April 2019

The other day I was watching the episode of Sex & the City where Aiden and Carrie break up and she’s forced to (attempt to) buy her apartment back from him after realizing how expensive it is to live in Manhattan.

She goes to the bank to get a loan and the teller lets her know she has some $700 in checking and not much more in savings. “Any assets?” the woman asks. Carrie grimaces.

Of course, the show (and this situation, in which a 36-year-old woman would barely have more than $1,000 to her name) is about as unrealistic as a $750/month rent-controlled apartment in the Upper East Side.

But a lot of you were curious, via Instagram Poll, about what I use for simple investing and savings, and where to start.

I’ve covered some of this in the past, but since it seemed to be a popular inquiry, I want to hit the high points.

Keep in mind everything below refers exclusively to my auxiliary investing. My primary investing for retirement takes place in my 401(k) through Southwest, to which I contribute 10% of my annual salary to be matched dollar for dollar.

That money isn't really accessible to me until I'm old and wrinkly (#24Forever), so I wanted to start a few secondary, liquid funds that I could use (ideally, someday) for a down payment on a house.

Before I discuss the software I use, I want to talk about two things you’ll have to accept first: passive investing and having the confidence to manage your own money.

Passive investing

Everything I’ve read about investing says that passive investing is the best bet long-term.

In short, if you “buy the haystack” instead of searching for the needle inside it (the high-performing stock), you’ll remove (most of) the risk from the investment.

This is classic advice from John C. Bogle, founder of Vanguard and inventor of the index fund. 

An index fund, rather than trying to cleverly beat the market, tracks the performance of the broader share market over a long time. I can feel your eyes glazing over, so if you want to dive deeper, check out this article from NerdWallet—it’s a super quick read. Otherwise, let’s move on.

This is important because it’s the philosophy you have to buy into in order for everything else I’m about to suggest to make sense for you.

There are other approaches, like actively managed funds and trading your own stocks based on what you think is going to perform well, but then you’ve got to (a) pay people for that and/or (b) deal with short-term capital gains taxes (and, more broadly, the risk of putting all your eggs in relatively few baskets).

Passive investing goes hand-in-hand with another key component of financial independence and building wealth: having the confidence to do it yourself.

Having the confidence to manage your own money

Of course, the alternatives are (a) not doing anything at all or (b) paying someone else to do it. In this scenario, I’d say (b) is the lesser of two evils, but I wanted to share a quote with you from the ChooseFI podcast. 

The two hosts, Brad and John, asked their guest (some entrepreneur) what he would have told his younger self about money.

“Hands-down, you need to manage your own money. I spent decades being afraid to understand money. Decades afraid to understand investments. Nobody will manage your money as well as you do because nobody cares about it as much as you do.”

He told a story about his wife’s asset allocations in her 401(k)—she set it up online through her company website and answered a few questions about how aggressive she wanted to be. She set the allocations in the beginning and never really touched it again.

If you have a 401(k) through your employer, you’ve probably filled out a similar questionnaire with the same hesitance and uncertainty as a 10th grader taking the SAT.

He, on the other hand, used an advisor with a fee.

When it was all said and done many years later, her portfolio was 2% ahead of his, and he said that was “all the proof he needed that it was possible to do it yourself.” My guess is that the returns were actually close to the same, but the advisor charged a 2% fee.

I might feel differently once I’ve amassed some real wealth, but at this point in my life, I feel confident that the passive route is something I can do myself for virtually free.

A long time ago, I attended the Money Diaries book tour and the CFP along for the ride (Harvard-educated VP at Brighton Jones) said if you’ve got less than $250,000 in investable assets, the robo-advisor/self-managed life is just fine for you. If you consider yourself a normal young person with a normal amount of money (all subjective, but I mostly mean you're not a millionaire), it's probably a good starting place for you, too. 

All this to say: you are capable of managing your own money and turning your savings into passive investments without needing to know everything about the market.

I use two platforms to invest; both are quintessentially Millennial in that they're a product of the FinTech industry boom and known for their exceptional UIs. I'm going to primarily focus on Betterment today, but Robinhood is the other platform I use to purchase Vanguard ETFs.

Betterment

My friend Landon told me about Betterment last year, but I had just socked away about $1,500 in a few ETFs in Robinhood so I wasn’t super interested in another platform. It’s “managed,” but by a computer, not a person. So in my mind, it’s a weird crossover between passive and actively managed. 

Betterment is interesting, however, because (in my opinion) it acts a little like your company-sponsored 401(k)—you answer a few questions about your timelines, income, and risk tolerance, and it makes the asset allocations for you.

It offers the following: 

Smart-rebalancing — automatically rebalances your portfolio for the optimal level of risk; i.e., adjusts itself without you having to do a thing.

Reinvesting dividends — any dividends get reinvested automatically; i.e., the money you earn gets reinvested so it continues to earn more.

Auto-depositing — transfers funds automatically, kind of like auto-savings (I set mine for $125 every two weeks); i.e., you don't have to remember or force yourself to continue adding money to it. In a way, this is a good way to remove the obstacles to saving in general.

Tax loss harvesting — checks for opportunities to lower your tax bill by selling low to offset taxes on the gains; i.e., if you made money on an asset, but then that asset tanked, you'd still have to pay taxes on those gains—so it sells that asset to relieve you of those taxes and purchases a similar one at a similar price.

The annual fee is 0.25%, or about $25/year for every $10,000 you invest—much lower than an actively managed fee.

I think the true value, however, is how easy it is. It’s perfect for someone who wants to slowly get some skin in the game but doesn’t really care to spend a lot of time (or any fee-destined money) doing it.

The market isn’t great right now so I’m only up about $15 in a couple months, but if nothing else, it feels good to know that I’m (a) automatically saving $250 per month outside of my regular savings because of my auto-transfer and (b) setting myself up for long-term success without having to do anything.

And if you're interested in learning more about Betterment and Jon Stein, the How I Built This podcast about it got me way more comfortable with the idea.

That's it, friends. Nothing fancy, nothing scary—just a little bit of discipline to save some money you'd otherwise spend on brunch, and you can set yourself up for long-term success.