Millennials are now in their mid 20s to mid 30s, starting families, and looking towards the future.
However, many Millennials aren’t doing much investing.
According to Business Insider, only about a third of Millennials actively contribute to a retirement account.
This isn’t a surprising trend.
Many Millennials reached early adulthood or entered the workforce just as the stock market came crashing down in 2008.
With that in mind, it’s easy to see why many are skittish about investing.
But the popular trend of microinvesting is changing all of that.
What is Microinvesting?
Microinvesting is exactly the same as normal investing, just with smaller amounts of money.
Instead of opening an investment account in a broker’s office with a few thousand dollars as a minimum…
…you can open an investment account from your mobile phone and start with as little as five bucks.
While it’s still an early concept, microinvesting has definitely been a game changer.
Many apps have sprung up to lure the attention of the millennial market into investing on Wall Street.
A few of these companies have millions of users and billions of dollars in the market.
Today, we host a face-off between two of the pioneers of the microinvesting industry: Robinhood vs. Acorns.
Both seek to capture a piece of the Millennial investing market, but their strategies are very different.
The Story of Robinhood
Founders Vladimir Tenev and Baiju Bhatt may not be robbing the rich, but they have set out to lower the bar to investing for everyone — and they are doing just that.
After college, these two Stanford classmates moved to New York and built two finance companies, which sold stock trading software.
From this experience they learned that for large institutions, stock trades are virtually free, while the average Joe pays up to $10 a trade.
Determined to democratize access to trading in the stock market, they moved back to California to start Robinhood in 2013.
Although Robinhood was only formed in 2013, it has quickly become a force to be reckoned with in the finance industry.
At the time of this writing, there are 10 million users on Robinhood.
Major brokerages like Fidelity, Charles Schwab, and TD Ameritrade have begun copying Robinhood’s fee-free trades model to compete for investors’ dollars.
While it is still early in Robinhood’s existence, there is a good possibility they (along with their competitors) have permanently altered the investing landscape.
Robinhood: Account Minimum
There is no minimum balance requirement to open a Robinhood account, and there is no minimum balance fee.
You don't even need the minimum dollar amount of whatever stock you choose to invest.
For example, if you have your eye on Amazon, and it is trading at $1700 per share, you can invest in a fractional share.
So, if your pockets aren’t that deep, you have plenty of options to choose.
However, there is a $2,000 minimum for margin trading (more on that below).
Robinhood: Investment Options
One of the beauties of Robinhood is that the world is your oyster.
If it’s a U.S. stock or an ETF on the NYSE or the Nasdaq, chances are you can buy it on Robinhood.
You can also dabble in buying options and cryptocurrency, which is a real bonus as not all microinvesting platforms offer these features.
The one bummer we see is Robinhood’s lack of offerings in mutual funds.
One of the most attractive things about Robinhood is commission-free U.S. stock trades.
Yup, you heard that right.
(Of course, regulatory fees still apply. Not much you can do about that).
There are still a few “hidden” fees for things like paper statements and wire transfers.
The most notable ones are a hefty $50 fee to trade foreign stocks and a $75 fee to transfer your account to a competing broker.
(though you could easily skirt this by taking a free transfer to your bank account, then transferring it to the other broker).
But assuming you don’t need some of these bells and whistles, Robinhood’s fee schedule is very generous.
No minimums, no account fees, no commissions.
Robinhood: Types of Accounts
Robinhood only offers two kinds of accounts.
Both are taxable investment accounts.
The basic account is free, but you can upgrade to a Gold account for $5 a month.
The Gold account comes with access to additional market analytics data as well as extended trading hours.
The Gold account also includes access to $1,000 to trade with on margin.
You may use more than that, but you will pay 5% interest annually on the balance.
Users can try a Gold account free for 30 days.
As of the time of this writing, Robinhood does not yet offer a checking account.
They do have a Cash Management product in the works, and interested users can sign up to get on the wait-list for their high-interest account that is linked to a brokerage account.
This includes a debit card and access to a nation-wide network of ATMs with (you guessed it) no fees.
Robinhood: Other Benefits/Features
Robinhood’s main unique feature is its access to options and cryptocurrency.
These offer shinier (albeit riskier) investment options for those who want to stretch outside the bread-and-butter offerings of stocks, bonds, and ETFs.
Investors can find basic information on these nontraditional assets in the articles in the Learn section of Robinhood.com.
Articles cover basic fundamentals, such as “What is the stock market?”, as well as more complex concepts, like “What is cryptocurrency?”.
In addition to the educational articles on the website, Robinhood also offers Snacks — a 15-minute podcast or short newsletter highlighting the top 3 business news stories of the day.
These are a great way for new investors to keep tabs on what is happening in the market and why it’s important.
If you upgrade to a Gold account, Robinhood provides quite a list of additional features: Level II market analytics data, extended trading hours, larger instant deposits, and a full margin account.
Robinhood: Customer Service
Support is not Robinhood’s strongest suit.
Robinhood only offers email for customer service.
There is no chatbot and no phone number (unless you really dig into sources like Reddit).
This is a common complaint about Robinhood’s service offering.
The Story of Acorns
Remember your weird uncle who emptied his pockets and threw all his loose change into a giant water jug when he got home?
Acorns just takes your uncle’s water jug and invests that change in the stock market.
Acorns is different from many other microinvesting apps out there in that it uses the same psychological win that your weird uncle did.
He didn’t have to make any sacrifices or changes to his lifestyle to throw his pennies in the jug at the end of the day…
…but once he got into the habit, he probably never noticed they were missing.
Once you connect Acorns to your debit or credit accounts, it rounds up your purchases to the nearest dollar.
