Let’s start with some high-five good feels:
- For the longest time, I had enough money to invest in a mutual fund but didn’t. I finally did! Damn, I wish I did it sooner because I’m thinking about all the lost financial gains, but better late than never.
- Paid off all my credit card balances. I do this every month, but it makes me feel good to say it anyways.
- Previously, I mentioned I wanted to direct deposit to my savings account. I change my mind. I would rather direct deposit to my retirement accounts so I can max out my IRAs.
In previous financial posts, I talked about retirement savings accounts. This time, I want to dive into the world of robo-advisors for goals besides retirement and emergency fund. Are you ready for this? Let’s take a deep breath, and here we go…
First, a refresher on my current financial situation:
- I meet company match with 401(k).
- I have both a traditional and Roth IRA with Vanguard, which I have not maxed out yet for 2017.
- I have a high yields savings account which I use for my emergency fund, but I have not contributed to in awhile. It almost has about 4 months of emergency fund – this is for rent and groceries.
- I am looking to invest in non-retirement funds to save for other general goals, and I’m looking to a robo-advisor to help me maximize my investments. The reason I’m not looking towards Vanguard where I have my IRAs is because I don’t have enough money to meet the minimum to open an account. When I do accrue enough money, it is possible that I will move my account to Vanguard.
I’m not a certified finance anything. I’m a young adult who’s trying to make her money work for her as much as possible, and sharing my thoughts and experiences along the way. Go elsewhere for professional advice.
Why are you going with a robo-advisor?
I don’t have the energy or confidence to decide which funds to invest in, so I’m going with a robo-advisor that can make those decisions for me. It took me freaking forever to invest in a fund for my Roth IRA! I don’t want to lose potential money because of “I’m not sure”. No action means you’re guaranteed to lose money.
Plus, robo-advisors have other capabilities I don’t have, like understanding what the heck tax-loss harvesting is. The robots know things I don’t know, and I want to tap into their knowledge.
An intro to robo-advisors:
There are many innovative investing platforms these days. We have companies like Swell Investing (whose mission is to do socially responsible investing), Acorn (that helps invest your spare change), and many more. It’s crazy the number of companies that want to help people save and invest. There’s no way I can get through all of them in a single post, so this is just the ones that I’m considering and how I’m making my decision.
What’s a robo-advisor?
A robo-advisor is an online, automated portfolio management service that uses computer algorithms to choose investments based on your risk tolerance and time horizon. That’s the basics. Now there are companies that are trying to add a human element to your investments, like Swell Investing who only include companies in their portfolio if they are addressing global challenges.
So which robo-advisors are you thinking about?
Here’s my shortlist and my quick thoughts on the companies:
- Swell Investing
- Vanguard Personal Advisor
I’m reading a lot of reviews on each of these options.
How should I decide which company to invest with?
It depends on what’s important to you. Here are some attributes I am basing my decision on, and some additional questions I have on them:
#1: Management Fee
Management fee is an annual fee to have an account with a robo-advisor.
Read “fee”, think “money not working for you”.
#2: Expense Ratios
Expense ratios are fees to the investments the robo-advisors use. Same as above, think “money not working for you”.
#3: Tax-Loss Harvesting
Tax-loss harvesting is a complex practice that involves selling losing investments and offsetting taxes you’ll owe on any capital gains. Betterment has this simulation that shows the benefits of tax-coordinated portfolio.
Rebalancing is when a robo-advisor can make changes when an allocation strays by a set amount.
There’s a really great post on NerdWallet (check under “More reading materials”) that gives their professional take on these robo-advisors and additional attributes you could base your decision on.
What’s your thought process?
After my initial read-through of robo-advisors, I have taken off Vanguard it doesn’t have a tax strategy that I’m comfortable with (no tax-loss harvesting). I have also scratched off Ellevest because I feel unsure about Ellevest’s tax strategies.
I’m also crossing off Blooom, though it is on my watch list when I have more in my 401K. Blooom manages your 401Ks for a flat fee of $10 a month, and seems to be higher in risk tolerance than the average investor would be if setting up or rebalancing their 401Ks.
Swell Investing is a platform that only does socially responsible investing, or impact investing. Basically, investing with ethics in mind. Wealthfront and Betterment have portfolio options that are socially responsible. However, the 0.75% management fee is way too much for my would-be tiny investment.
To me, there isn’t much difference between Wealthfront and Betterment. I will go with Wealthfront because the management fee seems better for smaller investors like me.
Next financial goals for December 2017:
Save $500: $200 to emergency fund, $200 to Roth IRA, $100 to Wealthfront
More reading materials on robo-advising:
- NerdWallet’s Best Robo-Advisors of 2017
- NerdWallet’s Find a Financial Advisor
- Lifehacker’s Beginner’s Guide to Impact Investing