Don’t Touch That

I’ve recently had a revelation. It started with my quest to make the perfect pizza dough. Then I realized, looking back, some of my more successful efforts were the result of the same idea. Things turn out better if I leave them alone.

It took many attempts to make pizza dough from scratch. The first several batches could be considered weapons. They were so hard, their only possible use was to hurt someone. I tried the cold rise, the warm rise, the overnight in the fridge rise. Finally I just used my bread maker. Low and behold, the dough was perfect. All it took was me not touching it. Apparently I had been overworking the dough.

I make a mean Thanksgiving turkey too. The secret of my success? I leave it alone. I don’t baste it. I put it in the oven, and only open the door to take the foil cover off so it can brown. The bird is juicy and perfectly done in less time. That is because I’m not constantly letting all the heat out of the oven.

I have to say my investment strategy is and always has run along the same lines. I generally leave my investments alone. Since I started saving for retirement, right out of college, the bulk of my money was invested in a single mutual fund, the Vanguard Life Strategy Growth fund. Target date funds didn’t exist at the time, or I probably would have started with one of those.

Since we were saving for an early retirement, we needed to save outside our retirement plans, so about half of our savings was taxable. As we got older, our investment strategy needed to get more conservative. But I didn’t want to pay capital gains tax on my Life Strategy investment. So I solved the problem by gradually buying bonds and bond exchange traded funds with my savings contributions. No selling, no trading, only buying.

Now that I’m retired, it hasn’t changed much. We still have the Life Strategy Growth fund and the bonds. Each year some of the bonds mature to provide for our spending money during that year. At the beginning of each year, I rebalance between the Life Strategy Growth fund and my bond holdings. And that is the extent of my investment management strategy. Like the pizza and the turkey, the secret to my investment success is leaving my investments alone.

Could I have had better results if I had been more active. It’s not likely. In fact it’s far more likely that my results would have been worse. The average actively managed investment strategy does not produce better results than a buy-and-hold index investment strategy. Though active investment managers will tell you their strategy is the one that does.

If you are wondering how to invest your retirement savings, find a strategy that you don’t have to put much thought into. A target date retirement fund is a perfect solution. You can spend your energy saving for retirement and your investments will do much better if you leave them alone.


Photo by Nadya Spetnitskaya on Unsplash

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For a comprehensive, step-by-step guide to building your own financial plan, pick up my award winning book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security.  It is available on Amazon.

There is No Stock in Money Market Funds

Recently, I’ve recommended a money market mutual fund to a few friends who had money sitting idly in bank savings accounts. I knew they needed to keep the money safe, but it could still be earning some interest. So, I was surprised to hear from a couple of them last week as the stock market was gyrating.

Both were concerned that their savings could be in jeopardy, though neither had seen any changes in their account values. So, I knew I had not done a very good job of helping them understand where they had put their money.

Money market mutual funds are a safe place to put money that you need to be there under any circumstances. They are perfect for holding money you are saving for an emergency or a big ticket purchase. They are an alternative to high yield savings accounts, which have gotten a lot of press lately.

My friends’ confusion may have come from the idea that money market funds are mutual funds. Mutual funds can invest in any kind of asset. True, about half of all the money invested by mutual funds is invested in stocks, but there are funds that invest in all sorts of things other than stocks.

Money market mutual funds do not invest in stocks at all. There are strict regulations regarding what a money market fund can hold and still be classified as a money market fund. These funds only invest in high-quality short-term debt instruments. In fact, they cannot invest in anything that will pay off in more than 13 months, and the average time to pay off of all their holdings must be 60 days or less.

These debt instruments range from Treasury bills, which are the short-term debt of the U.S. Government, to short-term loans to well heeled private companies. The interest earned by these instruments are the source of income on the money market fund. The income is usually paid out monthly in the form of a dividend to the fund shareholders.

Money market funds usually offer higher returns than a savings account, and recently some funds’ yields have surpassed even high yield savings account yields. Money market funds can be easier to deal with than a high yield savings account, where you may find restrictions on the number of withdrawals you can make in a given month.

The big difference is that money market funds are not insured. A savings account at a bank, even a high yield savings account at an on-line bank, is FDIC insured up to $250,000. If your bank goes out of business, you will get your balance up to that amount back from the Government.

Money market funds rely on diversification, high credit quality and short-term exposures to maintain their steady $1 per share value. They offer no guarantee, yet they have been consistently successful at managing their risk. Since their introduction in the 1970s, only two funds have had their share values drop below $1; one in 1994 due to large holdings in unconventional investments and one in 2008 due to a large holding of Lehman Brothers debt.

