive’ – it doesn’t seem to have made a huge difference, but I’m not sure three months is enough time to see the effect.

All in all I’ve made money, although not much, and it’s really turned into a handy little way to save money $5 at a time. In nine months I’ve saved enough for a holiday in a fairly painless way, and I know a little more about shares than I did when I started. I’m sure I could increase the contributions and watch it grow, but I quite like the way it’s ticking over at the moment. The app continues to get positive reviews from economists who know better than I how it should be working, and I would recommend it as a good introduction to the share market for those looking to make their money work a little harder without paying someone else to manage the process.

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    COMMENTS

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    Rae
    4th Nov 2016
    2:16pm
    What a fabulous idea for young ones starting saving and investing. Well done guys!!!
    Fred
    4th Nov 2016
    9:33pm
    Why would anyone link their personal bank account to a company that sells shares. I would be reading the fine print.
    Retired Knowall
    5th Nov 2016
    11:32am
    I can't see how this company buys shares $5 at a time when Brokerage cost per transaction is $19.50 at the cheapest on line rate. Also the shares must be penny stocks. Imagine buying a Commonwealth Bank Share with $5 when they are trading at around $73.
    Rae
    7th Nov 2016
    1:21pm
    It's a fund. They would be buying the index most likely using a platform like Vanguard which most Super funds use. Fees are cheap and it is just a way to invest in shares for the little guys. The $5 would be bundled up into an investible package of $100.

    Bank shares have lost 25% of capital this past 12 month. I wouldn't touch them as a stand alone investment now anyway. I doubt they can get back into the money as the middle and lower wages stagnate and interest rates flatline. The ROE is dropping like a stone.

    This is a reasonably cheap way for a young person to see what the market does. Hopefully they will notice it is good to buy when the market is cheap and stupid to buy when Tom, Dick and Harry are piling in after the profits have been made.
    bohanka
    8th Nov 2016
    1:15pm
    My instincts tell me that, for those who are lucky enough to be able to do so, the best investment by far is still bricks and mortar. Am I wrong?


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