Raiz Invest Ltd (ASX: RZI), formerly known as Acorns, is a micro-investing app targeting millennials to regularly invest pocket change in ETFs. Should you consider using it to invest pocket change?
How It Works
The idea of Raiz is to promote regular saving and investing through three main ways – round-ups, automatic investments and one-off lump sums.
One of its key features is that the app has a round-up option which can be linked to your bank account, so every time a payment is made (e.g. your $3.70 morning coffee) it automatically rounds up to the nearest dollar ($4 in total, with 30 cents invested).
Automatic investments work like regular direct debits every week, month, or whatever time frame you decide. Lump sums are self-explanatory, they can be for any amount at any time.
After you ’round up’, Raiz Invest takes the money and invests a variety of Australian Exchange Traded Funds or ETFs (up to 7) according to your portfolio section.
Video: What Is An ETF?
Breaking Down The Fees
For the ‘moderately aggressive’ portfolio, Raiz charges fees to invest in the ETFs which is 0.265% per annum. I calculated this figure based on the allocation to the various ETFs inside Raiz to verify the costs for myself.
The 0.265% fee to buy into the ETFs is pretty good considering it’s the exact same cost you’d incur if you bought the ETFs directly on the ASX — and there are no brokerage fees (the fee to buy and sell an ETF using a normal share brokerage account).
For investment balances under $5,000 Raiz’s account fee is 0%. However, once the account balance goes over $5,000 an account fee of 0.275% per year is charged, which would effectively double the costs on a ‘moderately aggressive’ portfolio.
There is also maintenance fee of $1.25 a month for accounts under $5,000, which works out to be $15 a year and less than brokerage fees you would incur to buy a couple of different ETFs in your share brokerage account.
In the Product Disclosure Statement (PDS) fine print — who doesn’t love financial fine print? — there are some other fees which Raiz may charge you.
My View
I personally don’t like the concept of rounding-up. It seems silly to me to link the very act of spending money to saving because the two are complete opposites. I think some people may fall into the trap of spending all their money without setting any savings aside or continue to spend all their money and justify it by telling themselves they are saving.
I think it is important to establish good saving habits such as setting aside 10% (ideally more) of your income and investing it. This is where the regular automatic investments each week could be useful.
If I was to use Raiz I would only do this to save amounts up to $5,000. Once I got close to $5,000, I’d cash out and invest the money in an ETF myself to ensure I pay double the fees for nothing.
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Disclosure: at the time of writing, Andrew does not own shares in any of the companies mentioned or use Raiz Invest.
