A bevy of surveys paint a pretty clear picture: Today’s young adults don’t trust the financial markets.
Fewer in the younger generation—broadly dubbed the millennials—are putting their money in traditional investment markets after they saw turn upside-down in 2008. Instead, they are holding onto the cash. Online credit card marketplace, Austin,TX-based CreditCards.com, says over a third of people 18 to 29 have never had their own credit card.
Only 26 percent of adults under 30 say they own stock, according to survey results from March published by Bankrate.com. More than 50 percent of those who don’t invest in stock say it’s because they don’t have enough money, while another 30 percent say it’s because they don’t have enough knowledge or don’t trust brokers, according to Bankrate.
A company called Acorns in Newport Beach, CA, which received a $23 million Series C round today, may be changing that. Acorns’ app links to a user’s debit and credit cards. When a person makes a purchase on the card, say $1.50 for a soda, he or she can round the amount of the purchase up to, for example, $2.
Acorns then sets aside that extra 50 cents to invest it in a diversified group of index funds, typically what are called exchange traded funds (ETF). An ETF invests in companies that are in the index it tracks, such as the S&P 500. Acorns recommends portfolios based on factors including a user’s age, income, and investment time horizon, though the user can chose a portfolio as aggressive (potentially risky) or safe (potentially lower returns) as they want, the company says.
The company, founded in 2012 by father and son Walter and Jeff Cruttenden, received help developing its investment method from Harry Markowitz, a Nobel Laureate and economist now at the UC San Diego Rady School of Management. Markowitz’s ideas about diversifying investments to reduce risk and maximize returns have become the basis of modern portfolio theory.
Acorn will start investing for an individual when a person’s pool of change reaches $5. Acorns charges a fee of $1 per month for investors who have portfolios of less than $5,000, and 0.25 percent each year for users with more than that, the company says.
The tool seems to be attracting those millenials. Acorns says that 75 percent of its investors are under the age of 35. Since its founding, the company has attracted more than 650,000 investors who have opened more than 300,000 investment accounts.
With the $23 million, Acorns plans to “scale and drive product innovations,” the company says. It has raised $32 million total. The Series C was led by Greycroft Partners and e.ventures, and Sound Ventures, Garland Capital, and MATH Venture Partners also participated.
