Acorns and the Concept of Micro Investing

6 min readAug 2, 2016

As a recent budding young investor, I have been making a lot of stabs into the world of finance. I found that it is ridiculously hard to start on the road to investment without a decent sum of money. A few thousand to make it worth my while in shares? But I’m just a student with little to spare! After struggling here and there, I came across an app called Acorns — an easy way to enter the market. They brought to Australia the concept of micro investing. With Acorns, you can save small amounts of money without the overhead of high transactional fees (there are still fees). I attended a recent seminar held by Acorns, iShares (by BlackRock) and SSGA, so I thought I would share my thoughts here (get it?).

What can Acorns do?

From my perspective, I predominately see Acorns as a mobile app where you can passively invest and track said investment. There are a few different investment options

Round-ups: The primarily marketed feature which rounds up to the next dollar every time you make a purchase with your designated card. It then takes these few cents and puts it into your investment account. It’s automatic. Think of it as saving all that useless coinage when you pay by cash (not sure what this cash thing is, I heard old people use it).
Lump Sums: You can also make deposits into your investment manually if you wish to, say $1000 when you get your tax back.
Scheduled: If you don’t have a girlfriend then you can set up regular payments, like $9000 a month (I heard that’s how much they cost).
Found Money: This feature is coming early next year in Australia (released May in the US). It’s a reward system that integrates with partners who put money into your Acorns account as a prize for doing some things they want.

The Growth of Acorns

Launched February 2016 in Australia, Acorns was aimed at first-time investors and newbies like me! In only 6 months, here are some stats on what they’ve managed:

105,000  users signed up
 55,000  accounts opened
 45,000  active users
    $15  per year fees per user
    95%  users made money
    80%  users with round-ups on
   $500  average balance

If we extrapolate this a little further, that comes to $825,000 in yearly fees revenue and $27,500,000 total held in investment accounts. That’s pretty good in my humble opinion. I asked Australia’s Managing Director George Lucas how many developers he had on the team — only 4 devs in Australia (and 40 in the US)! My question however wasn’t as good as the girl who asked Mr. Lucas

“How long after Star Wars did you start Acorns?”.

If we use this number to estimate ten staff, averaging a $70,000 salary and excluding other expenses, that makes operating costs at least $700,000. I’m not really going to delve into this, but hopefully they provoke some thought about Acorns as a company.

Acorn’s Growth Model

On the other hand, let’s look at Acorns as a SaaS (Software as a Service) product. As a user, the “aha! moment” for me was the app’s Round-ups feature. Spend money to save money? Sure! Automatic and no hassles? Sure! No extra fees? Sure! Let’s take a look at what their funnel might look like; using the data earlier on to (somewhat) estimate conversion rates:

Simplified growth model using pirate metrics (AARRR)

Acquisition: Users may come from different channels including Google Play Store, Apple App Store, SEO, social media, ads etc. There’s not really a good way to estimate this. We’ll say they’re “acquired” once they sign up.
Activation: We can see that just above 41% of signed up users will create an account and then activate Round-ups. There is a heavy usage of email reminders here to hopefully get tentative users to open an account and deposit some money.
Retention: Once you open an account and put money in, you have to actively remove yourself from the program if you do not wish to continue. Here, we would calculate churn rate — maybe if you’re part of the 5% who have lost money so far you rage-quit.
Revenue: In the form of fees once you’ve started depositing money.
Referral: Acorns have a “Refer a friend” scheme, where both you and your mate get $2.50 when they sign-up.

Upcoming Features

Some new things coming that might be cool

The aforementioned “Found Money” feature
Voluntary super contributions (coming in August)

ETFs

But hang-on, where does my money actually go and how am I even making money? This is where ETFs (Exchange Traded Funds) come in. We had Alex Zaika, Director iShares Australia and Shaun Parkin, Head of SPDR ETF Australia (SSGA) give a little insight on this investment vehicle.

An ETF can be thought as being analogous to a shipping container. The shipping container fundamentally changed how goods are transported and brought uniformity to the market. ETFs are similar in that they are a wrapper for things we’ve already been trading, standardising their accessibility. For example, one may contain all the shares in the ASX500. Fundamentally, an ETF is a passive investment structure that tracks an index. Compare this with a managed fund where a trader is actively investing on your behalf.

Why ETFs?

First of all, ETFs are powerful because they trade like ordinary shares. With one transaction, you garner instant diversification and only pay brokerage once. Imagine trying to buy 500 different shares, collecting 500 times the transaction fee — many wow. In this respect, they are similar to mutual funds. So, imagine shares and mutual funds had a baby — you get ETFs (in simple terms).

Good things about ETFs:

Diversification: there are 3800 shares in the biggest ETF
Liquidity: they trade during normal hours
Cost effective: allow access to top firms with less fee overhead
Accessibility: exposure to different markets and sectors
Transparent: knowing what you own inside the ETF; changes are published daily (managed funds won’t show this information)

Which ETFs?

Now, say you have become a more experienced investor and decide to trade ETFs yourself. What would you look for when choosing one?

What is the underlying index that the ETF tracks? This is something you should understand before trading it.
What is in it? Is it comprised of physical assets maybe?
Is it domiciled? Is it fixed to some country? What about its timezone?
What does it cost? Transaction cost as well as MERs (the associated management fees of the ETF).

The World is Your Acorn

So, if you’re ready to put some change into this thing, I’ll start you off with $2.50. Click my referral link here. Or, you can click here; or click the sweet ass photo below.

Get $2.50 in you account! That’s like, a small coffee. I’m pretty much taking you on a coffee date.

If you made it this far, hopefully I didn’t do too appallingly. Thanks for reading! Let me know what you think. If I have been ill-informed with any of my “facts” — let me know.