From there, Acorns invests your “loose change” from your purchases.
These Round-Ups allow new investors to clear the mental hurdle of thinking they don’t have enough to invest by making the action passive and invisible.
Acorns: Account Minimum
There is no minimum amount required to open an Acorns account.
However, to start actually investing the money, the account total must be at least $5.
(The cash sits in the virtual “water jug” until your Round-Ups or contributions reach the five-dollar mark.)
Acorns: Types of Accounts
Account options is one area where Acorns shines.
They offer a basic, taxable investment account (called Acorns Invest) for a dollar a month.
This offers the Round-Ups feature, which can be connected to a debit card, credit card, or checking account.
Acorns also offers Acorns Later, a tax-deferred retirement account.
It includes all the features of Acorns Invest, as well as your choice of a Roth, SEP, or Traditional IRA.
The retirement account costs two dollars a month.
Many microinvesting platforms are looking to grow their product offerings, and Acorns is no exception.
Acorns has plans to offer an Acorns Spend account in the future for three dollars a month.
This will include everything in Invest and Later accounts, as well as a checking account that is connected to your other Acorns investment accounts.
Acorns Spend accounts do not charge ATM fees.
The Acorns website also notes this account offers “up to 10 percent bonus investments” from local vendors, but does not elaborate further on what that entails.
Acorns: Investment Options
Acorns portfolios are preset mixes based on your risk tolerance, similar to target retirement date funds.
These portfolios are put together by Nobel-prize winning economist Harry Markowitz.
After answering a few questions about your risk tolerance and age, Acorns will recommend a portfolio just for you.
With Acorns, there is no option to select individual stocks, and the portfolios lean very conservative.
Even the moderate portfolio is still 40 percent bonds.
Customization in Acorns is extremely limited.
If you are looking for fancy investing choices like cryptocurrency or options, you will have to look elsewhere as Acorns does not offer them at this time.
Their focus seems to be on beginning investors, not those who are looking to branch out into speculating on riskier assets.
For those looking for a classic, broad, and diversified portfolio, Acorns has got it made.
Like Robinhood, Acorns offers commission-free trades.
But instead of dinging customers with hidden fees, Acorn charges a monthly fee for their services.
There are no other fees unless your account total is greater than $1 million.
At that point, Acorns charges 0.25% per year to manage your Invest account and $100 per $1 million to manage your Later (retirement) account.
Acorns: Other Benefits/Features
Acorns aren’t just this company’s logo.
They actually do plant acorns.
In 2019 alone, Acorns planted 438,000 oak trees to fight climate change and reforest areas affected by fires and floods.
While this isn’t an account feature, it is a testament to the values of the company and a great win for the environment.
Oh, and it is a win as for customers seeking to align their investing platform with their values.
Another feature unique to Acorns is that they don’t just invest YOUR money.
Acorns has partnered with several well-known companies (Barnes and Noble, Walmart, Air BnB, Groupon, etc.) to create an incentive program.
It’s like eBates or Rakuten giving you money to invest instead of cashback.
You link your debit/credit card to Acorns, then you receive cashback to invest from these Found Money partners when you use it to make transactions.
This is an extra boost to your investments at no additional cost to you.
Acorns: Customer Service
Acorns offers phone and email support for their customers.
(The phone number is buried deep in the gift cards section of the website, but it’s easy enough to find with a simple Google search.)
Robinhood vs. Acorns: Room for Improvement
As you can see, each of these platforms has some decided strengths, but there are improvements we’d like to see in each one.
Where Robinhood can improve
Robinhood does offer a wide variety of stocks, REITs, and ETFs, but we wouldn’t mind seeing some mutual funds in there, too.
The ability to buy a customized mix of securities is fantastic, and it would be great to transfer this customization to a retirement account offering.
With all these benefits, we can see a long-term relationship with Robinhood.
So, can we please have your phone number?
Where Acorns can improve
While the value you get from an Acorns account is definitely worth a dollar a month, it’s a little harder to justify when there are free options like Robinhood available.
We are excited on the extremely low barrier of $5 to start putting your money to work, but we are not as enthused about a pre-set, cookie-cutter approach to portfolios.
These are great for very green beginners, but as Acorn customers become more educated investors, they will likely want the ability to customize their portfolios with specific stocks, bonds, and ETFs.
Robinhood vs. Acorns: Which is Right for You?
The great thing about all these microinvesting apps is there is something for everyone.
If you’re a brand new investor that has never saved much and wouldn’t know a mutual fund if it bit off your nose, Acorns is likely your cup of tea.
Acorns uses the psychology behind not noticing small, incremental changes and plays this to your advantage.
This app encourages you to dip your toe into the brand new world of investing without major changes to your lifestyle.
It’s also great for those who favor a self-balancing, conservative portfolio of investments, or those who want to put their investments in a tax-advantaged retirement account.
If you’re a little more seasoned in investing and want to play around with individual stocks or options outside your employer’s 401K, go with Robinhood. Its commissions-free trade structure provides a great way to practice evaluating stocks or experimenting in day trading without losing your shirt.
Robinhood’s education features make it easy to gain the confidence to branch out even further to options and cryptocurrency.
The Real Returns on Microinvesting
While you likely won’t get rich with the small amount invested in any microinvesting apps, the returns may be greater than the 7% you earn on the loose change.
The real win in microinvesting is investing at all. Getting past the barrier of ignorance and fear of investing is a high hurdle to clear – one that has held back a generation of investors.
Microinvesting is paving the way for Millennials to get the practice, education, and platform they need to invest in the market in a meaningful way — one nickel at a time.
Have you had investing success with Robinhood or Acorns? Tell us about your experience with your favorite microinvesting platform in the comments below.