While a loss is theoretically possible, money market funds have historically been and continue to be a safe alternative to bank savings accounts. They offer an opportunity to earn a bit of better return on your money without giving up flexibility. The value of your investment there will not be impacted by anything that happens in the stock market. So you can rest assured your money will be there when you need it.

Photo by Alexandra Gorn on Unsplash


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For a comprehensive, step-by-step guide to building your own financial plan, pick up my award winning book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security.  It is available on Amazon.

Three Simple Truths About Investing

If you are saving for retirement, or any other long-term goal, how you invest your money is an important piece of achieving that goal. Many of the folks I’ve spoken with are not investing their savings well, or even at all, meaning they may be earning interest but little else. Some even say they haven’t been saving because they don’t know how to invest their money.

I get it. The vast majority of people have no education in investing, and, while there is lots of information about it on the internet, it is really hard to know what to trust. Advice and information can be conflicting. If the bulk of your savings is in your retirement account, it can be hard to get help from an adviser, who generally will require a large minimum investment amount to take you on as a client.

But while the thought of risking your hard fought savings in any investment can give you a case of anxiety, here are three truths to keep in mind that can help calm your nerves.

  1. You don’t have to get everything, or even anything perfectly right. Good is really good enough, and frankly there isn’t any strategy that is perfect. The investment market values are the culmination of every investor’s opinion about what will happen in the future, and no one actually knows that. Successful investors hold a variety of investments knowing some will be better than others, but not knowing which is which over any short time frame.
  2. Timing is nothing. The perfect time to invest your long term savings is today. No it doesn’t matter if the market is overvalued, interest rates are too low, or if a recession is on the way. First there is no sure way to know that any of this is true. And second, it won’t be the last investment you make. You’ll be saving for a long time, and you’ll be investing in all types of markets. Third, ten, fifteen or twenty years from now there is a high probability your investments will be worth more than they are now. Time is on your side, and the market has never failed to recover from a downturn.
  3. Keep it simple. There are many low cost perfectly good ways to have your money invested for you. In your company sponsored retirement plan, you likely have the option to invest in a target date retirement fund or a managed account. If so, choose the option that fits with the time you have remaining before you retire. You can safely put all of your money in that investment. It is completely diversified and will adjust so that it continues to be an appropriate investment for your age. You can find similar options for your individual retirement account. Vanguard, Fidelity and T. Rowe Price all offer reasonably priced target date retirement funds. Betterment and Wealthfront, as well as others, offer low cost managed solutions for your IRA or taxable savings. Many state 529 plans also offer age based investment options for your college savings.

Investing your savings well is important to helping you reach your savings goals, but that doesn’t mean it has to be hard or scary. Choose an off-the-shelf investment option that will remain appropriate for your age throughout your career and don’t worry about what the market is doing on any particular day, week, month or even year.

When to Kick the Life Insurance Habit

When my husband, Jeff, and I retired, we dropped our life insurance policies. Even though our daughter was still in high school, we had already saved all we were going to save. The income generated by our savings would be there regardless of whether we were alive, and we had no work related income to replace.  We didn’t need life insurance any more.

I have had the pleasure of telling a few friends they could cut their expenses by dropping their life insurance policies. Initially the reaction is a small gasp. It seems somehow sacrilegious to give it up if you are trying to live a financially sound lifestyle. But for these individuals, who happened to be single women with adult children, life insurance wasn’t a necessity. The kids were out of the house, and they didn’t need Mom to provide for them anymore.

Not everyone needs life insurance. Now you don’t see that statement very often. More often you see gloomy statistics, like less than 60 percent of Americans have life insurance, from a 2015 BankRate.com survey. Of the 40 plus percent of those who don’t have it, for some at least, there is a good reason.

You don’t need life insurance if you don’t have anyone depending on your income for support. The purpose of life insurance is to replace your income if you pass away. If any of these situations sound like you, you don’t need life insurance:

You are single and have no children to provide for. While many will miss you if you are gone, no one will miss your income.

You are single with adult children. The same goes here. Your children are grown and they can get along without you providing them with a life insurance benefit.

You are nearing the end of your career and you have the savings you need. As you get older, your savings grow and you have more equity in your home. These assets will help provide for those you leave behind. Therefore as you get older, assuming you are saving as you should, you need less and less life insurance, until eventually you need none.

