The Patient Investor's Playbook with Noah Kerner - CEO of Acorns

22:45Because you're absolutely right. There's a long period in there. It's a little bit like the sort of middle-aged or being in middle age or the sort of midlife crisis years, that kind of thing. It's a funny analogy. But you can't see as much of that happening for you every day. But if you bring yourself back to the potential screen and understand that the long arc of compounding is always working for you and just staying committed and staying centered in that and staying patient, you'll win. And history obviously plays that over and over. Now, there's a big thing that's happening right now that it's really bothering me.

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28:10And I know it's bothering a lot of other folks out there who are trying to promote financial education. And it's one of those areas where fintech apps are trying to get people to trade more. They're trying to get people to trade in and out of stocks. They're trying to get people to trade in and out of investment. And it is one of those things that obviously they are doing this for profits. And when you see this across the board, how are you seeing this being used against everyday consumers? And why can this be a negative for some folks out there when it comes to the way that they are trying to get them to trade in and out of these investments?

28:40I mean, it's not quite 100%, of course, but it's not far from 100 % of people who gamble lose money online. I think it's 96%. and trading is gambling, you know? And again, I hate preachiness. So I don't wanna sit here and like sound preachy to tell people like, don't do this, don't do, people are gonna do what they're gonna do. And I think it's fun to play with a little bit of your money and take some bets, you know? But take some bets on things, test your skills, you know, challenge yourself too. But keep in the context of, of course, your broader life, your family, all the stuff that ultimately really matters to you in the long run and make sure that 90 % of the money is in a diversified portfolio.

29:22I do think it's really alluring. It's sort of preying on people's natural conviction and belief in their confidence. We all have a bit of overconfidence in our own confidence. And so that's what the stuff around trading and gambling really, you know, really preys upon. And it all loops back to what is the business model? When it's free, I love this expression, you are the product. That's a great expression because I think that's really what it comes down to. You see this and it's one of those areas where you're enticing people to start to trade. And I agree with you. I think this is one of those things where we talk through, hey, 10 % or less of your portfolio, if you want to utilize that for things you're interested in, some fun money, some play money to be able to invest in certain things.

30:00And I think that's really, really cool. I do this all the time. I do it for very specific things that I think is fun to invest in. But anything outside of that, if it's causing you to really do your financial freedom and your wealth building strategy is going into some of this stuff, I think it can be problematic. panic. And we've seen this across the board. It's getting worse, in my opinion, with some of the things like prediction markets, where I've seen people in the past say, hey, your bookie and your broker should not be on the same exact app. And this is one of those things that we're seeing happen more and more with a lot of different fintech apps.

30:28And so what do you think about this? And is this something that, you know, could cause a problem for the next generation of investors? I think an investing app with a prediction market is like a bank with a blackjack table. that's the that's the reality i grew up with a very kind of clear philosophy of shut up and let the work speak this was like taught to me you know as a as a child so we walked that walk as a company at acorns but i think one of the you know one of the things we we've just firmly decided now is that like with everything that's happening is sort of enough is enough so we plan to just be louder about this stuff and while while we will always let the work speak and let the products and the comms and the things we put out into the world, which we always put the customer's best interest first, speak for themselves.

31:13We decided to sort of make what we're going to call the Acorns Pledge. And I think this is a really important thing for a company like ours to just come out and state, right? So we have, let's call it tenets of the Acorns Pledge. One, we will never play games with your money. And that's back to an investment app with a predictions market is like a bank with a blackjack table. If you walked into your bank branch and before you got to the teller, there was a blackjack table right there. You'd probably be like, this doesn't feel right. Something's wrong. I'm going to get out of here. Right? Right.

31:48There's a pit boss in the branch and chips flying. You'd probably be like, I'm probably going to go to the branch across the street. That's one. We'll never hide how we make money. By the way, these are principles and acorns in the way we move, but we're sort of stating them more loudly. now. We'll never hide how we make money. We're a very simple business. We're a subscription business. That's how we make money. We don't monetize your transactions. And we think it's really important for people to understand, here's what we charge. Here's what you get. Here's how we make money. That's it. We'll never push products that create bad habits.

32:22I would say if you were thinking about where to do your investing or banking or whatever, to know that the company behind it has made a pledge to never push products that create bad habits. It's pretty obvious. I mean, it should be the pledge, but actually state it and live that and be about it. So that's three. We'll never stop working to put your money to work. That's a really important one. And we'll never talk over your head. When you look at the history of this stuff with the footnotes and the caveats and the corporate speak and the jargon and the acronym, it's like money shouldn't be complex.

32:57Why is it so complex. It was because there's an industry that monetizes complexity. So we want to keep it simple, treat people with respect, be fair. That's it. I love those. And I think those are some of the core principles that I think most people would really want to see in a brokerage that's out there. And I think this is a really important thing that most people need to understand. There are so many different apps that are out there that are just utilizing you, like you said, as the product. And when you're the product, there are going to be things that they could present to you that may not be in your best interest.

33:31And so you have to understand how some of this works and how some of this operates, which is why financial education is so important. And I think that's one of the biggest things that we need to kind of continue to keep pushing here. So if you could ban anything when it came to the fintech industry or any other financial trend that you see out there right now, what would be the biggest thing that you wish would just go away? False advertising. Because, by the way, and the regulations are supposed to do this, but I would ban false advertising. The problem for people is not that these products exist.

34:00It's that they're communicated as something other than they are or maybe misunderstood as something other than they are. So, you know, if a tree falls in the woods and nobody heard it, did it really happen? I guess you could say the problem is not that the product exists. It's that there's so much misinformation about what is the right way to do these things. And a lot of that comes from the communication and packaging of this stuff and ultimately as a result, as consumers, which makes sense because how the hell are we supposed to know? Predicting is investing. Well, no, it's not. Trading is investing.

34:35No, it's trading. Again, just call it what it is. So I would ban false advertising. And the regulators are obviously supposed to make sure that things aren't promissory and this kind of thing. But I think a lot of it still happens. I love that. And I think that's something that most people don't even realize it's happening and it's right in front of them, which is a big, big deal. I want to shift to behavior and habits here. I want to talk through some of the things that people can actually put into place and some action steps that they can take from listening to this episode. So obviously, we've talked about the beginning of the episode.

35:04One of the biggest edge that we have in place is patience. And time is one of those things that can really absolutely change your life. So if you're a 20-year-old out there, you have one of the most valuable assets of all, which is time. What are some of these small everyday decisions that actually compound into real wealth? What are some of the things that you want people to know that they can do to really compound into real wealth here? There's an expression, the best investor is a dead investor. Do you know this expression? Yes. So turn it on, set it and forget it. If you're going to come back, I mean, you know, if you're going to come to the product, keep those principles in mind that it's all about time in the market, slow and steady wins the race.

35:42I always have to remind myself of this mantra. This was actually, this one is mine. Every downturn in history has ended in an upturn. You know, those are the small things you have to learn, but it's really set it and forget it, play dead. I love that. I think that's where there's, you know, there's been studies that have come out in the past where like companies have looked at some of their best customers and they look at it and it's folks who have actually passed away that just kind of left their portfolio going and compounding over time. I think that's a really cool thing. And it's a really cool concept to think through this.

36:10Now, one of the things you guys do is you're utilizing automation as a secret weapon. It is one of those things where automation has become one of the best forms of firepower that your investors have when they are looking at, you know, building up their portfolio. Why is automation so powerful? And why is that something that you guys kind of started with or one of the things that you kind of thought through when you started to build out your platform? It's the application of set it and forget it. So, you know, the automation is we're doing this work for you to help you make sure you set it and forget it and play dead.

36:40Automatic portfolio construction, it is really fundamental. And so when you think about the things that we all have trouble with doing, constructing our own portfolios is very difficult. So we do that. We automate that for the customer. Understanding how much to invest, how to invest. We automate that for the customer. So$5 a day, turn it on, let it ride, you know, that. So automation is literally just the solution to set it and forget it. And, you know, that's how we constructed the Acorns product. Right. Now, there's a whole generation of investors who may have kind of learned about investing from the meme stock era.

37:17And we saw this kind of happen over the course of COVID in 2020, when we saw a big shift in a lot of these investors. Well, a lot of these investors are still out there kind of investing. Some of them are investing that way or maybe they're investing in crypto. Do you see this as a dangerous way for people to learn how to invest? Or do you see this as a positive because at least people are getting into the market? There's definitely not a one size fits all answer to that. I think ultimately it's, you know, time will tell for each person, whether playing around during that period or messing around with some of these assets is a good thing for you or a bad thing.

