Acting: How and Where
You’ve literally reached the final step!
Seriously, you know your sh*t now. Read the rest of this page and get on with your life.
And if you're that person, check out the link at the bottom of the page. We've suggested our favorite books, blogs, etc. for your further passionate improvement of financial literacy and skill, as well as some discount codes for money-saving sites.
Where to Go, Whom to Trust
We hate fees, we hate taxes. We encourage passive investing and also diversification. We want you to set up easy, automatic, monthly contributions to a Roth IRA, and then get on with your life. So, how do you do it?
We’ve got three websites (investment firms) that we think are the best out there—financially, ideologically, functionally. Two of them, Wealthfront and Betterment, are robo-advisors. Vanguard, the third of the three, is the world’s largest provider of index funds: in some ways a robo-advisor, in others a more typical fund provider.
Wealthfront vs. Betterment
Wealthfront is fantastic for those just starting out. It is considered a robo-advisor, like Betterment, because it has no physical office—it provides an advisory service that is entirely online, from investing new money to tracking your progress. Wealthfront is not a true advisor; its staff will not provide you with budgeting strategies or methods of confronting major financial hurdles. However, even before opening an account at Wealthfront, you will fill out a short, but holistic, survey about your age, income, risk tolerance, etc.
Based on your answers, Wealthfront will suggest an investment strategy for a particular length of time and risk level. You can then review their plan and either stick with it or readjust your risk tolerance. Once you've approved, you transfer your first dollars to Wealthfront, and your money is automatically invested within a few days according to your mutually agreed upon plan.
Wealthfront’s services are free for accounts with less than $10,000. You, as a WLI reader, can get $15,000 managed for free with this link. After that, their fee is a meager 0.25%. Wealthfront is cheaper than its competitor, Betterment, for those with accounts less than $15,000, and equal to Betterment for accounts below $100,000. Remember that Wealthfront has an account minimum of $500, and a kickass app that lets you make contributions and check in on your portfolio’s performance from your phone.
Wealthfront is where we invest our own money in our own personal Roth IRAs.
Betterment has a slightly different fee structure than Wealthfront does. For accounts with less than $10,000 you’ll pay $3.00 a month, or, if you deposit at least $100.00 a month, 0.35%/year. Betterment is clearly more expensive than Wealthfront for these smaller accounts. It becomes less expensive, however, for those with accounts of $100,000 or more, for which you would pay 0.15%/year.
Like Wealthfront, Betterment is a robo-advisor that diversifies your risk, handles asset allocation, and invests in about a dozen extremely low-cost index funds and ETFs that track different sectors of our economy and other parts of the world.
Remember that Betterment has no account minimum, unlike Wealthfront, and has goal-setting capabilities on the website. You can aim for retirement, a road trip, college, whatever, and Betterment will help you invest and plan accordingly for multiple goals. Both Wealthfront and Betterment provide easy to use projections of future account values and, again, have fantastic interfaces. By using this link, you'll get access to special discounts and bonuses by signing up for an account with Betterment.
What about Vanguard?
Vanguard is fantastic for those who wish to reject additional fees altogether, stick with a well-established company, and have a DIY component to their portfolio. Most of the funds in which Betterment and Wealthfront will invest your money are Vanguard funds. So, you could potentially bypass Wealthfront and Betterment, especially after your account grows large enough to incur the (tiny) fees. However, you’ll still pay, as always, the expense ratios of the funds. But remember, with index funds and ETFs, these expense ratios are usually well below 0.20%, which is cheap and fair. With Vanguard, you just won’t be paying an extra fee to the investment firm/advisor, like you would with Betterment and Wealthfront.
One strategy with Vanguard would be creating your own asset allocation, or simply mimicking those of Vanguard or Betterment. You can buy and sell Vanguard funds and ETFs at no charge on Vanguard’s site, at your discretion, which is something other sites generally can't offer. However, the time commitment needed to monitor an investment account and periodically rebalance would be a substantial downside. That problem is what is primarily fixed by robo-advisors.
Another option with Vanguard is to buy a ‘target date fund,’ or TDF. TDFs are funds like any other, but with Vanguard, they invest in funds. They are funds of funds. Say you buy a TDF that has a target date of 2055, which is when you plan to retire. The 2055 Vanguard TDF will split your money into a fund of U.S. stocks, one of international stocks, and one of bonds. As you grow older, Vanguard will decrease the percentage of stocks, and increase the percentage of bonds. This will generally decrease your risk and your returns, making you more securely prepared for the date you plan to begin making withdrawals.
Vanguard is a cheaper option, yes. However, one must reconcile the potential loss of yearly returns by forgoing the allocation and rebalancing services of Wealthfront and Betterment. It’s a choice with no purely quantifiable pros and cons list. Vanguard can be rewarding for investors with a real drive to cut down fees and maximize returns, as well as the time to put the necessary effort into regular rebalancing and monitoring.
Vanguard, finally, is a wonderful research resource. Between their blogs, informational articles and pages, stock analyses, tax explanations, comparative research tools, etc., they are a one-stop site for 99% of the info you might be looking for. It's an incredibly deep and comprehensive site but is also easy to use, which may be more important than anything.
You're done, congratulations!
And if you’d like to check out other great resources that we eagerly recommend, or access discount codes for tons of sites and services that save you money, click here.
Thanks for putting your trust in WLI. This stuff isn't hard, it isn't unreachable, and it's life-changing. We hope you'll take the lessons seriously, start down your path, and get on with your life, for Pete's sake (and help Pete with his finances).