You are a child. Children don’t need life insurance. They don’t have an income to replace. Some insurance companies sell policies pitched as a way to save for college. These policies are whole life policies that have a savings element. They develop a cash value over time which can be borrowed when your child is ready for college. But you would be better off just investing the amount of the premium in your state’s college 529 plan. All of the money will go to savings rather than providing a profit to the insurance company and life insurance coverage that you don’t need.

If none of these situations is you, you probably need some life insurance, but the amount you should have could be different depending on your situation.

You have young children. Those who have young children need the most life insurance. And they are most likely to be under insured. The life insurance provided by your employer will definitely not be enough. You will want your children to be raised with the comfortable lifestyle that you hope to provide for them, and you don’t want to make life financially difficult for your spouse or their guardians. The younger your children are, the more financial support they will need. LifeHappens.org has a good calculator that takes into account all of the relevant information to help you determine how much life insurance you will want to put in place.

For this situation, term life insurance is all that you need. Term life insurance provides coverage for a specific period, like ten or twenty years. Your premiums will be the same throughout the term. At the end of the term you can renew or allow your policy to lapse. You can also cancel your policy at any time without penalty. Term policies are the lowest cost form of life insurance. They are perfect for most people, whose need for life insurance declines over time.

Do not make your minor children beneficiaries of your life insurance policy. Insurance companies won’t pay out a benefit to anyone under the age of 18. Name your spouse, your children’s guardian or a family trust as the beneficiary instead.

You are married and your lifestyle is dependent on your income. It is worth having a discussion with your spouse about how he or she would want to live if you were gone. Would he want to stay in the house, or downsize? Are there debts to pay off? What income could he expect from working? If your spouse could not maintain his or her lifestyle without your income, even if you don’t have children, you need life insurance. If your spouse is working or reasonably could work if you were gone, you won’t need as much. If you have debt that will need to be paid off, you may need more. Term life insurance will do in this case as well.

You have outstanding private student loans.  If you have outstanding private student loans, someone may be liable for their payment after you die. If a parent, grandparent or someone else cosigned for your loan, they may still have to pay the debt after your death. If you live in a community property state and took on the loans after you married, your spouse may still have to pay. You should have enough life insurance to cover the repayment of those outstanding loans. If you are a parent cosigner, you can take out a life insurance policy for the amount of the loan on your student. Again a term policy will work just fine here.

Not everyone needs life insurance. As our kids grow up and our savings build, our need for life insurance gradually declines until it no longer exists. For the time that you do need life insurance, for most people a simple low cost term life insurance policy is all that you need. Don’t spend any more money, or spend it any longer than necessary, on life insurance.


Photo by Jason Briscoe on Unsplash

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For a comprehensive, step-by-step guide to building your own financial plan, pick up my award winning book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security.  It is available on Amazon.

5 Things To Demand From Your Financial Adviser

What do you do when you’re eighty-two and run out of money? It’s a frightening thing to be looking down the barrel of an empty bank account. It’s worse when the decline in your funds was due to the actions of a financial adviser that you trusted.

Gerry had been relying on her adviser for a long time. She and her husband, John, were in their mid-sixties when John passed away unexpectedly almost twenty years ago. Gerry was heart broken. John was her life.

Their’s was a traditional relationship for their time. Gerry raised their four boys, while John managed his business and their money. When John passed, Gerry put her faith in the financial adviser John had used for years. She didn’t know anything about investments, nor did she care. John had provided well for her, so she didn’t worry about money.

Gerry lived her life, enjoying her friends and a bit of travel. Her financial adviser was busy doing his thing. She didn’t know what. When the financial crisis hit, she was concerned that her account value declined so much, but what could she do?

While the investment markets recovered, Gerry’s account did not. She saw what should have been enough money to last her life dwindle to an alarmingly low level. She finally asked me to have a look.

What I saw was shocking. Her account had declined to just enough to cover a few remaining years of expenses. What’s worse, the investments were all wrong for someone living on their savings, with little savings left.

All of her money was invested in less than a dozen stocks, mostly in the energy field. There was no diversification and no pool of conservatively invested money to cover her monthly withdrawals. Amid a strong stock market, her holdings steadily declined in value. Every month the adviser sold some of her holdings to generate the cash for her monthly expenses. Because the value of the stocks he sold was down, the sales were doing more and more damage to the viability of her portfolio.

