We share our thoughts on Round Up Investing

Written by Travis Stanley

Round Up Investing? Here’s what we think

If you’re yet to hear about round up investing, otherwise known as “Acorn investing”, it’s only a matter of time before you do. This new financial trend started in Australia in 2016 with the launch of Acorns and has been a hot topic which has raised a lot of discussion and debate since it launched.

So, what’s round up investing? What’s the debate and what do we think? Let us break it down for you.

What is round up investing?

Round up investing, is a saving scheme which rounds up your everyday purchases and puts it directly into a savings accounts or investment portfolio. Most round up schemes allow you to choose either a $1 or $5 automatic round up. Apps like Raiz, previously known as “Acorns”, manage your round ups in share portfolios to the investment profile of your choosing. Other more recent programs such as ING’s everyday round up scheme deposit the round up directly into a high interest savings account.

It is the modern-day version of a loose change jar.

Here’s an example of how it works,

You purchase a coffee for $4.20, your round up program will automatically round this purchase up to next dollar so 80c will be deposited into your investment/saving account.

What is the debate?

The debate around the value of round up investing is mainly about cost verses benefit.

Whilst the cost of a round up investment account may seem small (Raiz for example costs $1.25 per month), given the small average account size of round up accounts, the associated fees can be high in comparison to other options, sometimes upwards of 3% of the account balance.  The investments that some of these platforms use may have a higher cost than the same investment available elsewhere.

With all investments your “Risk Profile” always needs to be assessed and your investment portfolio needs to match that. With any investment account you need to be prepared to lose money and the longer you are prepared to invest for reduces the risk of having to cash out your investment when it has lost money. Many millennials jumped at the opportunity to have their money managed in shares by a third party for a seemingly low cost, depositing extra money into their account and using it as their primary savings accounts. Claims have been made that some lost more money than they made, however factors like the investment term and portfolio choice (conservative, moderate, aggressive) all need to be considered.

On a more philosophical level these round up platforms gain access to your spending habits, they know where you spend your money and what you spend it on. The app provides insights such as your carbon footprint based on your spending and even tells you how much more you spent on taxi services or entertainment expenses compared to previous months. However valuable this data is, on the flip-side it can also be used to cross market other products and services to you, potentially encouraging you to spend more money.

What do we think?

If it’s going to help you save more then we encourage it, as famously quoted “a little progress each day adds up to big results”.

The important thing to remember is that round ups are essentially a saving scheme not an investment plan. If you’re looking to make money off a couple of hundred dollars this kind of system is unlikely to give the results you are hoping to achieve. It is great however at creating savings funds, especially for those who aren’t good at saving in the first place. Essentially it should allow you to accumulate savings without you even noticing you’ve been putting any away.

We do suggest that if you are going to invest in a mix of shares, property and cash you should be invested for the timeframe that is being suggested in the platforms’ product disclosure statement or, if you are just looking for a savings plan, consider using a low risk platform that are starting to be offered by some of the banks.

With that being said “doing something is always better than doing nothing”.

By Travis Stanley
Financial Adviser

The information contained in this article is general in nature and does not constitute personal financial advice. It has been prepared without taking into consideration your personal objectives, financial situations and needs. Before acting on any information contained in this email you should consider the appropriateness of the information having regard to your objectives, financial situations and needs.


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