You don’t have to look very far to find a financial expert who will tell you that one of the keys to successful financial planning is to make financial transactions automatic. While Baby Boomers and some Gen Xer’s had to get into the habit of setting up automatic financial transactions, for millennials, it’s first nature.
Financial Apps that make investing automatic and cheap could be just what millennials need in order to jump start their tepid foray into the financial markets.
Case in point, Acorns. Users download the app and get three different options for how they would like to invest:
- Round-Ups: With this option, purchases made with the users debit card are rounded to the next highest dollar. The difference is automatically invested.
- Recurring: This allows users to set recurring daily, weekly, or monthly investment amounts.
- Lump sums: Users invest a lump sum which they can use the app to manage.
The idea for Acorn, started by father and son Walter and Jeff Cruttenden, was born from Jeff’s observation that some of his college friends were interested in investing but could not come up with a lump sum or afford minimum balance requirements.
There are no minimums to use Acorn, and the service costs $1 a month for accounts under $5,000. The company invests in six low cost Exchange Traded Funds (ETF’s). ETF’s are securities that trade like stocks. Unlike individual stocks, however, they track an index like the S&P 500 or a commodity, bond, or a basket of assets like an index fund.
The choices offered on Acorn are:
- Pimco Bond Index ETF
- Black Rock’s IShares Treasury Bond ETF
- Vanguard Small Cap ETF
- Vanguard REIT ETF (Real Estate Investment Trust)
- Vanguard S&P 500 ETF
- Vanguard Emerging Markets ETF
“It’s a great idea, particularly when you think about where millennials are at in terms of investing – their participation rates are at historic lows,” says Art Hogan, Managing Director, Chief Market Strategist at Wunderlich Securities.
“They got a late launch. The economic downturn meant they had a hard time getting jobs. Many of them opted to go to grad school and had to live at home with their parents. In addition, all of the bad news associated with the economy made them distrust the markets,” Hogan adds.
“If they don’t start investing now, they’re going to get lost when it comes to retirement and wealth building. Apps that make it easy is could be just what they need to catch up.”
These financial apps may have arrived just in time for millennials. A survey by Black Rock, finds that 45% of millennials are more interested in investing in the stock market today than they were just five years ago.