Barefoot Investor: Should you try investing with app Acorns?

KIDS need a strong financial education — but can you aim too high? Barefoot Investor Scott Pape tackles how young people can, and should, invest their cash.

A LOT of people ask me about the youth-focused investing app Acorns.

Its “killer app” is that it collects your spare change and invests it in the share market on your behalf.

The company recently changed its name to Raiz Invest, and this week it had an IPO (initial public offering) and became a public company trading on the ASX (ticker RZI).

If you’re one of the 160,000 young people who are already a Raiz user, or if you’re just an interested punter, you may be wondering if you should invest in RZI.

MORE BAREFOOT INVESTOR

BE VIGILANT WITH YOUR SUPER

Well, thankfully, the difference between being a private company and a public company is kind of like the difference between going on a first date and going on your seven-year wedding anniversary: there’s a lot more disclosure.

So let’s take a look-see.

Raiz states in their prospectus that they make their dough by charging users maintenance fees, account fees, netting fees and advertising fees. Lotsa fees. However, these fees only amount to small beer for the company, because the average Raiz account balance is just $1234 (not a typo!), according to the company.

Raiz Invest CEO George Lucas.

Looking at their cash flow statement, it shows “receipts from customers” in FY 2017 was $990,424. However, “payments to suppliers and employees” for the same period was $3,005,078 (also not a typo!).

Feel the burn, baby.

Raiz has recently launched a super fund version of the app (which is cheap, but not cheap enough for my liking), and is also expanding overseas by targeting kids in South-East Asia, which seems like a very slow ramp-up to me … I’m not sure how much spare baht teenagers in Thailand will have to invest.

So, how did Raiz’s debut on the stock market go?

Not well.

The share price plunged 20 per cent on the first day.

Though I don’t think it helped that ‒— of the $15 million the company tapped investors for — $2 million was trousered by staff, including a $1 million cash bonus for the CEO.

So should you invest via the Raiz app?

I think it’s a great introduction for novice investors, which is why it’s been so successful.

However, after a certain point the fees Raiz charges are too high for what amounts to a cute index fund app.

So should you invest in the Raiz company itself?

Based on what I’ve read, they won’t be getting any of my nuts.

After all, I’ve always thought of Raiz (Acorns) as being a little like your first teenage love: Memorable, but you’re not going to stay with them long term.

Tread Your Own Path!

BILLION DOLLAR GOAL

LACHLAN ASKS: My name is Lachlan, I am 16 years old, and I live on the Gold Coast.

I have a keen interest in finance and economics, and through my part-time job I have been able to build a share portfolio worth $3000, on top of $2000 in savings.

I would like some help on how to best manage my funds as I look to achieve my one life goal: to reach a net worth of $1 billion.

I have thought about joining a super fund, but that idea has continuously fizzled out because I am sure I will never need it.

If you could provide me with some information about how best I should go organising my finances, it would be greatly appreciated.

BAREFOOT REPLIES: Look, I like ambition as much as Malcolm Turnbull … but your one life goal is to become a billionaire?

Just 0.00002 per cent of the global population are billionaires. I fear you’re painting yourself into a corner, cobber!

Anyway, let’s hear from one of them, Bill Gates: “I can understand wanting to have millions of dollars, there’s a certain freedom, meaningful freedom, that comes with that. But once you get much beyond that, I have to tell you, it’s the same hamburger.”

He’s right.

Even Richie Rich, played by Macaulay Culkin, had problems.

Being a billionaire won’t make you a thousand times happier than being a millionaire. As Bill says, you can achieve the lifestyle and the freedom you want with a few million bucks — which is still ambitious but, with enough time and the right plan, is achievable.

So your first goal — your only goal — is not to strive for some pie-in-the-sky figure you think will make you happy.

Rather, it’s to focus on finding something that is guaranteed to make you happy.

How do you do that?

My friend Arun Abey, a wealthy man himself, has a strategy he calls “the three circles”.

It involves asking yourself three questions:

What am I deeply passionate about?

How can I work, over many years, to become truly great at it?

And, finally, how can I make enough money from doing it?

Fulfilment is found at the intersection of these three circles. One last thing: you should keep this article and re-read it in 40 years’ time.

SUPER STITCH-UP

MEL ASKS: Interesting column last week about super not being paid. In my office almost everyone has not been getting super since November last year, and some for 12 months. But, like you said, it shows up on our pay slip as being paid. A few people have approached the boss as far back as last year, and as recently as two weeks, and the boss said that there was a “glitch” with MYOB and that the money is in the “cloud”.

BAREFOOT REPLIES: It doesn’t sound like a glitch … more like you’re getting stitched.

Times change but the bulldust stays the same: it goes from “the cheque’s in the mail” to “the money’s in the cloud”.

Well, after 12 months of not being paid super, it’s about time you made it rain ‒ with your boss’s money!

I’d suggest you go to the ATO website, lodge a complaint, and have them investigate.

Legally, employers have to pay super at least four times a year.

If your boss is looking to the clouds to pay your super, it tells me that: One, the business is struggling. Or two, your boss is a crook.

Neither bode well for getting a gold watch in 20 years’ time. It’s clearly time for you to start looking for another job.

ENOUGH BOOK TALK

BILL WRITES: Love your work but am getting a little tired of all the self-promotion of your book.

Yes, it’s great and I have bought it, put it to good use and made some gains. I also love reading your column for the weekly advice, but it seems that your every response encourages people to buy your book.

Is your column at risk of becoming a grand-scale advertorial and therefore undermining your independent credibility?

BAREFOOT REPLIES: I apologise profusely, and I will stop in three months.

Promise.

(Bill, just skip over the next question; it’s only going to make you angry.)

MONEY FOR THE KIDS

NIKKI WRITES: Last night I was reading your book and my 11-year-old son asked me about it.

I was reading the chapter about credit cards, so I explained the dangers of them to him.

Would you consider revising your book and targeting “tweens” like my son? He is faced with so much more “negative temptation” than I ever was.

Kids of all ages need a good financial education.

He talks about an online shopping site called Wish, and he also talks about gambling because of those horrible Lottoland and Sportsbet ads. I think your advice and guidance would help reinforce some good financial messages for kids.

BAREFOOT REPLIES: As luck would have it, I’m currently writing a new book — The Barefoot Investor for Families: The Only Kids’ Money Guide You’ll Ever Need — that helps parents to raise financially fit kids of all ages, including tweens.

While my last book focused on doing “Barefoot Date Nights”, this one focuses on the entire family having “Barefoot Money Meals”.

It’s due for release in September. (Calm down, Bill. I told you not to read this!)

If you’ve got a burning money question, or you want to win a fight with your hubby, go to barefootinvestor.com and ask a question.

The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice.