The Robo Advisor
I’m a long-term, passive investor. What does that mean exactly? Well, I’m more focused on a gradual, but consistent, return on my investments over the next 30+ years. Short-term volatility isn’t a concern of mine; compounding interest is. It’s a nice way to invest. I don’t have to watch the daily stock ticker, worrying about my money and getting frustrated each time the market drops. It’s more of a set it and forget it investment strategy that leverages the power of time, which I have at the age of 29.
When I began investing I was young and widely uneducated about the nuances of investment management. I’ve always been a great saver so that has never been a problem, but I was just never sure where I should put my money. I enlisted the help of a financial advisor, who promised to invest my money wisely in low-cost funds that are diversified and will be rebalanced regularly. Out the door I was looking at roughly two percent expense ratio, including the costs of the funds and the management fees. At the time that seemed reasonable, and I figured with the added value of an advisor I might be able to see returns that justified the expense. Taking a step back, two percent doesn’t seem like a lot, does it? Well over a period of 20 or 30 years, two percent can amount to hundreds of thousands of dollars in fees and even more if you consider the lost opportunity costs. With the help of a few nifty tools I was able to visualize what this “relatively” low expense ratio amounts to over the long haul and decided I needed to act.
Nowadays I’m much more educated and confident in my investment ability and a few months ago I came to the realization that I no longer need to pay someone 1%+ to buy a handful of ETFs for me. I wasn’t seeing the value I anticipated, so I pulled every cent that was being managed. It was liberating as hell, and I already feel better knowing that I am saving myself a Ferrari or two worth of fees by the time I’m set to retire.
Through the use of “robo advisors” like Betterment, I can use technology to my benefit and receive the exact same service that I was getting from a financial advisor for fraction of the price. Plus, the transparency that Betterment offers, specifically regarding fees and performance, are unmatched compared to what is shared with you in the traditional advising world (do you really know how much you’re paying for your money manager?). This was one of the most frustrating things for me with my advisor, the lack of transparency. Betterment is a Millennial’s dream, and not just because of their beautiful UI. I’m so thankful tools like this exist.
So I’m on my own now, purchasing ultra low-cost ETFs through Vanguard and investing a significant portion of my funds with Betterment. I was also just invited to join Robinhood, so I’m excited to give that a spin so I can begin learning more about the stock trading world. Offering zero commission trading, it’s another great technology-forward service that, like Betterment, shifts the power back to the investor and cuts out the unnecessary fees the traditional investor has been forced to accept.