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exchange traded funds

Can Index Funds Replace an Advisor?

by sshrx_ns3li1 February 21, 2020

written by sshrx_ns3li1

In a few short days – Aug. 30, to be precise – billionaire Warren Buffett will turn 89 years old. Worried investors should note that Charlie Munger, Buffett's sidekick at Berkshire Hathaway (ticker: BRK.A, BRK.B) in Nebraska, is a very sharp 95.If you're wondering at this point what the devil counting birthdays has to do with investing, consider how Buffett wants to provide for Astrid Menks, his wife since 2006. For fund managers, Buffett's 2013 letter to Berkshire Hathaway shareholders might as well serve as a sharp stick in the eye:"One bequest provides that cash will be delivered to a trustee for my wife's benefit," Buffett wrote. "My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund." (He suggested Vanguard, by the way.)The Oracle of Omaha concluded: "I believe the trust's long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers."Or, you could say, Ouch. Buffett insists you don't need a Wall Street type to manage your investments after all. Invest in the index, cut out the middleman and reinvest those saved fees to realize huge rewards over time through the magic of compound interest.The subject of fees and the financial managers who charge them has hardly been a sweep-it-under-the rug affair for investors. The conversation has in fact heated to contentious levels, some of the credit or blame courtesy of the "Freakonomics" public radio show. In case you might've missed it, episode 297, dated March 21, 2018, was titled "The Stupidest Thing You Can Do With Your Money."On it, Stephen J. Dubner reaches a well-reasoned conclusion – backed by financial industry immortals – that the money spent on fees is a waste when compared to the strategy of the passive fund that tracks a market index. He cites a study where only the top 2% to 3% of active fund managers had enough skill to cover their cost. But how far can Buffett's stock market strategy be taken portfolio-wide for the typical investor? After all, 99.99% can't leverage a Buffett-sized fortune and place it in an index fund. Thus many industry experts contend that if you try Buffett's approach as a one size fits all, you might as well climb into a potato sack and call it a three-piece suit."Without an advisor what factors would an investor use to decide which indexes to invest in, at what percentage and how should the investment allocations change over time?" says Ken Stern, senior managing director of Lido Advisors in Los Angeles."I disagree that low-fee index funds are an adequate replacement for an advisor," says John Foxworthy, founder of Foxworthy Wealth Advisors in Fort Wayne, Indiana."These vehicles are changing the concept that an advisor is a 'stock picker,' but there is much more to it than that," Foxworthy says. "The individual exchange traded funds are just ingredients. It takes a good chef to be able to combine those ingredients into a delicious meal.""If the goal is simply to invest money indefinitely then a low-cost index is perfect and a great part of executing a financial plan," says Adriel Tam, CEO and co-founder of Viridian Advisors in Seattle. "However if you have a time horizon like retirement, college planning or a need to use the investments at a later point, then no."Tam's observation raises a salient point: Market index funds and paying an advisor need not represent an all-or-nothing choice."We do not believe the decision to use index funds or to have an advisor are necessarily mutually exclusive," says Geoffrey Sulanke, director of manager research at Davenport & Company in Richmond, Virginia. "Just as you would not try to build a house without a blueprint, you should not approach your finances without making some type of plan before you begin."Ah, ha! No two homes are alike, nor are the resources to build them or the ultimate goals they serve. So getting your financial house in order can be risky business if you spend too much time making sidelong, envious glances at your neighbor's pad.Likewise, no two advisors charge the same amount."There are so many advisors that you can shop around for advisors who charge the least fees," says Mayra Rodriguez Valladares, managing principal at MRV Associates and a bank regulatory and capital markets consultant based in New York. "Always make sure to ask your advisor what he or she invests in to see if they have skin in the game."Investors will benefit from periodically reviewing their assets, how they are allocated and how their efforts to diversify are faring in the stock market.Robert Johnson, a finance professor at Creighton University and longtime follower of Buffett, understands the billionaire's approach in fine detail. Thus he's able to break down The Oracle's proclamation in everyday investing terms.That is: While the numbers say one thing, investors too often do another and it's often frustratingly flawed. So the purpose of a great advisor might be – and often is – to protect people from themselves."The biggest advantage of an advisor is not the financial expertise provided or the investment decisions made," Johnson says. "It's that she will calm you down during times of market turmoil, talking you out of panicking and making sweeping changes to your portfolio."Daniel Kern, chief investment officer at TFC Financial Management in Boston, agrees with this brake on investing emotion."Advisors are a necessary counterweight to many self-destructive behavioral tendencies," Kern says. "It's easy to lose perspective in a soundbite-driven environment that magnifies the natural fight or flight response under stress, which often leads investors to trade too much and to trade at the wrong times."And unfortunately, some investors – even those ensconced in an ETF – feed off manic energy to reckless ends."Anyone can buy an index fund," says Steven Jon Kaplan, CEO at True Contrarian Investments. "A true advisor will keep their clients in alternatives during bear markets even if that means something boring like four-week U.S. Treasurys and/or bank CDs."That said, you could ride out the biggest of bears if you're willing to adopt the supremely patient modus operandi of Buffett. He famously said his favorite holding period for a stock is "forever." And as he closes in on 90, he's as close to that mark as anyone.