I was shocked. I naively believed that nearly all advisers had their clients best interests at heart. I never thought I’d see investment management this egregiously bad. This guy was simply trying to generate commissions on Gerry’s account. His behavior was serving no one but himself and was in fact illegal. His activity is known as prohibited conduct. In the financial services industry, investments must be prudent and suitable for the account owner.

Gerry didn’t want to take legal action, though she certainly had a very good case. She did sell her holdings to salvage what little money she had left. She’ll have to sell her beautiful house in the next year or so. She needs the equity to live on. Fortunately the equity will be enough for her to maintain her lifestyle for the rest of her life, but she’s devastated that she’ll have to leave her home that she loves so much.

You can’t just give your money to someone and assume they’ll do what’s right. While most financial advisers are good people, this story illustrates that it’s not true for all. Even an adviser with your best interests in mind, can’t know whether their strategy is still good for you unless you engage with them. Here are the things you should be discussing with your adviser on a regular basis:

  1. Update your financial information beyond the investments your adviser is managing. This should include total savings, total debt, and income.
  2. Reiterate or update your financial goals.
  3. Discuss whether you are saving enough, or if you’re closer to retirement, a plan for withdrawals that will help your money last and minimize your tax burden.
  4. Discuss how the investment strategy aligns with your goals, and how you can expect it to change over time.
  5. Ask to be educated on any concepts you don’t understand.

If your adviser isn’t willing to talk with you about these topics, find another one. Seriously consider someone with a Certified Financial Planner (CFP) designation. These professionals must demonstrate their skills before a governing board and practice for at least three years before they can use the designation. You can find CFP professionals in your area at letsmakeaplan.org or napfa.org.

Advisers gain a great deal of control over your savings. That can relieve you of making decisions you’re neither qualified nor comfortable in making. But you can’t just walk away. Review your monthly statements to make sure your adviser is doing what she said she would. And to make sure she is working toward the same goals as you, demand a detailed discussion with her at least annually.


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For a comprehensive, step-by-step guide to building your own financial plan, pick up my award winning book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security.  It is available on Amazon.

It’s Here!

Thank you to everyone who has followed my posts for the last few years. I am extremely excited to announce that my book is now available on Amazon!

Save Yourself is a comprehensive guide to saving for retirement and shoring up your financial security so you can do whatever it is you want. Through the stories of real people, it shows you exactly how you can make the changes that will allow you to save for a long and secure retirement so that you don’t need to work for pay. In addition, it covers other aspects of true financial security, giving you peace of mind throughout your life.

Early reviews are very positive. Here’s one that a reader was kind enough to post on Amazon.

The Save Yourself guide to retirement planning justifies the need to take control of your financial security with meticulous statistical research and lays out the step-by-step plan to reduce debt, budget and achieve financial independence. If you are putting planning off, author Grandstaff’s remark that “The monthly savings requirement more than doubles for every ten years you delay” is a sobering statement to prompt action to read her work and get started today.”

Happy reading! Reviews are very important to help other readers find the book, so please post one back at the same Amazon page. Again thank you for your kind attention, and have a wonderful holiday season.

What You Should Do When the Stock Market Swoons

Nothing.

Now, what would be really great is if we could invest more money in the stock markets when they are going up and get out of the stock markets when they are going down. Our return would be much better if we could avoid those nasty market downturns. Many attempt to do just that, but few are any good at it.

The trouble is if you missed just the months with the top 5 percent of returns in the market since 1950, you would have cut your returns almost in half. Of course, if you were able to avoid the bottom 5 percent of months in the process, you would perform just about as well as the market. But given the uncertainty of when those occur, that doesn’t seem like a good trade-off.

To illustrate, take a look at what happened during and after the financial crisis. The following chart shows the total return for the S&P 500 and cash flows in (bars going up) and out (bars going down) of equity mutual funds during the crisis and through the recovery to 2012.

S&P chart

The peak in value for the S&P 500 prior to the crisis came in September of 2007. From there the stock market began a gradual decline, with some investors selling sporadically. However, in September of 2008, the floodgates opened, and mutual fund investors began pouring out of equity funds. The S&P 500 had already lost more than 36 percent of its value.

The bottom of the market came in February of 2009, just four months and 16 percent later. But money kept leaving the stock markets. Even as the stock market crested its prior peak, equity funds saw growing withdrawals through the end of 2012.

If you had perfect foresight, you would have sold in September of 2007 at the peak. You would have avoided the following drop in value of 51 percent. Then you would have bought back your investment at the low in February of 2009. If you had done that, then ten years later—by September 2017—your investment would have risen by almost four times, or 14.2 percent per year.

