Financial planners tell the rest of the population how to invest based on logic and structure. But most people look beyond just numbers when making decisions.
Recently Gary Stone, chief executive of Share Wealth Systems and author of Blueprint to Wealth, wrote about Millennials being ripped off by investment apps such as Acorns. He pulled out his calculator and came up with a number of 6.2 per cent in fees that people with small balances were paying Acorns. He claimed this was outrageously high compared with other managed investments. But he has missed the point.
An investment app such as Acorns is not a managed fund. It's an education and investment tool. For just $15 a year the app provides access to markets that are not otherwise accessible unless you meet the minimum investment amount of the fund.
The round-ups feature, which is not yet available for most other investment options, means they can save money without really trying. It's pointless to look at where else they might have invested when it's not clear they would have been able to save the money in the first place.
The educational component of the tool is that it allows investors to get used to riding the waves of the sharemarket with a small investment. Watching a $200 investment increase to $250 and go down to $170 in only a few weeks exposes Millennials to the emotions of investing. Once you build a tolerance to the volatility in share price movement, you become a more sophisticated investor. You no longer buy or sell based on media speculation but make decisions based on quality information.
During the global financial crisis many Baby Boomers panicked and sold their stock investments and moved it into cash. The loss was only on paper but as soon as they had a knee-jerk reaction to the market and sold, their losses were realised.
Investment apps such as Acorns prepare Millennials for the real world of investing by seeing how their investment responds to global events. Perhaps if the older generations were fortunate to have access to apps such as Acorns they would have been better equipped to cope with events like the GFC.
The $15 a year education fee seems like the best investment considering it may have saved investors hundreds of thousands of dollars in market losses. But then again, that $15 could have been used to purchase a latte and some good smashed avo!
Phil Usher is the founder of Cheeky Investor.
The story Criticism of Acorns' fee structure is missing the point first appeared on The Sydney Morning Herald.