I’ve been using Acorns, the app to “help anyone invest” for a little over a year, mainly as a curiosity. One common theme I’ve seen amongst Acorns users is the disappointment with the lack of returns throughout their usage. Simply searching “Acorns Returns” online brings up hundreds of posts (many of them, uncoincidentally, occurring on r/investing*). While many chalk down to unrealistic users irritated they haven’t seen their investment quadrupling in value overnight, reading these posts did make me question: what historical data in regards to returns is available for the different Acorns portfolios?
Digging around, I quickly realized the answer was: not much. Acorns itself publishes no info on the rate of returns of its various portfolios, which isn’t unexpected or surprising. Reading the accounts of other users doesn’t cut it for me, since many of them bail after getting antsy or taking their first 2% loss. There’s another camp of users who claim they’ve seen some absurd rate of return (Bro, I’ve seen 65% since May!). What about portfolio statistics? Dreaming of reading about portfolio volatility? Keep dreaming. Point being, tangible data is hard to come by.
Coincidentally, I’ve been playing around with Quantopian, an absolutely awesome python-based algorithmic investing framework and simulation/backtesting platform. Quantopian has access to stock metrics, such as price, volume, dividend/split info, etc, since January 3rd, 2002; Quantopian allows users to backtest stocks and trading algorithms using this data, in order to examine performance of various trading strategies. Somewhere along the line, I had the thought: “Why not just create each of the Acorns portfolios and backtest them to analyze their performance?”. The data provided by these backtests is generally so close to true performance for simple cases that any error is excusable.
Acorns allows users to choose a portfolio based on their risk tolerance and investing goals, all ranging from “Conservative” to “Aggressive”. The five portfolios are really just different target allocations in six ETFs: VOO, VB, VWO, VNQ, LQD, and SHY. The first four funds are Vanguard ETFs and the last two are iShares bond ETFs. The portfolio distributions are shown below, with the Aggressive portfolio being shown on top and the Conservative portfolio on the bottom.
This is basically all the info required to build these portfolios within Quantopian. Each security in the portfolios is added to the trading list, and a rebalance function is scheduled to run every day 1 hour after the market opens. In reality, the Acorns portfolio rely on new round-ups and contributions to keep allocations at the right percentages, but this method of simulation seems close enough. I also set the backtest to only hold long positions, and made sure the trading commissions were zero (so as to only focus on the portfolio performance, and not the Acorns fee breakdown). The entire algorithm is shown below.
""" Attempts to model the Acorns Agressive Portfolio for performance modeling. Backtesting is limited to September 10, 2010 (first trade day of $VOO). Acorns keeps allocations exact by purchasing fractional shares. Since this isn't generally possible, a larger initial capital must be used (>$10K). """ def initialize(context): """ Called once at the start of the algorithm. """ set_long_only() # Each security in the ETF along with the target percentage context.voo = (sid(40107), 0.14) context.vb = (sid(25899), 0.25) context.vwo = (sid(27102), 0.20) context.vnq = (sid(26669), 0.30) context.shy = (sid(23911), 0.05) context.lqd = (sid(23881), 0.06) context.security_list = [context.voo, context.vb, context.vwo, context.vnq, context.shy, context.lqd] # Rebalance every day, 1 hour after market open. # In reality, the Acorns app banks on additional buys # To keep the allocations correct. schedule_function(rebalance, date_rules.every_day(), time_rules.market_open(hours=1)) # Fees are zero, if you're on the "student plan". set_commission(commission.PerShare(cost=0, min_trade_cost=0)) set_commission(commission.PerTrade(cost=0)) def rebalance(context,data): """ Execute orders according to our schedule_function() timing. """ for security in context.security_list: #rebalance to target percentage if data.can_trade(security): log.info("Rebalancing %s to %s percent" % (str(security), str(security))) order_target_percent(security, security)
The only thing that changes between each of the Acorns portfolios is the target percentages. Everything else remains constant, which makes backtesting and examining the different portfolios incredibly easy. Three backtest start dates were chosen: September 10th, 2010, September 10th 2014, and October 8th 2015. Each backtest ended on the same date: October 7th 2016. The returns (%) for each backtesting window are summarized below.
Upon first look, it appears that the returns are reasonable and on par for each portfolio description, and I can confirm that the returns are very close to the actual returns I’ve experienced during my usage of the app over the last year. Returns diminish fairly monotonically from aggressive to moderate as one would expect.
There’s a catch though: I didn’t include the S&P500 benchmark performance in the results.
In all the backtest windows, the S&P500 destroys the Acorns portfolios. Suddenly, the 10.57% short term return doesn’t seem so great after realizing the S&P500 did almost 13 percent in the same year. Take a look at the Quantopian backtest results for the aggressive portfolio, the best-performing one of the bunch, over the last year.
The portfolio almost exclusively underperforms the S&P500 in terms of returns. It’s also worth nothing that the drawdown during the January-Feburary time period of 2016 is worse than that of the S&P500 as well.
At this point, the logical thought is “Of course the drawdown sucks, because this is the Aggressive portfolio.” And you’d be partially right. Take a look at the results for the conservative portfolio during the same time period:
The drawdown during the same period is hardly better than the S&P500, which fell over 3% from the starting point in the beginning of October 2015. Rather disappointing, given that the portfolio is billed as a “safer bet” option for investors. The backtest results over the last year of all five portfolios are given below, for anyone interested.