February 21, 2020 0 comment

Financial Advisors

What Is Direct Indexing?

by sshrx_ns3li1 February 21, 2020

written by sshrx_ns3li1

Index mutual funds and exchange traded funds can offer all-in-one exposure to the stock market through the indices they track. But there's another way to match the performance of a benchmark index without buying into funds: direct indexing.What Is Direct Indexing?"Simply put, it attempts to replicate the performance of an index by purchasing the underlying individual equities instead of using an ETF or mutual fund in an investor's portfolio," says Rob Cavallaro, chief investment officer at RobustWealth.Though the concept has been around for decades, it's only recently begun to move into the mainstream. Digital investing platforms and fractional share trading have made the direct index method more accessible to a broader range of investors, beyond just the ultra-wealthy.With more financial advisory firms and robo advisory platforms offering this option, it could give traditional index funds and ETFs a run for their money.How direct indexing works.The direct index advantage.It may not be right for every investor.How Does Direct Indexing Work?It may sound complicated but it's a simple enough concept."At its core, direct indexing is the idea of owning an index," says Michael Neuenschwander, a certified financial planner at Outlook Wealth Advisors in HoustonRather than purchasing a mutual fund that holds all of the stocks in the S&P 500, for example, investors can purchase shares of all 500 stocks individually. This is made easier through fractional investing."Fractional share trading allows very small amounts of money to be invested in each position, allowing even the smallest investor to participate, Cavallaro says." That's a boon for investors who want to own larger companies, such as Alphabet (ticker: GOOG, GOOGL) or Amazon (AMZN) but doesn't have thousands of dollars to tie up in a single share.Daniel R. Hill, president and CEO of D.R. Hill Wealth Strategies, says this approach hinges on the idea that owning all the securities in an underlying asset class will provide some premium above the index return."This concept was developed when the research showed that the active manager fails to beat the market the vast majority of the time, so investors have a higher probability of success if they just own the index," he says.The Direct Index AdvantageThere are several benefits this approach can offer over other investing strategies. The first is tax-efficiency, says Shana Sissel, senior portfolio manager at CLS Investments in Omaha, Nebraska. "With a direct indexing portfolio, the portfolio manager can go in and harvest tax losses at the individual position level for the client when the opportunity arises," Sissel says.This offers more control over gains and losses throughout the year, while still maintaining the risk-return profile of the benchmark the investor is attempting to match. It becomes easier to optimize tax outcomes and minimize the chances of receiving an unexpected tax bill for capital gains. With an indirect strategy, the entire fund would have to be bought or sold to harvest losses, offering a lower level of customization to investor needs and objectives.Customization also extends to building a portfolio that reflects individual values. "Investors and advisors can select individual securities that align with their ethical and moral beliefs or avoid securities that don't," Cavallaro says. The result is a completely personalized portfolio.Another advantage is reduced operating costs for the do-it-yourself investor who's trading securities from a chosen index themselves through a brokerage account. Kip Meadows, founder and CEO of fund administration firm Nottingham, says cost benefits are realized when the trading account is large enough to absorb transaction costs associated with making trades.When trading index mutual funds or ETFs, investors pay not only transaction costs but the individual expense ratios for each fund. The expense ratio reflects the annual cost of owning the fund, expressed as a percentage. Buying full or fractional stock shares individually avoids that cost.Finally, direct indexing can be a pathway to managing risk."Research shows that investors can reduce company risk by owning more companies," Hill says. "By owning the index instead of some lesser portion of the index one reduces the overall volatility of their portfolio."It May Not Fit Every InvestorWhen considering any new investment strategy, it's always important to look at the potential drawbacks. The first challenge associated with direct indexing is that it requires the willingness to be a hands-on investor."There is an intensive management aspect to it," Sissel says.Indexing directly may be fairly straightforward when buying securities for an index such as the S&P 500. But it can get more complicated when attempting to replicate something like the Russell 2000, where liquidity issues may exist with underlying assets, or an international stock index.Aside from that, the trading frequency may be higher, particularly if the stock market enters a volatile period. That could mean paying more in trading or management fees.Neuenschwander says this is true for both the DIY investor and one who indexes directly with the help of an investment firm or advisor. "If all you're getting for those trading and management fees is the risk and return of the index, the extra expenses may not be worth direct indexing," he says.Comparing transaction fees against fund expense ratios can put costs in perspective."With an index like the S&P 500, transaction costs for 500 securities, even at $5 per transaction, still total $2,500," Meadows says. "If your index portfolio is $250,000, that equals 1%, which is likely significantly higher than a comparable index fund or ETF."For that reason, experts often agree that direct indexing may be most appropriate for investors who have large after-tax investments. Smaller investors, on the other hand, or those who are newer to the stock market may continue to be better served by the simplicity and cost-efficiency of an index fund or ETF.There's also diversification to consider. Hill says investors should take time to understand how a particular index is cap weighted such as large cap versus mid cap or small cap indexes.The Dow Jones Industrial Average, for example, is composed of large cap, blue chip companies. An investor who indexes directly would need to ensure they're balancing out those large cap holdings appropriately elsewhere in their portfolio."For investors where direct indexing does fit, then the natural next step is to determine what combination of indices fit your goals and objectives," Neuenschwander says. That means keeping risk tolerance, risk capacity, which refers to the amount of risk needed to achieve investment targets, and overall portfolio diversification in view.

