Acorns vs Stash: Is $10 a Week Investment Worth It?

When it comes to saving and investing for a future trip, many people ponder over the best strategy. Should you go with a popular fractional investing app like Acorns or Stash, or stick to more traditional savings methods?

What Is Acorns?

Acorns is a fractional investment service that rounds up your everyday purchases and invests the difference into a diversified portfolio. It's a simple way for beginners to start investing without needing a huge initial amount. However, investing in something as volatile as the stock market might pose a significant risk, especially if you plan to use the funds for a trip in just about two years.

What Is Stash?

Stash is another fractional investment app that focuses on gamification and education. It offers a range of curated investment categories and learning tools to help users make informed investment decisions. Like Acorns, Stash allows you to invest small amounts of money on a regular basis, making it an appealing option for those looking to start investing early and often.

The Decision: Acorns or Stash?

Given your plan to invest $10 a week for two years, let's explore the implications of using either Acorns or Stash. The goal is to have a sum large enough to cover a trip, but the stock market's volatility brings a significant risk to the table.

Investing $10 a Week

Starting with a simple investment plan:

$10 a week for 24 weeks: $50 a month $600 a year After two years, you would have invested $1,200

However, even with this conservative amount, the stock market's volatility should be a concern. At today's Acorns website, the stated conservative return of 10% is optimistic, especially for a short-term investment.

Consequences of Volatility

For someone who needs the funds in just two years, the market's ups and downs could severely impact the total amount available. A conservative estimate of their return might lead to the following:

Your initial investment would grow to $1,320 (assuming a 10% return). This is less than what you would have in a fixed-term deposit, which typically offers better returns without the risk.

The question then becomes, is this risk worthwhile when you need the money in a relatively short period?

Alternative Savings Option: A Savings Account or Money Market

A more prudent approach might be to keep your money in a high-yield savings account or a money market account. These options provide a much lower return than the stock market, but they eliminate the risk of market volatility.

Why Choose a Savings Account?

A savings account offers:

A fixed interest rate that doesn't change with the market. High liquidity, allowing you to access your funds without penalties. Security, as the funds are insured by the FDIC (for U.S. accounts).

The Compromise Between Security and Return

While a savings account might not offer the same growth potential as the stock market, it ensures that your money is safe and accessible when you need it. If you’re unsure about how the market will perform in the next 18 months, this could be a more suitable choice.

Conclusion: Balancing Risk and Reward

The decision between Acorns, Stash, or a savings account ultimately depends on your risk tolerance and the timeframe for your investment. For someone planning a trip in two years, the stock market's volatility should be a primary concern. Opting for a savings account or money market account could provide the necessary security and peace of mind.

In summary, $10 a week investment in Acorns or Stash might not be the best strategy for a trip in two years. Consider sticking to a savings account or money market to ensure your funds are secure and easily accessible when you need them.