Why and How to Begin Investing with Robo-Advisors

Investing can be a little intimidating at first. I came into it knowing NOTHING, which I consider a failing on the public school system and college. (But thank the lord I know what a mitochondria is, right?)

My parents also didn’t invest. My mother stayed at home with health issues, and my father was a military lifer – dependent on the government retirement and healthcare systems for all of his lifelong care and financial needs.

What I’m currently doing for my personal wealth building:

I chose not to go into the military, but do now have a “government” job at Texas A&M university. If I chose to work here or in some similar government career, I could retire after 30 years of service (or at age 65) and qualify for Teacher’s Retirement System benefits. (I’ll get back what I’ve put in regardless, and the TRS’s matching funds after X number of years, but won’t qualify for a full “pension” unless I put in a certain number of years.)

That just doesn’t sound great to me. I don’t love the idea of being dependent on any organization for my wealth at retirement, or being stuck within a certain system for a certain number of years. My current job is the first one where retirement was even offered as I spent the previous 10 years before it in journalism, – a field well-known for lacking traditional benefits. Coming from that background, I was already used to the idea of being responsible for my financial future and liked the flexibility of being able to move, change careers or possibly being able to retire early.

That means one simple thing: I need to build my wealth independent of my employer’s plan and retirement system. Which means I need to invest. Saving is great, but it’s very hard to build wealth at 2% or less interest. Investing has its risks, but historically is a great builder of wealth over decades.

I’m contributing 7.7% (pre-tax) of my main job’s income to a Teacher’s Retirement Account, and another 7.3 % into a Roth IRA (post-tax) I set up myself.

I’m also experimenting with another small percentage of my income investing in various stocks, bonds, ETF’s and mutual funds through various robo-advisors and sites like Robinhood and Acorns. (More on all that as I master it and have advice backed with facts and experience to give.)

What are robo-advisors?

For the bulk of my investing, I’ve also chosen to use primarily robo-advisors, which are online services that use computer algorithms to build and manage your investment portfolio. They require little human interaction. You set your risk preferences, time you plan to invest, and other preferences and the computer does the rest. They’re great when you want help choosing investments and managing your portfolio.

I have no interest in picking and purchasing a lot of single stocks and bonds, nor the knowledge to make that a wise choice for me.

At the same time, I don’t want to pay to hire a personal financial advisor, aka a human who does have the knowledge to pick my investments, because they’re EXPENSIVE AS HECK.

Some personal financial advisors charge an annual fee plus a percentage of your assets they manage; the median is 1% but it can range higher for small accounts and lower for big ones. Some advisors require that new clients have a balance of $250,000 or more to manage. You can also find financial advisors that charge a flat-rate or hourly fee.
On the other hand, Robo-advisors charge fees from 0.25% to 0.89% of the amount managed. (Stats From NerdWallet)

So for the beginner investor with smaller amounts of money to invest, Robo-advisors make a lot of financial sense. Especially if you have 20+ years to invest, have a simple portfolio and not a lot of investment knowledge. (check, check, check for me!)

There are a LOT of them. Some of the big names include Bettermint, Wealthfront, WealthSimple, Ellevest, etc. They all have different fees, and risk preferences and account minimums, but are all good options.

How to start

Learn from my mistake. I spent months procrastinating starting to invest because I was trying to learn everything I possibly could about everything – which is just impossible. I fell pray to decision fatigue, information overload and some real imposter syndrome before I figured something out.

That is: One of the best ways to learn about investing…. IS TO INVEST IN SOMETHING.

Seriously. A lot of things became clear once I opened a couple accounts, deposited some small amounts and watched them. Suddenly all the stuff I’d read clicked. And I was an investor! It doesn’t matter if I don’t know EVERYTHING – no one can. Don’t try to learn everything. It’s futile.

NOTE: I don’t recommend investing while you’re in debt. My personal financial strategy was to pay off all my debt, then save an emergency fund, then invest and build wealth. If I lose my shirt investing, I have no debt, and an emergency fund to fall back on. I’ll be ok. It’s VERY unlikely I’ll lose all my money investing, even if there was another market crash as I’m fairly diversified, but I’m a cautious person. Also I absolutely do not recommend taking on debt to invest. That’s just dumb.

Once you’ve chosen one or a couple low-fee places to invest, DO IT. It’s seriously the best way to learn and it’s actually a lot of fun. — Especially compared to watching your savings accounts grow at a paltry 1-2%.

Another recommendation I have is to watch how other people’s money does. There’s a whole community of financial bloggers and YouTubers who track their investments and put those numbers out there, so if you’re interested in seeing how their money does, that info is available.

I do know that can also seem a little intimidating – Especially when you may not see how much the blogger or vlogger is contributing. Also, as you don’t have “skin in the game” for other people’s investments, that can get tedious. See “information overload” leads to procrastinating above.

But HUZZAH! My YouTuber friend Jeff Rose, is leading an online challenge this year (2019) that makes it crazy easy to compare how investing in different platforms stacks up.

In the Grow Your Dough challenge, a group of bloggers and vloggers invested $1,000 at the beginning of the year in whatever platform they chose and are tracking it through to 2020.

These investors, including me, will show how different investments, plans and robo-advisors, as well as their associated fees, stack up throughout the year in the same market and time frame.

Because we’re not continuing investing after the original 1k, it will be very clear how the different choices we make and the market affect our original investment.

I love an even playing field and clear results. 🙂

For my part in the challenge, I invested with the Robo-advisor Ellevest. You can see how I chose them, how I allocated my funds and how my investment is doing here:

In the meantime, I encourage you to pull the trigger and invest (if you’re debt free and at that stage of your money journey). Use one of the platforms my fellow challengers is using or mine, or even one you find yourself. You can always pull your money out and try something different if you don’t like it. But I promise you, you’ll learn a lot more actually investing then researching it.

Check out the other participants below. I’m especially interested in watching Justine from Debt Free Millennials’ investment. She’s using Bettermint, which is a robo-advisor with an identical fee structure to mine, but her allocations are vastly different. So far, she’s beating me in returns, but we have a whole year left.

Grow Your Dough Challenge Participants:

• Jeff Rose: https://www.youtube.com/watch?v=J9uNG…
• Debt Free Millennials: https://www.youtube.com/watch?v=5Wl3r…
• Joseph Hogue: https://www.youtube.com/watch?v=pfw_Q…
• Ryan Scribner: https://www.youtube.com/c/ryanscribner
• Nate O’Brien: https://www.youtube.com/nateobrien
• Bob Lotich: http://youtube.com/c/seedtime
• Allison and Matt Owen: https://www.youtube.com/c/owenyourfuture
• Marko Z: https://www.youtube.com/whiteboardfin…
• Will Armstrong: https://www.youtube.com/channel/UC5xh…
• Graham Stephan: http://www.youtube.com/c/grahamstephan
• David Pere: https://www.youtube.com/c/frommilitar…
• Tela Holcomb: https://telaholcomb.com/youtube
• Antonio: https://www.youtube.com/babyinvestments

What are you investing in this year? Do you have an employer-matched retirement account, a Roth IRA, or other investing accounts? Let me know in a comment and I promise I’ll reply.