February 21, 2020 0 comment

Financial Advisors

Investing in Stocks for Beginners

by sshrx_ns3li1 February 21, 2020

written by sshrx_ns3li1

Investing in stocks is simple as more companies have simplified the process and allow beginners to open an account through a website or mobile app.Common stocks allow stockholders to vote on company issues, but most of the time stockholders receive one vote per share. Several companies also give stockholders dividend payouts – these payouts typically change based on the company's profitability. Adding stocks in a portfolio means that you own a small percentage of a company that should increase its growth and value. Beginning investors should note there are two ways to make money from stocks: dividend payments and selling stocks when the share price goes up.How to Invest in StocksInvesting in stocks can be done in many ways. If you would like to form a strategy and manage your own investments, you can open a brokerage account. If you're unsure about where to start, consider opening an account with a robo advisor who will do the work at a lower cost. For those who want more guidance about their retirement plans, turning to financial advisors might be a good solution.For beginners who do not want to do the legwork in managing their portfolio or who are new to investing, a robo advisor could be a great first step, says Rick Swope, vice president of investor education at E-Trade, a New York-based brokerage.The portfolios managed by robo advisors typically consist of exchange-traded funds aligned to an investor's goals, risk tolerance and time horizon. ETFs also provide diversification at a lower cost."Young investors who are just starting out should look to simple solutions like robos and when investors graduate to more complex financial needs, like estate planning, they may turn to the services that a financial advisor can provide," he says.The number of companies offering brokerage accounts has increased, including banks such as Ally Bank. Some brokerage companies provide a simplified version such as Robinhood where investors can buy and sell stocks, ETFs, options and cryptocurrency from a mobile app for free. Although Robinhood doesn't offer trade options for mutual funds or foreign stocks. Stocks can also be purchased in individual retirement accounts such as a traditional or a Roth IRA. This allows investors to grow their retirement money in a tax-deferred account.Competition has spurred many brokerages to slash commission fees, which can add up quickly if you buy and sell stocks, mutual funds or ETFs frequently. Robinhood is not the only company that does not charge commission fees. Starting in October, Interactive Brokers is providing an unlimited number of commission-free trades on U.S. exchange-traded stocks and ETFs along with no account minimums or inactivity fees."Investing has become much easier," says Steve Sanders, executive vice president of marketing and new product development at Greenwich, Connecticut-based Interactive Brokers. "More of your hard-earned money will go straight toward your portfolio and not toward paying fees. I think this will be extremely helpful for beginning investors as well as others who like to save money."How Much Money Should You Invest in the Stock Market?Since many brokerages such as TD Ameritrade do not require a minimum amount to open a trading account, you can start investing with even $100.Discount brokers are a boon for beginners with little money, who are looking to get stock market exposure with smaller portfolios. But a discount broker does not typically provide advice or analysis. Many of these brokers do not require a minimum amount to start an account while some have a low beginning threshold of $1,000. Building a diversified portfolio is the priority for beginners who should consider adding index funds that capture the broader market, Swope says. Mutual funds and ETFs are the easiest solutions since they own hundreds to thousands of stocks and are less volatile than individual stocks. ETFs tend to have low minimums, allowing investors to spread their first $10,000 between a few funds and gain access to a variety of areas in the market, he says."A mix of ETFs, mutual funds and individual stocks can provide even broader diversification between investment vehicles," Swope says. "Bottom line: If you're just getting started, keep it simple."Good Stocks to Invest in for BeginnersChoosing the right stock can be a fool's errand, but investing in high-quality stocks such as blue chips and dividend-yielding ones are often good strategies. One reason investors opt for blue chips is because of the potential for growth and stability and because they produce dividends – these include companies such as Microsoft (ticker: MSFT), Coca-Cola Co. (KO) and Procter & Gamble Co. (PG). Coco-Cola, for example, generates a dividend of 2.9%, and the stock is less volatile as its share price has hovered between $44 and $55 during the past 52 weeks. Dividends can generate much-needed income for investors, especially higher-dividend ones.Another thing for beginners to consider is diversification. Diversifying your stocks and not concentrating on one sector is another advantage. One other tip is to be consistent. An investor's best bet is to invest consistently such as socking away $400 a month.The habit of saving and putting away money regularly is the single biggest decision "young people can make to ensure a good life down the road," says Ron McCoy, president and CEO of Florida-based Freedom Capital Advisors. Automatic investing can help remove the need to make decisions about when and how much to invest, creating consistent investing habits, Swope says. Automatic investing takes advantage of dollar-cost averaging, which often mitigates portfolio volatility over several decades."Instead of investing a lump sum all at once, investments are made incrementally with the same amount at regular intervals on a fixed and automatic schedule," he says.Dollar-cost averaging is a great way to accumulate long-term wealth because you are always the same number of shares which can be beneficial if you're buying during a downtown and paying a lower price before the stock rebounds, says Chris Osmond, chief investment officer at Prime Capital Investment Advisors."This strategy also helps remove emotion because you're systematically investing in a long-term plan," he says.The news cycle about a company's stock performance can be overwhelming. Instead, remove the short-term noise, so you can maintain perspective of your strategy for the long run, experts say."The secret with investing is to remove emotion," Osmond says. "When emotion is removed from the equation, an investor is less likely to sell and buy at the most inopportune times."Billionaire Warren Buffett, a legendary investor, advises people to buy and hold stocks for several decades instead of selling and re-buying them constantly. At a minimum, the stock should be one that an investor would own for at least 10 years, he advises.