37:46I think back to the thing I always say, it's okay if you're doing it with a small percentage of your money. And I probably argue it's not just okay, it's probably a good thing because everything you learn is useful. And I think if we're synthesizing all of these experiences and all of these learnings together as we go, then we become better stewards of our own money. But it is certainly a problem if with the large majority of your money, you're gambling and buying risky, volatile assets. So diversification is everything in terms of portfolio construction and management. And I think it's probably going to be different for every single person, but there are definitely those two categories of people, which is people who played around, learned, got smarter, and then people who went all in and got themselves into a really tricky situation, which sucks.

38:37Absolutely. Now, I want to look at your personal lens on some of this stuff as well. What is a belief about money that you've completely changed your mind on in the last five years, if any? Because we're about diversification and maximizing returns and minimizing risk, we don't just offer cryptocurrency investing. Because if you were to do that with the lion's share of your money, it's just like any other risky, volatile asset class. So we actually didn't get into crypto at all. And where I completely changed my mind was to approach it from a different vantage point, which I don't know if it's been five years.

39:14I don't actually know the time horizon, but it's somewhere in that neighborhood, which was to say, actually, let's take this as a moment to do things the Acorns way and to spread knowledge. So we rolled out this campaign called Bits of Bitcoin. And basically what the product allowed you to do is get like a small allocation of Bitcoin in your diversified portfolio, one to five percent, depending on whether you're in conservative all the way to aggressive. I flipped on the like, we're not doing that at all because it's a risky, volatile asset class. So let's do it the Acorns way. Let's spread education.

39:45And we did the Bits of Bitcoin campaign, which is to say, think of it as the sprinkles on top, the bits, you know what I'm saying? And all good. And so, and actually, by the way, it turns out that that portfolio is even stickier. There's something there that's really important about the combination of diversification with people's passions, because people are super passionate about this stuff for various reasons. So I completely flipped. I had to look myself in the mirror and say, you're being too paternalistic with this. Like, don't be so unreasonable. So that was a flip. I think that's a good one.

40:19And I think for a lot of us out there, we've seen just a shift in the way the crypto market has worked, the institutional investors have kind of gotten involved, and there's been a lot of different shifts in that market. And in reality, that's one of those areas where I kind of utilize crypto as a percentage of my portfolio in that 10 % range that we kind of were talking about, where for me specifically, that's kind of the way I think about it. How do you invest your own money? Is this something where you alluded to kind of using a small portion of your portfolio as some of your play money? And then you have this other big chunk, this 90 % as money that you're utilizing to build wealth.

40:49How do you invest those dollars? And what are some of your philosophies around that? I invest my money as you would hope, exactly as we espouse. So the vast majority of money is invested in diversified portfolios. I do invest in startups that I believe in that fit into certain criteria. Like, you know, there's things that I think are great for the country. And I, and I try to invest in those things, obviously in the financial wellness category, medicine, education, that, that kind of thing. I invest some of my money into when I was, when I was like 15 years ago, I developed a really bad vestibular migraine problem.

41:24It was rough. And it's one of those silent, you know, problems where people are like, oh, you get headaches and you're like, no, no, no, it's not head. It's not, no, it's way worse than that. So I put some of my money into University of San Francisco, Department of Neurology to try to figure out what causes migraines. We have an art organization called Give Kids Art with my wife and we, you know, I put money into that. So, but, you know, but I think I really think long term in terms of how do we make sure we have a stable future and we've put, you know, we're maximizing returns and minimizing risk with the rest of the money.

41:57I love that. And I think that's just a powerful lesson in and of itself that most people need to kind of think through their portfolio and kind of utilize a huge chunk of it as long-term wealth building activities with those dollars. So that's awesome. So I want to shift gears to a couple of questions that we ask a lot of our guests that are really fun. You can do these rapid fire. You can kind of expand on those however you want to do it. What part of your work or your life makes you come alive? You know, the part of my work that makes me come alive is a lot of the stuff we're talking about, which is the fighting this fight, standing for the right thing and using integrity as the central guiding force in business.

