Like most other robo-advisors, Acorns gives its customers a diversified portfolio of low-cost ETFs suited to their risk tolerance and goals, based on how they answer a handful of questions.
You’ll be asked your age, net worth, income and when you may need to access the funds. Acorns picks your portfolio from a roster of nearly 25 ETFs. Forbes Advisor signed up with a profile for a young, upper-middle-class worker with a long investing horizon. Acorns came back with an “Aggressive Portfolio” that allocated:
- 55% to large domestic companies through Vanguard S&P 500 (VOO)
- 30% to international stocks through iShares Core MSCI International Stock (IXUS)
- 10% to mid-cap stocks through iShares Core S&P 500 Mid-Cap (IJH)
- 5% to small-cap stocks through iShares Core S&P 500 Small-Cap (IJR)
Unlike other competitors such as Wealthfront, our Acorns portfolio consisted of just four low-cost ETFs, all with miniscule expense ratios—the operating fees charged by the funds you invest in. This simplified approach makes your investments much easier to understand without sacrificing returns.
On the other hand, a portfolio consisting entirely of stocks, even for a risk-tolerant younger worker, may be a bit too risky. You can change to a different portfolio, but be careful: Your customized portfolio is based on the questionnaire, so by going against the grain you may end up holding too little risk, rather than too much.
Those so inclined may opt for Acorns’ new socially responsible investing (SRI) portfolio. This is a pretty standard course of action for robo-advisors, especially as younger investors have shown an interest in them. Wall Street loves these funds because they have higher fees. The problem is many of the companies you end up investing in often fail a common-sense SRI test.
For instance, Acorns uses the iShares ESG Aware MSCI USA (ESGU) that comes with a 0.15% expense ratio, which is five times as high as the Vanguard S&P 500 ETF (VOO) that Acorns uses in its non-SRI fund.
To get a sense of how much, consider the following: if you seed your account with $1,000 and contribute an additional $300 monthly for 30 years with a 7% return, you’ll pay nearly $10,500 in fees with ESGU compared to more than $2,100 with VOO.
Perhaps you’re fine forgoing those funds in the name of socially responsible investing. But you should ask yourself what that really means. ESGU’s top investments include Apple, Alphabet (Google) and Facebook, all of which have engaged in questionable social practices (from claims of inhumane work conditions to pilfering privacy to facilitating child pornography). Maybe you’re better off going with the cheaper ETF and donating the savings to a cause of your choosing.