What's inside an Acorns portfolio?

What's inside an Acorns portfolio?

Updated May 6, 2019: Acorns is a novel investment app which, when linked up to a funding account, will round up every purchase to the nearest dollar. It will then invest that money in a portfolio of stocks and bonds.

I started my Acorns account around the middle of November 2015. By the 18th, my account was established and my first investment had occurred. I initially opted for the moderate portfolio. (Learn how to invest in five minutes or less.)

There are five portfolios to choose from. Every portfolio consists of the same funds, basically a mixture of stocks and bonds. The moderate portfolio is roughly 60% stocks and 40% bonds. A conservative portfolio consists of 20% stocks and 80% bonds. All five portfolios break down into stocks & bonds as follows:

Conservative: 20% stocks / 80% bonds
Moderately Conservative: 40% stocks / 60% bonds
Moderate: 60% stocks / 40% bonds
Moderately Aggressive: 72% stocks / 28% bonds
Aggressive: 80% stocks / 20% bonds

Acorns stock funds

All of the stock funds are exchange traded funds by Vanguard. The ETFs we're talking about are sometimes referred to as index funds since each ETF tracks a particular index. For example, one index tracks the S&P 500, which comprises about 500 of the largest U.S. companies.

One huge benefit of ETFs is that you get instant diversification, so your money is not at risk with any one stock or company. After starting my Acorns account I decided to figure out exactly how many different stocks were in each index. The total number of stocks is 6,805. The breakdown is shown below with hyperlinks to the specific Vanguard page for each ETF:

The bond portion of the Acorns portfolio comes from iShares:

Most investment products show the growth of $10,000 over a certain number of years to help get a historical perspective of what may be expected in the future. For the Vanguard funds I was able to create a comparison chart of the four Vanguard funds used in the Acorns portfolio. Below shows what investments of $10,000 in each of the funds have done over the preceding 5 years, from December of 2010 through December of 2015.


Depending on exactly which ending point is picked, these four funds essentially grew from $40,000 to about $60,000 in five years. The Vanguard S&P 500 fund (VOO) didn't exist prior to 2010 so five years was the maximum data available for all five funds. The Vanguard Emerging Markets fund (VWO) looks a little dismal but over a 10-year period it has produced an average annualized return of a little over 5%. It’s still a bit dismal in comparison to the other funds, but since it's dropped over 3% in the past five years maybe there's some potential growth to be had at a relatively good price right now. Time will tell.

Generally speaking stocks have more risk than bonds. If we look more closely at the four Vanguard ETFs offered by Acorns we note that a Risk Potential is assigned to each ETF. (Learn seven ways to invest outside of the stock market.)

All of the Vanguard stock ETFs carry a risk of either four or five out of five.Vanguard says that funds at a risk level of four or five may be appropriate for investors who have a long-term investment horizon of 10 years or longer. Stock market returns can vary widely in the short term but are less volatile in the longer term.

This leads us into the bonds portion of the Acorns portfolio and one of the few places where I've had concerns with Acorns.

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Acorns’ bond funds

While Vanguard funds are not used for the bonds ETFs we can get a good idea of the risk and return for a comparable Vanguard bond fund such as the Vanguard Short-Term Government Bond ETF (VGSH), where we note the Risk Potential at 1. I like to think of bonds in a portfolio as a way to smooth out the bumpy ride of stocks. The greater the percentage of bonds in the portfolio the smoother the ride. As such, the conservative Acorns portfolio should have the smoothest ride and the Aggressive portfolio would have the most bumps.

Missing corporate bonds

When I originally signed up for the moderate portfolio 33% of my portfolio was in Corporate bonds with 6% in government securities. However, on Dec. 11, 2015 the account was reallocated. The previous 33% allocation to corporate bonds was cut by over a third to the current 20% and the 6% previously allocated to Government bonds was more than tripled to 19%. This change was listed as a rebalance in my Acorns portfolio but seems more like a reallocation.

Other than age-based 529 plans or target retirement fund portfolios which become more conservative as one gets closer to college or retirement, I've never seen a portfolio changed midstream before. When I questioned Acorns about this change on their Facebook page, they claimed it was a due to changing market conditions, (i.e., the Feds raising the interest rates). I'm keeping an open mind about this but from my vantage point I saw a corporate ETF paying a respectable 3.1% get slashed while bolstering the anemic 0.6% in government securities. This was part of the reason I changed my portfolio allocation from Moderate to Aggressive (the Aggressive portfolio holds the lowest percentage in government bonds). Plus, I wanted to take advantage of the lower stock prices which have appeared at the beginning of 2016 to potentially boost long term gain.

Taking stock after one month

After my first full month of investing with Acorns (plus the extra half month I got in November), I ended up with a balance of $108.75. I was paid 42 cents in dividends and charged a $1 fee for using the Acorns service. This left me with a net of 58 cents paid and when divided by my balance yields a fee of just over half a percent at 0.53%.

The dividends got me thinking. The Vanguard stock ETFs pay dividends quarterly while bond ETFs pay monthly. For those of us who are not students or under the age of 24, we have to pay $1 per month or $12 per year for the Acorns service. But I realized there would come a point in our portfolios when the annual dividends earned would equal the $12 per year we have to pay in fees. I looked up the dividend rates for the various securities used in Acorns, then weighted those returns based on each portfolio’s specific allocation to determine the necessary balance in each portfolio to yield a dividend return of $12 per year and came up with the following table:


Some of you may recall we just had a Powerball lottery that broached the $1 billion mark. Over the last two drawings I spent a total of $12 for 6 tickets, the same as Acorns charges for a year's service. I've definitely had more fun with the $1 I've spent so far with Acorns. When my account first hit the $100 mark, I remembered thinking that any fool can carry a $100 bill in their pocket, but it takes a special kind of fool to allocate that $100 in over 5,000 different securities using four Vanguard ETFs, corporate bonds and government securities.

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Image: Alfred Schrock