February 21, 2020 0 comment

Financial Advisors

8 Facts to Know About Mutual Fund Fees

by sshrx_ns3li1 February 21, 2020

written by sshrx_ns3li1

Understanding mutual fund fees.
Mutual fund fees can be confusing to retail investors because of the different terms to explain how the investment is packaged and managed. Retail investors researching mutual funds can compare mutual fund fees, expenses and other information on financial news sites, experts say. "It's where most professionals start their research," says Craig Bolanos, CEO of Wealth Management Group. Knowing what a mutual fund charges compared to it its peers can help investors if a higher-priced fund is worth buying. Here are eight facts to know about mutual fund fees and expenses.

Know the basics.
Mutual fund fees come in a few different flavors and have different terms that mean the same thing, says Crystal Wipperfurth, a certified financial planner at Bronfman Rothschild. The term load is the fund's sales charge, which is the commission investors pay to the mutual fund company, usually expressed as a percentage of the amount bought or sold. Upfront load fees are paid in the beginning, back-load fees are paid when an investor sells. No-load funds mean no commissions are paid. Another fee is the expense ratio, it can comprise the management fee, which is how the managers get paid. The expense ratio may also contain a "12b-1 fee" – the cost to market the fund. But not all funds have those fees.

Focus on the two main share classes.
Looking at the different mutual fund classes can feel like looking at alphabet soup. For instance, there are A-class shares or B-class shares, to name a couple. There are also institutional and investor shares, all with different trading symbols. Wipperfurth says retail investors should focus on A-class shares and C-class shares. A shares have a one-time, upfront load, which includes the financial advisor commission. It can be as high as 5.75%, which translates to $575 for every $10,000 invested. C-class shares do not have an upfront sales charge but can have a back-end sales charge if it is sold within the first 12 months. Both A- and C-class shares may have a yearly expense ratio but the A shares tend to have lower expense ratios.

Determining which share class is better.
Investors may choose C-class shares automatically to avoid the A shares' upfront loads but they should think twice about the purpose of buying a particular fund. Investors should consider how long they intend to hold the fund when deciding which share class ultimately will be less costly. "The longer the holding period, the more appropriate the class A share might be simply because it has lower on-going expenses even though it's got the drag of the upfront commission," Bolanos says. Investors who plan to only hold the fund for a short time may want to opt for C-class shares. The Financial Industry Regulatory Authority, known as FINRA, has a calculator that can help determine how long it would take to hold a fund to make an A-share fund more cost-effective, he says. Generally, A shares can be more cost-efficient for investors who plan to hold it more than three years, Bolanos says.

Fees affect performance.
Although mutual fund fees have different structures depending on the share class, the bottom line is that's the cost to compensate the financial professional, says Aaron Benson, portfolio manager at Baird Private Wealth Management. That cost affects performance and affects what an investor received. In upfront commissions, the fee is subtracted before the money is invested. Yearly expense ratios are taken out of the fund's assets. "That's all reflected in the fund's performance," he says. Investors buying A shares should be aware of breakpoints as larger investments can mean a lower upfront sales load, he says.

Mutual fund fees are falling.
Ben Johnson, director of global exchange-traded fund research at Morningstar, says mutual fund fees as a whole are down from years past as cheaper index funds are taking a bigger chunk of investors' portfolios. Johnson's April 2019 research paper shows that the asset-weighted average expense ratio for active and passively managed mutual funds and ETFs combined was 0.48% in 2018 – that's significantly cheaper compared to 0.93% in 2000. This ratio has fallen every year since 2000, he says. The growth in target-date series funds and the default choices of index mutual funds in most 401(k) plans is one example of how index mutual funds are becoming more popular, he says.

Active mutual funds charge more.
The asset-weighted average fee for actively managed mutual funds in 2018 was 0.67% compared to 0.71% in 2017, while the average fee for the passively managed mutual funds was 0.15% in 2018 – down from 0.16% in 2017. Johnson says active mutual funds charge higher fees because it's related to the cost of creating the portfolio and delivering the strategy to the client. "Index portfolios have a meaningful advantage over actively managed portfolios in that respect because the index methodology can be boiled down to an Excel spreadsheet or a Word document," he says.

Higher fees occur in more complex strategies and sectors.
Johnson's research shows the average fund cost for an actively managed U.S. equity fund in 2018 was 0.7%. Those costs rose to 0.82% on average for an international-equity fund and as high as 1.35% for an alternative strategy active mutual fund. He says there are a few reasons for the differences in costs. Part of it is the cost of creating the strategy as the cost to build and maintain a portfolio of foreign stocks, for example, can cost more, especially as an active manager tries to hew closely to the benchmark. But other times, "the case for higher fees might not hold water," he says.

More to investing than just fees.
Bolanos says controlling costs and fees are important, "but it doesn't mean we should be just investing in things that cost zero." He says investors should look that what the investment represents and what it offers. Actively traded mutual funds that invest in niche areas like biotechnology or artificial intelligence may take more research time and will have a higher cost. "Where else can someone can exposure to those sectors," he says. "You can't unless someone creates it. If that's the only way to get access, it is what it is. But we owe it to ourselves to make sure there's a process and the selections are fair."

