Money at 30: Acorns vs. Robinhood
A few weeks ago, I offered a list of some of my favorite personal finance apps and shared how they could come in handy at different points in your financial journey. Two of the apps I included on the list — Acorns and Robinhood — are aimed at would-be investors who may be intimidated by the world of brokerage firms, commissions, and more. This then begs the question: which is better for beginning investors?
How the Acorns and Robinhood Apps Work
How Acorns works
Acorns is what’s known as a micro-investing app. In fact the platform will allow you to start investing with as little as $5. Additionally, Acorns has a clever way to ensure that you’re consistently funding your account and building your portfolio.
The main feature of Acorns is called Round-Ups, with the idea being that you’re investing your spare change. To achieve this, Acorns will ask you to link your credit and debit cards so that it can monitor your transactions and total up your “change” by rounding up each purchase to the nearest dollar (hence the name). Once you reach more than $5 in Round-Ups, Acorns will pull the money from your linked account and invest it in a selection of stocks and bonds for you.
Beyond Round-Ups, users can also elect to make one-time contributions or set up recurring transfers. Plus the app’s Found Money section features offers from various retailers. By completing these offers, you can earn a little extra money that will be added to your account.
How Robinhood works
Robinhood’s selling point is fairly straightforward: buy and sell stocks without fees. That’s exactly what the app offers, enabling users to purchase real stocks from real companies, all at face value. Sure it may sound like a simple idea, but it’s actually quite revolutionary.
Despite it being a free service, Robinhood doesn’t skimp on features. When it comes to buying and selling stocks, this means having the ability to set limit orders (where you can state how much you’re willing to pay for a stock and have Robinhood execute your order if it becomes available) among other options. Like with Acorns, Robinhood also allows you to set up automatic transfers to your account or make one-time contributions on the fly.
Although stocks were the main game on Robinhood for some time, recently they’ve expanded to bring new investment opportunities to the platform. For example, earlier this year they introduced Robinhood Crypto, allowing users to buy and sell Bitcoin, Ethereum, Litecoin, Bitcoin Cash, and — most recently — Dogecoin. They’ve also started rolling out support for options trading the past few months as well.
The Pros and Cons of Acorns and Robinhood
Where Acorns succeeds
The biggest benefit Acorns has it that it makes investing simple, automatic, and accessible. From the Round-Ups feature that show’s doubting users that they do have enough money to start investing to the Found Money features that further incentivize you to contribute to your account, the app does a great job of keeping users engaged. Also motivating are the projection charts the app provides, showing users how much money they’ll accrue if they stay on their current course.
Another way Acorns makes investing easy is that it doesn’t ask users to build their own portfolios but instead allows them to choose from five options. These range from conservative to aggressive, with the mix of stocks and bonds shifting each time. Furthermore, with Acorns sharing what each portfolio option is comprised of, those investing rookies who do want to learn more about best practices can find value in these resources.
Where Robinhood succeeds
As I’ve said before, if Acorns is investing 101, Robinhood is likely the 201. With this app, users can select which companies they invest in and become full-fledged shareholders. This includes the ability to vote on shareholder matters and receive dividends (I should note that Acorns also enables users to earn dividends).
Even though it may be a more advanced experience than Acorns, Robinhood still has a lot to teach its users — especially with the recent addition of options trading. The app not only allows you monitor your current positions as well as a watchlist of other stocks but also includes a feed of financial news that can help users stay informed about the markets and beyond. At the same time, Robinhood also succeeds in demystifying investing by erasing the images of brokers yelling over a telephone to a guy on a crowded sales floor and replacing it with an elegant, easy to use interface.
Where Acorns could improve
My single biggest complaint about Acorns is that it isn’t free. Instead, their basic service is $1 a month. That might not sound like a lot but, in the old days when the fee was deducted from your investment funds, you could see how much it cut into your earnings. These days the app pulls its monthly fee from your linked bank account instead, which does make it so you can continue to earn on your money but also makes it so you don’t notice how these dollars are adding up.
One other slightly annoying aspect of Acorns is that Round-Ups don’t actually happen right away, leaving you to wait until you’ve crossed that $5 threshold before your money is transferred. That said, the company has announced their own Acorns Spend debit card that enables instant Round-Ups. Then again, the card carries a $3 monthly fee, which covers the basic Acorns service, their Acorns Later retirement account service, and the card itself.
Finally, one of the aspects of Acorns that’s a “pro” for some may be a “con” for others. In this case I’m referring to their pre-set investment mixes. While these five options do allow some flexibility, it’s not hard to imagine some users would like to have a bit more control over their own investment destiny. Therefore those who don’t want to leave their investment portfolio up to algorithms may want to look elsewhere.
Where Robinhood could improve
Speaking of controlling your destiny, one downside of Robinhood is that you’re really on your own. If you choose to buy a stock that goes from $40 to $5 overnight (or, in the case of crypto, $20,000 to $8,000 in a few weeks), you’re really S.O.L. Meanwhile, it seems less likely that Acorns’ investment mixes would experience nearly as much volatility, easily making it the “safer” choice — if there is such a thing when it comes to investing.
The other thing about Robinhood is that it doesn’t necessarily offer as much motivation or instant gratification as Acorns in the sense that there’s no Round-Ups equivalent. Sure you can set up automatic transfers but, since you can only buy full shares of stock, you may have to wait a while before you have enough to purchase the likes of Disney, Netflix, Alphabet, etc. One could argue that this set-up actually teaches an important virtue and that investing shouldn’t be as much about quick wins as longterm gains, but it’s something that needs to be discussed nonetheless.
Acorns vs. Robinhood — The Verdict
At the risk of it sounding like a cop out, the answer to the “Which is better: Acorns or Robinhood?” question is, “it depends.” Personally, I’ve taken more of a shine to Robinhood in recent weeks because of how it allows me to invest in the stocks of my choosing and does so without costing me a thing. Meanwhile, those who aren’t quite ready to take the plunge and purchase big-time stocks will likely prefer the “set it and forget it” options Acorns provides — although they may start to resent that $1 a month fee like I did.
Ultimately, I will say that I still hold accounts with both apps and use them frequently… I just find myself using Robinhood more. Of course, with Robinhood being free and Acorns costing just a $1 for your first month, there’s little risk in trying out each of these options for yourself and seeing which one you prefer.