Exclusive: How much Acorns savers amassed by investing spare change
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How much money would you save up if you invested your spare change in the stock market? The answer, in practice, seems to be about $2,500 over nine years.
Why it matters: One of the most controversial concepts in the world of financial advice is the idea — sometimes called "the latte factor" — that saving small amounts of money can add up to significant wealth over time. Now we have empirical evidence as to whether that's true.
Zoom out: Can abjuring avocado toast get you enough money for a house downpayment? No. But the magical lure of compound interest is strong.
- "The simple math of giving people a tool to take advantage of compounding is fundamentally necessary for everybody," says Seth Wunder, the CFO and CIO at Acorns, a company founded to bring investment products to everyone.
Zoom in: Acorns' flagship product rounds up all your debit card purchases and invests that spare change in the market. If your avocado toast costs $14.25, then $15 would leave your account, and $0.75 would get invested.
What they found: Acorns shared with Axios a spreadsheet showing what happened to the money invested by the cohort of Acorns customers who were verified in 2015 and whose accounts were still open as of March 6, 2024.
- In total these customers contributed $270 million in roundups and another $543 million in scheduled deposits. They also, of course, withdrew some of those savings from time to time. By February 2024, they collectively had $426 million in savings.
By the numbers: To get a feel for what those numbers work out to on a per-person basis, I took the average monthly roundup of $2.5 million and divided it by $43, which Acorns says is the average amount rounded up per customer per month, to arrive at a cohort size of just over 57,000.
- Then I assumed that total assets and net inflows, respectively, could be attributed to roundups and scheduled deposits in proportion to the relative size of those flows.
- After making those assumptions, I ended up with the chart above — the accuracy of which has not been confirmed by Acorns and should be taken as a good-faith estimate from Axios, rather than anything official.
- The chart shows that the cohort contributed a gross amount of about $4,700 per person over the period, and a net amount, after withdrawals, of about $1,750. Add in another $750 in investment returns from a surging stock market, and they end up with roughly $2,500 in total from their roundup savings.
Between the lines: For the first year or so, the cohort saved almost all of their roundups and withdrew relatively little. Over time, however, withdrawals get larger, and in November 2023, the net monthly inflows came close to being negative. Over the past year, net inflows have been pretty flat, and savings gains come mostly from investment returns.
- That's probably a function of cohort dynamics, rather than any structural change in savers' behavior in the past couple of years.
- Savers who closed their accounts before March 2024 aren't included in this data. But when they closed their accounts, they will have withdrawn all their money.
- That phenomenon, of withdrawals preceding account closures, will generally cause the net roundups line to be flatter near the end since it includes accounts with large withdrawals that haven't yet been closed.
The bottom line: "The beauty of spending $3.75, and having 25 cents left over and put into an investment account, really does add up to meaningful amounts of money," says Acorns' Wunder.
- Now we know just how meaningful the amount is — enough to buy a decent vacation, but not remotely enough to make a down payment on a house.