Facts to know about mutual fund fees:
Know the basics.Focus on the two main share classes.Determine which share class is better.Fees affect performance.Mutual fund fees are falling.Active mutual funds charge more.Higher fees occur in more complex strategies and sectors.There's more to investing than just fees.

February 21, 2020 0 comment

Financial Advisors

The Best Robo Advisors of 2019

by sshrx_ns3li1 February 21, 2020

written by sshrx_ns3li1

Find a robo advisor that matches your investing style.
Watching the robo advisor industry grow is like seeing evolution in action. What started as simple tools for beginners to start investing have evolved into hybrid digital advice tools for all levels of investors, says Igor Jonjic, senior product manager at Fiserv. Today, robo advisors come in as many flavors as Ben & Jerry's ice cream. Having options is great, but only if you know how to sort through them to find the best one for you. To help you find the right robo advisor, here are the best robo advisors of 2019 for every type of investor.

Fidelity Go: Best overall robo advisor.
Fidelity Go was awarded the Best Overall Robo for the second time in a row by Backend Benchmarking in their latest 2019 Robo Rankings. The ranking evaluates robo advisors based on quantitative performance and cost plus qualitative metrics such as their services, platform and features. Fidelity Go excelled both quantitatively with near-top portfolio performance and low cost (thanks in large part to the zero expense ratios and commissions on the funds it uses), and qualitatively for its strong digital planning platform. Where the robo advisor falls short is in access to financial advisors. For that, you’d need their hybrid Personalized Planning and Advice model, which costs 0.5% per year and has a $25,000 account minimum. Fidelity Go also lacks the tax loss harvesting feature offered by many other robos, but it does provide free rebalancing and withdrawals.Management fee: 0.35% (0.5% for the hybrid model)Account minimum: None ($25,000 for the hybrid model)

Betterment: Best for beginning investors.
With no account minimum, Betterment is a great robo advisor to start investing – and Backend Benchmarking agrees. The Robo Rankings awarded Betterment the Best Robo for First-Time Investors this year thanks to its low cost, no minimum and straight forward goal-based investing. Like the robo advisor industry, Betterment has evolved from a purely robo tool providing investors a quick way to get started to the hybrid robo-and-human advisor model it is today, Jonjic says. And just as Betterment has grown over time, investors can grow with it. The beginner level, called Betterment Digital, gets you started on goal-based investing and provides unlimited access to experts via chat. Or, its Premium level matches you with a certified financial planner for a one-on-one advisor relationship.Management fee: 0.25% (digital) or 0.4% (premium)Account minimum: None (digital) or $100,000 (premium)

Vanguard Personal Advisor Services: Best for access to a human financial advisor.
Vanguard's robo advisor took the silver medal overall in the latest Robo Rankings report, thanks in part to its top-notch access to human financial advisors and financial planning tools. The mutual fund behemoth's robo component, called Vanguard Personal Advisor Services with Ongoing Guidance, gives investors an alternative to the traditional “come to my office every six months to review your portfolio” advisor relationship, Jonjic says. Instead, you can call, email or video chat. The advisor will put together a plan based on your situation. Said plan will generally be Vanguard funds-based and not include individual securities. Also of note: while the robo advisor has a $50,000 minimum, to receive an assigned advisor, you need to invest more than $500,000; anything below that gets you a team of advisors.Management fee: 0.3% – 0.05% based on account sizeAccount minimum: $50,000

Wealthfront: Best for financial planning tools.
Wealthfront has branded its passive, rules-based investment strategy on Burton Malkiel’s (who happens to be Wealthfront’s chief investment officer) famous line that a blindfolded monkey could pick stocks as well as the experts. Instead of monkeys, Wealthfront uses a team of Ph.D.s (which may not be a fair comparison) and software programs to find investment strategies. Portfolios consist mainly of low-cost, passive exchange-traded funds. Since they believe in passive, software-based investing, you don’t get access to financial advisors for human guidance. But you do get a wealth (pun intended) of financial planning resources to help you get your finances in order yourself. The platform’s complex planning tools, which model six different goal-based scenarios, from retirement to income windfalls to taking a sabbatical to travel, is why they were awarded Best Robo for Digital Financial Planning from Backend Benchmarking. Since some of these goals require short-term funds, the platform also offers an impressive high-interest savings account, currently earning 2.07% APY. Management fee: 0.25%Account minimum: $500

WiseBanyan: Best for low fees.
WiseBanyan was recently rebranded as Axos Invest but still advertises itself as “the world’s first free financial advisor,” a title earned by its zero management, trading or rebalancing fees. And to those who believe the axiom “you get what you pay for,” the Robo Report says, “false.” In addition to being among the lowest cost robo advisors, the report found Axos Invest had the second best two-year and three-year performance behind Fidelity Go and SigFig, respectively. The Report attributed this outperformance over other low cost robo advisors to the fact that Axos Invest does not keep a high cash balance in their portfolios.Management fee: NoneAccount minimum: $1

Blooom: Best for 401(k) investors.
If you have a 401(k), you need to know about Blooom, says Shannah Compton Game, a Los Angeles-based certified financial planner and host of the "Millennial Money Podcast." For $10 per month, Blooom “helps you sort through the laundry list of investment choices in your 401(k) and create a portfolio that meets your risk tolerance and investing needs,” she says. “Their strength is in optimizing your portfolio and helping you get rid of any pesky hidden fees that are lurking in your 401(k).” They’ll also help with other employer-sponsored plans like your 403(b), 401a or 457 but nothing outside an employer’s sphere. Feeling unsure? Take Blooom for a trial run with their free five-minute 401(k) analysis.Management fee: $10 per monthAccount minimum: None

