When Jeff Cruttenden was in college he noticed that while many of his peers had an interest in investing they lacked the large lump sums of money it takes to meet the minimum to open an account. He began speaking with his father Walter, the founder of EOffering which is the investment banking arm of Etrade, about solutions to this problem, about giving people without large lump sums of money or enough capital to pay huge trading fees. Together, they came up with Acorns. Acorns is an app for the iPhone (will soon be available for Android and the web) that allows it’s users to invest their spare change into an investment portfolio. The app rounds up to the nearest dollar when you make purchases and invests that money. There is no minimum balance and the fee is 1%. Acorns also charges a $1 per month fee. You are able to choose from 5 accounts depending on the level of risk you want to take which includes conservative, moderately conservative, moderate, moderately aggressive, and aggressive. According to the company’s website, “The portfolios are developed with help from Dr. Harry Markowitz, the Nobel Laureate commonly referred to as the “Father of Modern Portfolio Theory.” This theory mathematically supports the concept that introducing uncorrelated asset classes into a portfolio improves the risk-return profile. Basically, we focus on optimizing the diversification of your portfolio across asset classes. Asset classes are represented by Exchange Traded Funds (ETFs) in your portfolios. ETFs trade like stocks and represent broad holdings of stocks or bonds. The optimal allocation of asset classes fall along the efficient frontier where returns are optimized for a given level of risk.” The accounts are all SIPC Insured which means every Acorns account is insured up to $500,000 for fraud. They also have bank level security which includes secure servers, security supported by McAfee, privacy verified by TRUSTe, and physical security. Acorns has raised over $8 million dollars for its venture and has a staff of 20 who work at company headquarters in Newport Beach, California. It’s good to see a start-up, especially one related to finance, catering to the little guy give the horrid state of the economy. This app can also get those who would never even have considered investing their money more interested in their own financial security. If executed correctly, this new venture can most definitely be a winner.
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