The Millennial generation is largely afraid to invest in the stock market due to the 2008 financial crisis that continues to reverberate through the U.S. economy. According to Goldman Sachs' Millennials: The Money Survey, just 18% of young adults see the stock market as the "best way to save for the future.” Roughly 45% said they will invest either in just small amounts or in low-risk vehicles. 

Meanwhile, the S&P 500 returned 15.9%, 32.1%, and 13.5% in 2012, 2013, and 2014, respectively, Millennials missed a significant opportunity to build wealth during the early years of their careers. Add to this the fact that many face significant student loan debts. They also face additional economic challenges that their parents and grandparents may not have faced, including high youth unemployment levels and increased career competition due to globalization. (To learn more about the financial habits of Millennials, see article: Money Habits Of The Millennials.)

Finding ways to expose Millennials to the stock markets has been a challenge for brokerages, 401(k) advisors, and stock advisers. But a small financial technology company in California has provided a perfect solution to investing for Millennials: Make small, incremental investments into the markets, allow individuals to set their tolerance for risk, provide very low fees, and enable them to build wealth slowly through technology with a mechanism that aligns with human spending behavior patterns. 

The application is called Acorns. It’s a simple advising platform designed to bring new investors to the markets and help existing ones boost investment capital. The firm’s app invests the change from every day debit/credit card purchases into the markets. And over time, these investments add up.

Early Foundations

Founded in 2012, Acorns evolved from the simple idea: From acorns mighty oaks do grow, according to CEO Jeffrey Cruttenden. During his time in college, Cruttenden realized that many of his peers wanted to be involved in the markets, but they lacked either investment knowledge, enough capital for minimum balances, or an understanding of risks associated with equities in which they might invest.

The Cruttenden’s goal was to build a technology platform that allowed investors of any age to be involved in the markets no matter how much money they had or how much investment knowledge they maintained. The mechanism to automatically is similar to many “round-up” benefits offered by banks.

Bank of America has a “Keep the Change” option that allows customers to round up their debit card purchases to the nearest dollar and automatically place the leftover change directly into a savings account. Acorns has a similar model, only the rounded up change from debit or credit card purchases are automatically redirected to the customer’s Acorns’ portfolio where the money is directly invested into the stock market.

Acorns won the “A Penny Saved, Penny Earned" category during the 2015 Benzinga FinTech Awards, and was a finalist in two additional categories: "Robo Advisor Tools – Best in Class," and "Founder of the Year."

Today, the median user of Acorns’ platform is 30 years old, an age when more and more individuals are beginning to plan for retirement, purchase their first home, or get married. With 74.3 million Americans between the age of 18 and 34 in the United States (roughly 23.5% of the population, Cruttenden believes he has identified a sweet-spot for investment and market education.

There’s an App for That

Millennials are more likely to use their phones for retail purchases, creating a direct pathway between day-to-day spending and building an investment account.

By patterning the consumer spending behavior of Millennials, Acorns’ micro-investment platform allows them to make very small investments at very highly levels of frequency. The philosophy works because consumers are more likely willing to give $100 to the markets over time (and likely not noticing because of the rounding up) than they are directly investing $100 into their market account.

The digital platform is also beneficial to and within Millennials’ taste to handle financial affairs through technology. The company claims increased social interaction and engagement with their customers’ social affairs because the app runs on the iOS, Amazon Fire, and Android systems. (To learn about Millennials' affinity for financial technology, see the article: How Millennials Use Tech & Social Media To Invest.)

Checking the Fine Print

Acorns maintains an advanced security platform aimed at easing concerns regarding cyber threats or attacks on individual accounts. Each account on Acorns’ platform is insured by up to $500,000 through the Securities Investor Protection Corporation (SIPC).

And the costs are minimal.

While a brokerage like TD Ameritrade Holding Corp. (AMTD) or  E*TRADE Financial Corp. (ETFC) requires individuals to do their own investment homework and pay up to $9.95 per trade in commissions, Acorns allows users to deposit and withdraw funds without any fees or commissions. The platform addresses the top reason why Millennials would change their bank or broker. According to the Goldman Sachs survey referenced earlier, more than 50% said the top reason why they would change their bank is because the company "charged high fees." When asked how they feel about financial companies that charge fees, more than 40% said they "try and avoid fees at all costs." 

Investors under the age of 24 also gain the advantage of maintaining accounts that have no management fees. (The company recommends that users create an account through their student .edu account, and those without one have the ability to still sign up through the firm’s customer service. However, when a student graduates or is no longer enrolled in a school, management fees will be incurred moving forward.)

The company costs $1 per month for any account under $5,000, while charging 0.25% each year on any account over that amount. When someone signs up, the platform recommends a specific portfolio for each user depending on his or her age, investment time horizon, annual income, lifestyle goals, and risk tolerance. Five diversified portfolios on the site have various levels of risk: Conservative, Moderately Conservative, Moderate, Moderately Aggressive, and Aggressive.

After the user selects their level of risk, the company chooses which exchange-traded funds (ETFs) will comprise the portfolio. Due to the fact that Acorns accounts are Limited Trading Authority counts, the portfolios can only comprise ETFs. Users are unable to purchase any other stocks, bonds, Bitcoin, or other securities through the platform.

The Bottom Line

Acorns has created the ideal investment application for Millennial investors, providing low-maintenance, risk-controlled portfolio management for anyone no matter how much knowledge they have of the markets or amount of money in their bank accounts. The technical platform caters to Millennials' desire to use social media technology in order to manage their financial investments, and provides an easy way to invest small, and at-times, unnoticeable amounts of money, into the markets. Overtime, those investments add up for users rather than letting that money sit interest-free in a traditional savings account. 

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