42:35and it makes me come alive to know that we have a culture, a team, a company that puts people first and moves with the philosophy of your money first, ours next. And if you talk to anybody at the company who works at the company, and this includes people who want to come work at the company, there's a really, really strong glue that people feel because they know that the decisions that get made here, put the customer first, that we're not going to compromise on our integrity. That makes me come alive. And I think that goes back to just, I grew up with two really ethical parents, you know? So that's a great one.

43:15And then what is your biggest fear when it comes to money? You know, no matter how much better I've gotten at this, when the markets go completely sideways, I think just it comes up from inside, just like anybody else. Like, like no matter how much I've trained myself, that well of fear of this is it. It's never going to get better. This is it. We're at the end. The world's over. And that's just like this, you know, so, but I've trained my brain to take over in that. But I don't, I still experience that, that same fear that I think everybody experiences. I think it's one of those things too. I've kind of trained myself to always try to remember.

43:58and there's a couple of things I go back and reference and read all the time. And it's one of those things that I stopped looking at my portfolio for a little while, especially when the market is down. It's just, I won't look anymore. And it's one of those things I'll try to set it, forget it, just let it go and just look less when that's happening. So that's a big one. I think everyone kind of goes through that. And it's an important one to talk about. How do you plan to level up your finances this year if you're doing anything at all? I have no plan to level up my finances. I'm a long term, I'm slow and steady wins the race.

44:26So my plans are locked. Do you know what I mean? And yeah, I think I have no plan to level up. It's just keep it completely level. I love that. And I think that's a that's an awesome answer. What is the best money advice you've ever received? You know, I this is not like a one liner, but I was really conservative in my 20s and I lost a decade. This comes back to why I think part of the motivation for doing what I do. But I really lost a decade. And for me, it was a brave move to have a CD. I don't mean compact disc. It was a brave move. And then Munibonds was a brave move. and the best advice I ever got and I think I did was I got a money manager at that time and they really relayed to me the power of compounding and showed me and helped me understand what I lost over that decade.

45:28So that would be the best advice because before that I was not taking advantage of the magic of compounding And like I said, I lost a decade due to the same fear that I think inhibits so many of us, you know. And it's that spread of that message. Look how many lies have changed from igniting that fire into you and you starting, you know, to do what you do now. I think it's just a really, really powerful lesson on why we need to spread this message even more. Can I say one more thing, Andrew? Sure. This goes hand in hand with that. It's actually not investing is not safe. So having your money in cash or an instrument that's yielding 1 % or 2 % or even 5%, I was really struck by that period where it was like 5 % high interest savings accounts and everybody's pushing them with no context.

46:15During that period, the market went up 30%, 18 month period. It went up 30%. So while you're celebrating 5 % returns, you lost 25 points. So hand in hand with that is that cash is not safe actually because you're losing money to inflation every year. And it's really important to understand that. Mattress fund, not safe, not just because you could light it on fire if your house burned down, but it's not safe. Checking account, not safe. Like even high yield savings account, if you're thinking about that for the majority, not safe because you're just losing immense amount of returns. It is one of the riskiest things you could do is avoid investing.

46:53And I think that's one of the areas where most people, we try to promote that as much as possible. We're like, hey, if you do not invest your dollars, you will not be able to retire unless you make a massive amount of cash and you have a massive amount of cash on hand. So it's one of those things for sure that I completely agree. I think it's one of those areas most people need to understand. Yeah. The last one is my favorite and it's what does wealth mean to you? I'm just going to say the first thing that came to my mind. So to me, it is to be fulfilled. I have never chased money as my primary objective.

47:27Sometimes people will say, yeah, but you started making a lot of money really early doing startups and things. And it's like, no, no, before I did, it was never the primary motivator. So to be wealthy is to be fulfilled. And I think, yeah, that's what I think of as wealth. I love that answer. I think that's a great one. Well, Noah, thank you so much for coming on here. We truly appreciate it. Where can people find out more about you, Acorns and everything else? Acorns.com or obviously you could download the Acorns app in any app store. We also have Acorns Early. I don't really do social media.

48:00I am on LinkedIn, but I'm not a big, like back to shut up and let the work speak. Yep. So I love that. So we'll link all those up down below in the show notes as well. Noah, thank you so much for coming on here. Thanks for having me.

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