What’s up Internet - I’m back again with another financial banger you can share with all your friends to make them think you pay attention in your business electives. If you’ve managed to look at literally anything online the last week, you’re probably aware the stock market is a trending, hedge funds are sweating, and investors are holding. As with anything remotely popular, there’s always an influx of people that join in on the fun just because everyone else is doing it. With the stock market becoming akin to the 2014-2018 Warriors, i’m here to shed some light on the madness, and do my part to hopefully leave you better off than you were before.
Being a new investor with the faintest idea of what’s going on, you’re an easy target for predatory investing platforms that don’t have your best interest in mind. While my previous statement may easily be construed as shade towards the brokerage app known as Robinhood, i’ll clarify by saying that although the shoe's pretty snug, I’m really talking about Acorns. Acorns is an investing app that's been relatively popular for quite some time. At its core, Acorns is a great idea that emphasizes investing consistently through your seemingly useless change, as the app rounds up purchases to the nearest dollar and invests the difference. On top of being a great idea that doubles as an easy on-ramp to investing, one of Acorns top investors that frequently shows up in ads is Ashton Kutcher, who’s most notably known for his roles on Punk’d and That 70's Show. I'm personally a fan, and think Ashton Kutcher’s great, but that doesn’t necessarily mean I’m cool with what Acorns is doing to investors that don’t know any better.
The downside of Acorns is its borderline predatory fee structure. The app offers a handful of plans, most notably, their cheapest option where you pay $1 a month for a grand total of $12 throughout the year. At face value, this doesn’t seem like a lot as we've naturally become users of other services (Netflix, Amazon Prime, etc.) that are around $12+ a month. What many still forget is you’re literally paying to invest the shit you find under your couch - in a world where like 99% of broker trading is now free. Considering I've never even used Acorns, I don't even think I can give a halfway decent estimate of what someone would manage to accrue throughout the year, but I’m guessing it's anywhere between 30-50 bucks. I hate to give you guys homework, but if you just do the math, you'll realize you have a 24% expense ratio, which is criminally high. I admit my estimate may be a little low, but change around the denominator and the ratio’s still absurd. On top of this, I’m not even considering tax implications that’d arise from dividends being taxed as ordinary income, ultimately increasing your effective expense ratio, further eating away at your crumbs you paid 12 bucks for.
While I've beaten the dead horse and proved that the fee structure of Acorns sucks, you can skip the middle man and just invest on your own terms by throwing your money into a passively managed index fund (FXAIX for example) that tracks the S&P500. This fund is already diversified, invests in blue chip stocks, and has a measly expense ratio of .015%. Now, I’m no math genius, but to further my point and prove that I’m right, I’m pulling out my TI-84. After crunching the numbers, For the same exact price of $12 that Acorns charges you to invest negligible amounts of money, you’ll be able to invest $80,000 ($12/.00015) into FXAIX (Fidelity’s S&P500 Index). To compare oranges to oranges, it wouldn't even cost you 1 cent ($50*.00015) to invest the same $50 you had in Acorns. The numbers are actually staggering, so let that sink in.
Ultimately, while the $12 in fees paid towards Acorns every year doesn’t break the bank (if it does, you have an entirely different problem on your hands), do realize that you’re paying an extreme premium of 160,000x to tell your friends Michael Kelso's your financial advisor. Plain and simple. If you’re using Acorns, you’re getting Punk’d.
TLDR; I'd hang out in Eric Foreman's basement, but I'm not bringing any change.