SoFi Automated Investing: Best for all your financial needs.
Known primarily for student loan debt consolidation, SoFi has expanded its offering into investment advice with SoFi Invest. The investment app lets you trade on your own, or you can use its automated investing feature to take the legwork out of investing. SoFi’s robo advisor uses goals-based investing to craft a portfolio from its suite of low-costs ETFs. The robo’s $1 account minimum, zero management fees, and free access to human financial advisors and career counseling earned it the runner up spot for Best Robo for First-Time Investors in the latest Robo Rankings report. The company also offers free checking and a high-interest savings account, complete with budget tracking to help you save more so you can invest more.Management fee: NoneAccount minimum: $1

EarthFolio: Best for socially responsible investing.
While many robo advisors have socially responsible investing options, if you want SRI and nothing but SRI, the best robo advisor to use is EarthFolio. It uses 10 environmental, social and governance criteria to screen for the best-in-class sustainable funds. After a quick questionnaire about your timeline, risk tolerance and goals, EarthFolio will recommend a portfolio of sustainable funds to match your financial needs. It’ll also give you the 15-year historical performance of their recommendation and a head-to-head comparison of it to your current portfolio. The downside to EarthFolio is it has a steeper account minimum and advisory fee (common with SRI investments) than other robo advisors on this list.Management fee: 0.5%Minimum investment: $25,000

Acorns: Best for help saving.
If your biggest hurdle to investing is saving, Acorns is the best robo advisor for you. This micro-investing app automatically invests your spare change by rounding up purchases to the nearest dollar and investing the difference. No need to make deposits or set up recurring contributions (although that’s an option). Answer a few questions to identify which of their five ETF portfolios is right for you, link your credit or debit card or PayPal account and the rest, as they say, is automatic.Management fee: $1, $2 or $3 per month depending on planAccount minimum: None

M1 Finance: Best for DIY investors.
If you’d rather build your own portfolio or prefer individual stocks over funds, you want M1 Finance. It combines some of the best robo advisor features with the ability to self-direct investments. You can build your own portfolio, or your “pie” as they call it, using any stock or ETF traded on a major exchange. Simply set the percentage of your portfolio each investment should represent and M1 Finance will allocate your contributions accordingly so you’re always balanced. And by using fractional shares, you’re always fully invested “down to the penny.” If you decide building your own portfolio is too much work after all, M1 offers fully built pies, too.Management fee: NoneMinimum investment: $100 ($500 for retirement accounts)

Ellevest: Best for women investors.
Women have a different approach to investing, according to Ellevest’s co-founder Sallie Krawcheck, which is why she and the Ellevest team created a robo advisor geared toward women and their specific needs. You get personalized ETF portfolios targeted toward your goals that are automatically rebalanced with tax-minimizing strategies and no penalties for withdrawals. Ellevest Premium also gets you one-on-one access to CFPs and executive coaches for salary negotiation and career advice for double the management fee. They also offer a private wealth management service for investors with more than $1 million to invest, which was recognized by the Robo Rankings for its complex financial planning capabilities. Fees for that are determined by just how much you’ve got.Management fee: 0.25% (digital) or 0.5% (premium)Account minimum: None ($50,000 for Ellevest Premium)

The best robo advisors of 2019.
Fidelity Go: Best overall robo advisor.Betterment: Best for beginning investors.Vanguard Personal Advisor Services: Best for access to a financial advsior.Wealthfront: Best for financial planning tools.WiseBanyan: Best for low fees.Blooom: Best for 401(k) investors.SoFi Invest: Best for all your financial needs.EarthFolio: Best for socially responsible investing.Acorns: Best to start saving.M1 Finance: Best for DIY investors.Ellevest: Best for women investors.

February 21, 2020 0 comment

Financial Advisors

8 Facts to Know About No-Commission Trades

by sshrx_ns3li1 February 20, 2020

written by sshrx_ns3li1

More firms are announcing free trade options.
Major brokerages such as Interactive Brokers, Charles Schwab and E-Trade, among others, recently announced that they would stop charging commissions to their clients who trade stocks and exchange-traded funds. Anytime people can pay less or nothing to invest, it helps them boost returns by keeping more money. Market watchers say brokerage houses' decision to drop certain trading fees is part of a trend of lower investment costs in general over the years such as falling expense ratios. But brokerages aren't offering free trading services because they're altruistic. These companies are fending off competition from newer online brokerages. Here are eight facts you should know about free trades.

Brokerage firms are looking to retain clients.
Scott Coyle, CEO of Click IPO, which allows investors to buy individual initial public offerings, says these bigger firms likely made the move to retain clients as they may have seen customers transfer to newer platforms like Robinhood, which has been offering free trades for about seven years. If the more established brokerage firms see less attrition in their customer base, they not only keep those customers but can now recruit newer customers with the added lure of free trading. "These broker dealers that have been around much longer have more robust platforms, they offer a lot more things than some of the newer free-trading firms do," he says.