My final thoughts? It’s not that these portfolios are bad. They’re decent portfolios, especially for beginning investors who are looking to stash away a few pennies here and there with minimal effort and a simple fee structure. Is a 6-10% return better than holding onto a pile of cash and losing out to inflation? Absolutely! An Acorns portfolio serves as an excellent “baby’s first investment”. I just can’t help but shake the disappointment that all five portfolios have underperformed the market in most, if not all, previous financial circumstances. For anyone beyond the novice saver/pocket-change investor, it makes more sense to invest wisely in a few basic ETFs (i.e. NOBL/UPRO) and call it a day. A true zero-fee investment experience can be had by using Robinhood, potentially saving the $1 per month fee. Smart savers who appreciate the auto round-up feature of Acorns can enjoy Wealthfront‘s auto-deposit feature with the added benefit of Tax-Loss harvesting.
Do you have thoughts on my analysis of these portfolios or my backtesting strategy? Let me know in the comments. I appreciate reader input.
*r/investing deserves a post of its own. Similar to r/fitness, the “beginners pretending to be experts” culture leads to an unsurprising amount of awful advice. Trust the internet at your own risk. Trust the internet with investment guidance at your bank account’s risk.
20 Replies to “Analyzing the Performance of Acorns Investment Portfolios using Quantopian”
Interesting. I went to try it for myself with Quantopian using your algorithm but it appears to be incomplete in your post. 🙁
Oh, perhaps it is complete. Nevermind! I guess that shows how little I know of python!
Nice, I was just checking on Quantopian and it (looks like) it is working?, as far as I can tell. Mind, you’ll need to change the target percentages to reflect each portfolio, but the algo itself should be working properly. Let me know your thoughts if you have any!
Great post! Got to this from searching for “Acorns best portfolios” and learned quite a bit. Thanks 🙂
Glad I could help! If you haven’t already, go ahead and run the code on Quantopian and simulate the portfolios up until the current date. I think that’s the best part of this setup…you can check to see how things have changed since the actual post was made!
Wow, thanks for doing the work. That’s good to know. Acorns is probably not for me but I’m sure it helps some people. Like you said, it beats losing money due to inflation.
You’re welcome! Glad you found it useful. Cheers!
Very informative. I just started with Acorns and fall in the “beginning investors looking to stash away a few pennies” category.
What are you thoughts on the maximum amount one should have invested with Acorns?
Glad I could help!
Because of the Acorns fee structure, it actually makes sense the more you invest with them. $1 is a massive amount if you only have, say, 300 dollars in there. However, as you get closer to their $5000 mark (where they move to fixed percentage of 0.25% APY), it starts to look like a reasonable deal compared with other options like Wealthfront.
For the past 18 months I have an average 11.86% return on acorns. I like the app as a no brainer way to keep me investing on the daily. I have a reoccurring investment as well as multipliers set and it keeps the account growing nicely. Could I have done better, sure but I enjoy knowing that everyday I am putting something away that also gets a decent return.
I think you’re the perfect example for where this app shines. It might not be perfect, but helping someone save and grow their savings at a rate higher than what it would be otherwise (nothing, really) is awesome!
Joe, may I ask which portfolio you’re using?
Thank you for taking the time to explain all of this information in such detail!
Hey Jay, I loved your article, I have been using Acorns for the past 6 months and I have actually profited money! I even wrote an article about it, which you can check out. https://www.linkedin.com/feed/update/urn:li:activity:6336308739729039361
My question though is an investing question. I’m going to give some background. I am 22 years old, and my Acorns account projects that if I invest $280 per week, by 50 years old, I will 1 million dollars! I have the moderate investing option set up because I am a recent graduate. My first question is 1) How accurate do you think that projection is? It shows a 6% annualized return as my potential. My second question is 2) I know Acorns charges $1 per month for accounts under $5000. For accounts over $5000, does the 0.25% APY mean that 0.25% of my money will be taken out every month after I hit over $5000 or will it be 0.25% of my money will be taken out every year after I hit over $5000? Also does it make sense to withdraw the majority of my money from my account into a saving account before I hit $5000, so I still pay the monthly fee of $1? I know it’s a lot of questions, I am just very curious and eager to plan ahead for my future! You can contact me here or at email@example.com at your earliest convenience. Thank you!
The projection is probably fairly accurate, since 6% is really an annualized long-term average that takes into account inflation and really bad years (like 2007-2009) in addition to the really good years, where the S&P can do 15-20%. The thing to realize here is that $280 per week is actually a fairly high rate of savings, that’s around $1100 a month.
That 0.25% mark means that you’ll be paying exactly $1 a month on $5000. When you have _less_ than this invested, the $1 a month is actually a _higher_ percentage fee base when you look at the total amount of money you have invested. Once you’re at the 0.25% mark, it ends up being accrued yearly, but the total you pay in fees is equal or greater than $1 a month, if that makes sense.
If I did my math right the same 5,000 that is now costing 1.00 per month will cost 1.25 per month after it hits the 5,000 mark. Is that right?
Hi, if i need to add threshold of 20% for rebalancing, what would be the code line that I shall add into your script. Thank you very much.
I get that its for hands-off investors, but I find the shopping portal: i.e. “found money” to be worthwhile, and they periodically do heavy referral bonuses.
Out of curiousity, why do you recommend UPRO instead of something like VOO, the Vanguard S&P tracker, which has .9% less of an expense fee?
Great post my friend! Answered all my questions about Acorn. Keep up the good work.
Great post! Thank you for explaining everything, it all makes more sense to me now!