Sunday, April 03, 2016

Why I Cancelled My Acorns Account


I very recently cancelled my +Acorns account. Despite the excellent app and overall product experience, it is not a fit for my needs. Two problems arise from my experience with Acorns. The first problem was the randomness, which could be fixed by not rounding up. The second problem is that they use modern portfolio theory (which money geeks call MPT). A third issue is not related to Acorns itself, but my own move towards simplification.

Randomness


The idea of taking spare change and investing it has an allure of simplicity. Surely, you would not miss a few cents here and there, right? Sure, until it adds up to real money. I think my highest 30 day contributions reached around $70. That's real money out of my monthly budget, not just change. While the occasional draft of $5+ from my checking account does not interfere with my spending, I realized that the $70 could be going towards my other accounts or goals. I didn't realize that spare change is real money.

Downside Protection


With regards to modern portfolio theory, I at one point thought it to be the best way to invest. As my financial journey leads me to better understanding of money, I have come to realize some of the shortcomings of MPT involve downside protection, which is nonexistent. There is no amount of asset reallocation that is going to help you when the overall market gets its ass handed back to it. A loss is a loss.

I cancelled my +Betterment account last year because they also rely on MPT. I do like the idea of robo advisors; but, find that they rely too much on MPT alone. I did find and sign up with robo advisor +Hedgeable to manage my money. As the name implies, Hedgeable hedges against losses by actively managing risk.

What this means in real terms is that if there is increased market risk, Hedgeable is not shy about cashing out and waiting for things to improve. They would take a loss like everybody else, although it would be a small loss.

Acorns does not offer downside protection. At best, the algorithms will rebalance your portfolio. There are benefits to rebalancing; but, they do not include making up for large losses.

Simplification


The third reason I mentioned was a personal move towards simplification, which has nothing to do with Acorns. I think they product is very well done and serves people who might not otherwise save money. However, for those who have some modicum of self-discipline and awareness about their finances, Acorns may not offer sufficient value. At the very least, Acorns is one more account to keep track of, one more app on your phone, one more demand of your time. For me, this is one too many at this point of my life.

Part of simplification also includes knowing precisely how much and when my deposits into my savings will occur. This way, there is no tiny nagging voice in my head telling me to be on the lookout for an automatic transaction.

I Am Still Favorable Towards Acorns


Despite my leaving Acorns, I still have positive regard for them. As mentioned earlier, Acorns provides an easy way for people to start putting money away for the future, which they may not have done on their own. Furthermore, if somebody with little financial sophistication is going to put money into the market, it is better to use modern portfolio theory than to buy individual equities.

In short, if somebody I know and care about asks about getting started in investing, Acorns might be one of my first suggestions so that they at least have a sense of getting started. Then, as their level of understanding increases, I might point them towards other products.
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