Mutual funds are not included.
The brokerage firms touting their free stock and exchange-traded fund trades were silent about mutual funds. That’s because mutual funds aren’t part of the no-commission deal, says Kevin Dorwin, managing principal at wealth management firm Bingham, Osborn & Scarborough. “Mutual funds, for the most part, are still priced much higher because they're harder for the brokerages to administer. And I think a lot of people use mutual funds, so they're not really saving on that at this point,” he says. Fees vary widely by brokerages and the type of mutual fund but they can cost between $20 to $40 to trade. Many brokerage houses are also allowing people to trade options commission-free, although option traders may still need to pay a fee of 65 cents per contract.

The average investor may not save much money.
Trading fees and expense ratios for stocks, ETFs and options have dropped over the past several years, which benefits investors overall. The trend of lower expense ratios for ETFs and mutual funds has helped average investors. But this move by brokerage houses to eliminate trading commissions may not save the average person who doesn’t trade a lot, Dorwin says. “Most ordinary people don't trade so much for that to be a huge benefit. The people who do truly win are those who trade frequently, and that's not always a great strategy for individual investors,” he says.

Free stuff isn’t always a good thing.
Todd Rosenbluth, director of ETF research at CFRA Research, says if people don’t have to pay a commission to trade, it could entice more trading. “The key takeaway to me is just because something is unlimited, it doesn’t mean that investors should take full advantage of it,” he says. The downside to no-cost trading may mean people will trade more than they do now, which means they could be moving in and out of the market and trying to make short-term calls because there’s no cost to do so. “It’s a lot harder to time the market and you’re a lot better off having time in the market,” he says.

Brokerages make money in other ways.
Jim Besaw, principal and chief investment officer at GenTrust, says it was easy for brokerages to offer free trading since the money earned on commission by many of the custodians wasn’t a large portion of revenue. They make more money on other services, he says. Payment for order flow, which is the pay that firms receive for directing orders to different parties to execute trades, can generate revenue particularly in low-liquidity markets, he says. Firms also make money on securities lending programs, when investors loan stock to other traders who want to sell short the security. Investors and brokers are supposed to split the revenue earned, but the divide isn’t always clear. These money-generating activities are fine. But Besaw says it’s not easy for customers to easily figure out these costs as some brokerages are less transparent than others.

Watch cash sweep accounts.
Besaw says cash sweep accounts, which is where brokerages deposit investor cash until investors deploy it into another investment vehicle, are a top money-generator for firms. That’s because firms often pay low interest rates on these cash deposits or move these funds into a in-house money market mutual fund, with a high expense ratio. “In many cases, that’s a much higher number than the other fees,” he says. “If a client has 5% or 10% of their money in cash, in many cases, the custodian's paying them 1% less than they should. So the custodians really making 1% on that 10%, which is 10 basis points, which are pretty big numbers.” Investors can avoid this by not letting their money sit long in a cash sweep account.

Investors may make better fund choices.
Before eliminating trading fees, some brokerages had a list of ETFs they offered for no-commission trading and Rosenbluth says fee-conscious investors often gravitated to those without considering other investing aspects. “Now the whole universe is open,” he says. Investors can now sort through ETFs based on expense ratios, liquidity, performance and other factors without being influenced by trading fees associated with the funds. It may also encourage better portfolio maintenance. Investors who use a broadly diversified strategy with five or six ETFs might be more likely to rebalance that portfolio regularly because there isn't a cost to buy and sell those positions, he says.

Investors may be less likely to liquidate accounts.
Rosenbluth says he’s heard discussions that axing trading fees may increase demand for highly liquid, ultra-short-term bond ETFs during volatile times. These ETFs have maturity and duration of less than one year, such as iShares Short Treasury Bond ETF (ticker: SHV), which has a yield of 2% and an expense ratio of 0.15%, a cost of $15 for every $10,000 invested. With no trading fees, investors could move to these safer ETFs, rather than liquidate all their holdings and stuff it in a low-interest bank savings account. Investors may return to the stock market quicker when they feel like taking more risks since there’s no cost to trade, he says.

Facts about no-commission trading:
Brokerage firms are looking to retain clients.Mutual funds are not included.The average investor may not save much money.Free stuff isn’t always a good thing.Brokerages make money in other ways.Watch cash sweep accounts.Investors may make better fund choices.Investors may be less likely to liquidate accounts.

