For those who do not want to actively participate in their portfolio management, there are a few distinct choices available to you. One path is the newer robo-advisors that are popping up all over the internet. Now not all of these are created equal, however, the fee structures appear to all be similar in nature. Depending on what it is you want to accomplish there is a robo-advisor out there somewhere that will meet your needs. Some of the more popular at Betterment, Wealthfront, and micro advisors such as Acorns. I recently listened to a podcast that advertised a newer site called F1Finance that operates similarly to Capital One Investing by investing in fractional shares. Meaning you invest by a dollar volume and not be a specific number of shares. Where these two sites differ is F1Investing charges 0.3% of the average monthly balance on a quarterly basis instead of per trade commissions. But do your own homework as not all of these firms treat brokerage accounts the same as a retirement account. Be aware that each has its own fee structure and find the one that you can live with and will serve the purpose you need it to.
These robo-advisors are good for people who want to invest in a diversified portfolio but do not want to be hassled with its management. This is where they step in and will rebalance your accounts on a regular basis depending on your risk tolerance and time frames for retirement. This is what makes them so appealing to those of us who wish to pay a small monthly fee, usually .25% of assets on a quarterly basis to have someone else manage our portfolio and keep us on track. So far from what I have seen these do indeed work fairly well and can serve a valuable service to many people.
A second way in which you can invest on autopilot is through target-dated funds offered by financial companies such as Vanguard or T. Rowe Price. These invest in a diversified collection of funds similar to robo-advisors but will shift from a more aggressive investment style to a conservative one as you approach your retirement. These work by selecting the fund that expires closest to your retirement date. The funds are generally using the decade in which you want to retire such as 2040. This means the fund will switch from equities to fixed income as you approach the year 2040.
Just like robo-advisors you need to shop around for the fund that best meets your needs and has manageable fees. Here fees that are lower are a good thing meaning that you will be keeping and growing a larger percentage of your money. Also, you need to examine the portfolio’s makeup to make sure you are investing in funds that you are comfortable with. Some have high exposure to emerging markets which you may want to avoid. In this case, it is best to look at other funds or advisors who will be investing in the type of asset classes you are comfortable with.
Asset allocation is considered more important than the individual funds you invest into some degree. So it is important that you select an asset allocation plan that you are comfortable with and one that will maximize your returns. With so many choices it will take effort on your part to find the correct combination that will work for you.
If you need any additional information, please leave a comment or email me directly.
