Smartphone Investing Applications

By Krystina Trogolo

A new culture of investment has recently emerged. This new financial platform is redefining the conventional target market of investment sales to include first time investors with little capital disposal–i.e.- Generation Y. Now, in 2016, the average college graduate has $37,172 in student debt. Millennials are virtually unable to absorb the financial realities of their present, let alone invest toward their future. Student loan debt, coupled with runaway rents, and an overall higher cost of living, make millennials terrible consumers for brokerage services. That is, until now. iPhone applications such as ACORNS, Betterment, and Robinhood have figured out a way to cater to the average millennial, a market that is practically untapped. These apps adopt an “investing for dummies” approach in order to attract their target audience. Although differing slightly in construction, for the most part, the majority of these “micro-investing” companies place subscribers into an assortment of exchange-traded funds (ETFs) based upon very rudimentary investment-profile principles.

Among the most popular of these iPhone apps is “ACORNS.” ACORNS is one of the fastest growing investment apps on the market. The software is such that, when a user completes a transaction via their credit or debit card, ACORNS will automatically round the transaction to the nearest dollar. ACORNS subsequently invests the deduction into a user-set diversified portfolio. In other words, ACORNS will invest your chump change for you. Put differently, ACORNS “helps millennials manage the money they don’t have.

As of 2016, 75% of ACORNS accounts belong to millennials, with a great weight of their customers ranging from 18 to 34 years old. Not even a year post launch, ACORNS has hundreds of thousands of users, and is backed by companies as large as PayPal. So what makes ACORNS so popular? Without a doubt, the allure of a product such as ACORNS lies in its effortlessness. Aside from setting up an account, the user does almost nothing, all the while generating small and steady savings. What is more, ACORNS eliminates the need for a broker, and discounts commissions altogether on any account with a balance below $5,000. Moreover, though it is possible to lose principal on ACORNS, the conservative nature of the recommended investments make for less volatile consequences than that of a traditional investment.

ACORNS’ overwhelming success leaves some to believe that micro-investing mobile applications may in fact be the future of investing. The success of a micro-investment platform could lead to the implementation of similar products for large-scale investments. Though this is plausible, it is unlikely. The necessity for companies such as ACORNS is largely contingent upon its simplistic technology. In order to remain user-friendly, the product must yield to certain pitfalls, such as lack of investment options. Because the average ACORNS user is an unsophisticated investor, this is actually an advantageous characteristic. However, for those sophisticated investors, the elementary nature of micro-investment companies will likely not suffice for their investment needs. Hence, though it is undeniable that ACORNS has streamlined traditional investment practices, for now ACORNS is simply filling a gap, which had not been previously occupied.