February 20, 2020 0 comment

Financial Advisors

5 Best Robo Advisors for Managing ESG Funds

by sshrx_ns3li1 February 20, 2020

written by sshrx_ns3li1

Environmental, social and governance funds, or ESG, belong to the family of sustainable, responsible and impact investing, sometimes referred to as SRI. This alphabet soup of investment strategies is a newer investment approach that strives to generate high long-term returns and positive societal results.ESG investing can be accomplished by investing in individual stocks and bonds, specifically targeted SRI funds, and employing a digital or a robo investment manager who specializes in this approach.From minimal ESG investing opportunities in the 1990s to about $12 trillion in assets under management in 2017, socially responsible investing is growing in popularity. The US SIF Foundation's most recent biennial report found that one in four dollars of professionally managed funds is directed toward ESG investing. (https://www.ussif.org/sribasics)Not only individual investors but credit unions, community banks hospitals, foundations, religious institutions, venture capitalists and public pensions invest in ESG investing companies.Answering to public demand, robo advisory digital investment managers, a type of nonhuman advisor, are now in the movement.The best ESG robo advisor will incorporate SRI investing criteria that matter to you, the opportunity to customize the investment options and low fees. Here are five of the best ESG robo-advisor services:M1 Finance.Betterment.EarthFolio.Wealthsimple.Motif Impact Portfolios.M1 FinanceThis unique platform offers both managed robo advisors and do-it-yourself investing under one roof. Investopedia's editor in chief, Caleb Silver, (https://www.linkedin.com/in/caleb-silver-9639585/) OK on this source this time. But Investopedia is one of our direct competitors so please avoid in the future.ranks M1 as a top ESG platform. "They have two socially responsible portfolios made up of Nuveen ETFs, listed under Expert Pies or you can construct a collection of stocks that meet your criteria." The account minimum is $100 and there are no trading fees, provided an account has at least a $20 balance. Experts say M1 Finance is unique among the SRI robo advisors in that it doesn't charge any management fee to use the platform.BettermentBetterment customers can choose to invest in their SRI portfolios with low fees and strong socially responsible metrics. This investment choice adheres to Betterment's low-cost and diversified approach while increasing exposure to companies that meet delineated SRI criteria. The Betterment socially responsible investing avoids companies with unsavory corporate governance and unfair labor practices."We'll prioritize excluding inappropriate stocks from the SRI portfolio and replace them with companies deemed to have strong social responsibility practices such as Microsoft (ticker: MSFT), Google (GOOG, GOOGL), Procter & Gamble (PG), Merck (MRK), Coca-Cola (KO), Intel (INTC), Cisco (CSCO), Disney (DIS) and IBM (IBM)," says Adam Grealish, Betterment's director of investing(https://www.linkedin.com/in/adamgrealish/) thank you. For example, in the U.S. large-cap stock allocation, selections include the iShares MSCI KLD 400 Social ETF (DSI). Betterment's low 0.25% management fee is reasonable when compared to other robo advisors and financial planners.EarthFolioEarthFolio is one of a handful of SRI investing robo advisors. This robo advisor invests exclusively in funds classified as sustainable or responsible. To make the cut, the fund's prospectus must delineate the specific ESG criteria used in the stock or bond selection. Unlike some ESG robo advisory competitors, EarthFolio offers bond funds in addition to other ESG funds.Earthfolio requires a $25,000 minimum investment amount and thus may be out of reach for new investors. EarthFolio offers a wider range of ESG investments and also provides a free head-to-head comparison of an investor's current portfolio with the EarthFolio recommendation. With a 0.5% management fee, it is one of the more expensive SRI investment robo advisors, although it compares favorably with traditional financial advisory fees.https://www.earthfolio.net/FAQ/WealthsimpleThere are a few fund names in this graph that don't match up with the tickers that you've given. Take a look. I've provided a few links, too.Launched in 2017, this Canadian robo advisor also operates in the U.S. and the U.K. The SRI options include ETFs representing iShares MSCI ACWI Low Carbon Target ETF (CRBN), Invesco Cleantech ETF (PZD), iShares MSCI KLD 400 Social ETF Is this what you mean?YES, SPDR SSGA Gender Diversity Index ETFIs this what you mean?yes (SHE), Invesco Taxable Municipal Bond ETF (BAB For BAB I'm getting this fund: https://money.usnews.com/funds/etfs/long-term-bond/invesco-taxable-municipal-bond-etf/bab. So do you mean BAB?yes-Investco Taxable Municipal Bond ETF) and iShares GNMA Bond ETF (GNMA) For GNMA, do you mean https://money.usnews.com/funds/etfs/intermediate-government/ishares-gnma-bond-etf/gnma YES iShares GNMA Bond Fund . Around 25% of Wealthsimple's clients have socially responsible portfolios.Wealthsimple offers three investment levels with management fees ranging from 0.4% to 0.5% of assets under management. All Wealthsimple clients have access to financial advisors, and halal portfolios are available for those who want to align their portfolios with Islamic religious beliefs.Motif Impact PortfoliosMotif Impact Portfolios encompasses both robo advisory services, investing in theme-driven portfolios, and more. One of the earlier platforms to use data and analytics to find unique investment opportunities, there are managed portfolios and DIY investing options.Silver recommends the Motif Investing Impact Portfolios which are populated with individual ESG stocks not exchange-traded funds. The ESG offerings fall into one of the categories: sustainable planet, fair labor and good corporation behavior.Motif requires a $1,000 minimum investment amount and charges 0.25% in management fees. The Motif Impact Portfolios offer stocks from five distinct asset classes that adhere to tax-aware rebalancing and minimize asset sales. In addition to the preselected ESG offerings, investors may create their own collections of ESG stocks.More Socially Responsible ESG Robo-AdvisorsThe following list includes other ESG investing companies in alphabetical order: Axos Invest.Ellevest.OpenInvest.Personal Capital.SustainFolio.TIAA Personal Portfolio.More socially responsible robo advisors will likely be added as the socially responsible investing field expands. For those who are seeking a set it and forget it socially responsible platform, there are many SRI robo advisor options from which to choose. It's likely that even if a current robo advisor lacks socially responsible investing choices today, it will offer it in the future. Ultimately, as younger investors more frequently seek to match their money with their hearts, the robo advisory market will continue to meet their needs.