But be realistic. You only have perfect hindsight. You know nothing about the future. You can’t tell whether the market is at a peak or just a nice viewpoint along the way. And you certainly can’t tell when the market has hit bottom.

The biggest monthly net sale of equity funds was in October of 2008, and the biggest monthly net buy following that was January of 2013. If you had sold and bought back in those months, as many other market participants did, your return for the ten years ending in September 2017 would have been just 10 percent, or about 1 percent per year.

What if you had done nothing? If you had not touched your stock market investments, in the following ten years your money would have more than doubled for an annualized return of 7.3 percent. Doing nothing is certainly easier than picking both the top and bottom of the stock market. Steadily adding to your investments, as you would in your retirement account, would have been even better.

Timing the market is a fool’s game. Seeing your nest egg shrink is no fun for anyone, but if you don’t have to spend your money right away, it can recover. So, as the market is adjusting, your task is simply to do nothing.

Photo by Chris Liverani on Unsplash

When Your Money Makes More Money Than You Put In

Saving money is hard. As human beings we are naturally wired to place our immediate needs (or wants) ahead of our future needs. Long term goals, like retirement, seem particularly daunting. The numbers are large, and the payoff is a long way off. Would it help to know that it gets easier the longer you do it?

Yes, the more consistently you set money aside the easier it becomes, because you are developing a habit of saving money. If you save through your company retirement savings plan, it’s even easier, because the money is whisked away before you get it.

But that isn’t what I’m talking about. The more money you save, the more your money works for you. Your money starts making money through the magic – actually the math- of compounding. Here’s what you could look forward to if you were to save the same amount of money each year, and earn an annual investment return of 7 percent.

  • In eleven years, the earnings on your total savings will match your contribution in that year.
  • In about six more years, the earnings on your total savings will be double your contribution in that year.
  • In about three more years after that, the earnings on your total savings will be triple your contribution in that year.

Of course if your investment return is lower, it takes a bit longer for your investment earnings to match your savings contribution. If your return were only 5 percent per year, it would take about fifteen years for the earnings to match your contribution. But there is a similar pattern of doubling and tripling your contribution over ever shorter time frames following that.

Admittedly, I’m both a money and a math nerd. I find this half-life of time to essentially gain an extra year of savings through the earnings on what you’ve already saved exciting. Who wouldn’t appreciate their money working harder than they do?

That is why it is so important to begin saving for your long term goals as soon as possible. The more time you have, the more your money can do the heavy lifting for you. Your total contributions toward your goal can be smaller.

If you are struggling to find the motivation to save for something that is decades away, keep in mind that you don’t have to do all the work. Saving money is hard, so make it as easy as you possibly can. Take advantage of the magic of compounding. Save early and save often, and you won’t have to save as much.

Photo by Mert Guller on Unsplash

 

 

 

How to Take Advantage of the Mutual Fund Company Price Wars

Fidelity has added two zero cost funds to their line-up of low-cost index mutual funds. One fund tracks the U.S. stock market and the other tracks international markets. These new funds are the latest volley in the index fund price wars. So it’s a good time to talk about the impact of fees on your investments and at what point it makes sense to switch.

Mutual fund fees are extracted from the value of the underlying fund investments. While you never have to pay out-of-pocket for these fees, they reduce the value of your investments, and are therefore, worth paying attention to.

Average fees for funds investing in large U.S. companies are 1.25 percent per year. If you assume the stock market will return 7 percent per year, after fees, your return would be 5.75 percent.

However, there are many index funds with much lower fees. Index funds track a market index, which is a fixed list of company stocks, like the S&P 500, or the Dow Jones Industrial Average. There are hundreds of indices which slice and dice the investment markets every which way you can imagine.

Because index funds track a fixed list of companies, the investment process is largely automated. The fund companies don’t have to pay expensive research staff, and therefore the funds are cheaper to manage and less costly to you.

The following table compares investment minimums and fees among a sample of a few low-cost index funds similar to one of the new funds from Fidelity.

Index Mutual Funds Minimum Investment Annual Fees
Vanguard Total Market Index Fund Investor Share Class  $3,000 0.14%
Vanguard Total Market Index Fund Admiral Share Class  $10,000 0.04%
Schwab 1000 Index Fund  $ 1 0.05%
Fidelity Zero Total Market Index Fund  $ – 0.00%

All of these funds are substantially less expensive than the average fund investing in U.S. stocks. That is why index investing has become so popular. Over a ten year period, a $10,000 investment will be worth around $2,000 more in any one of these index funds, versus a fund with a 1.25 percent expense ratio. Give yourself thirty years and the difference will be around $20,000.

However, among these already low-cost funds, the differences are much smaller. The following table shows the difference in expenses over time on a $10,000 investment for the funds above.

Cumulative Expenses Over Time

Ten Years

Twenty Years

Thirty Years

Vanguard Total Market Index Fund Investor Share Class

$256

$1,000

$2,932

Vanguard Total Market Index Fund Admiral Share Class

$73

$288

$849

Schwab 1000 Index Fund

$92

$360

$1,060

Fidelity Total Market Index Fund

$0

$0

$0

If you are just starting out and planning to invest in index funds, going with the low cost provider is a reasonable strategy. While Fidelity has these two new zero cost funds, they also have several index funds with expenses ranging between 0.015 percent and 0.11 percent.

However, if you already have investments, there are a few things to consider when deciding whether to change fund companies for the purpose of getting a lower fee.

  1. It’s important to keep your financial life simple by holding as much of your investments as possible at one institution. If most of your investments are already with Vanguard, it probably isn’t worth it to open a Fidelity account just to take advantage of the new zero cost funds.
  2. While the fund fees may be lower, you could pay a premium to buy and sell a low- cost index fund away from the fund company that manages it. For example, if you buy the Vanguard Total Market Index fund through Charles Schwab, the trade will cost you $76. The Fidelity Zero funds aren’t available there (at least not yet).
  3. If your investments are in a taxable savings account, you will have to pay capital gains taxes on the sale of the fund you already hold to move to a lower cost fund. If you have a high expense fund, it could still be worth it, but it probably won’t pencil out among already low-cost index funds. Of course there are no tax consequences to transactions in your retirement savings accounts.

The mutual fund company price wars are making investing cheaper and more accessible to all investors. Mutual fund fees take a bite out of your returns, so the lower the better. But if you are already invested in a low-cost fund, there can be drawbacks to switching to a new fund, even if it costs less. It may not be worth it to chase the fund companies to save a few bucks.

Image courtesy of sheelamohan at FreeDigitalPhotos.net

How to Lose Money with Every Dollar You Invest

Recently I was helping my daughter with her bank account and noticed a $1 withdrawal labeled “Stash Fee”. It was a fee to robo-adviser, Stash. Normally I would be thrilled by the good news that my daughter was saving and investing. But in this case I wasn’t.

I had a couple of concerns, but the biggest one was that $1 fee which would be coming out of her account monthly as long as she maintained her account with Stash. It doesn’t seem like a lot, $12 per year, but she had only invested $50 so far. That’s an investment expense of two percent per month! It would be really hard for her investment to make money with that expense load.

I’m a fan of robo-advisers. They offer a great service for savers with both small balances and big ones. They generally use low cost exchange traded funds to build a well diversified portfolio, and their management fees are also low. For more details on robo-advisers, check out the post I did a little over a year ago.

The Stash service allows investors to invest as little as $5.00. You can set up an automatic regular transfer from your bank account. In fact, you are required to link your bank account to your Stash account, so they can automatically withdraw your fees every month.

Most robo-advisers subtract your fees from your investment account, and even with small balances, the fees are lower. Betterment, and Wealthfront two other robo-advisers, offer investment management for 0.25 percent per year. Betterment has no minimum balance, but Wealthfront does require an initial $500 investment.

Stash bills itself as a way for young investors to learn more about investments while building their portfolio. They offer lots of information on investing as well as help selecting investments. But they seem to leave out the bit about how high fees eat into your savings.

Stash’s fees do become more reasonable as a percent of your investments the more you invest. Once your balance hits $5,000, the fee converts to 0.25 percent per year, which is about $12.50 on that amount of money. That is in line with Betterment and Wealthfront, but both those advisers will build your portfolio for you, as opposed to offering to help you build your own.

This experience highlights the importance of understanding what you are getting into. Never hand over your money to any adviser without investigating how they work, what they offer and how they compare to other alternatives. There are many low cost ways to have your money invested for you.

Robo-advisers are a good way to go, particularly if you don’t have much to invest right away. However, Stash’s fee structure makes them a poor choice for balances less than a few thousand dollars. There are other options with much lower fees. If you like what Stash has to offer, wait until you’ve saved up the $5,000 to make the fees competitive before you invest with them. Whatever investment adviser you choose, make sure that you understand what they offer and what they charge before you hand over your money.

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