How Investment Websites Could Save Several Years of Your Retirement Income
When most people think about saving for retirement, they imagine taking one of two courses: either they’ll do it by themselves, or they’ll sit down with an experienced advisor who can help them through the entire process.
However, the World Wide Web has also created a third option that more and more people are turning to: investment websites.
If you’re looking for an efficient approach to saving for retirement and don’t want to do everything by yourself but aren’t sure you can afford professional guidance, consider the following about how investment websites can help you hit your goals.
What Are Investment Websites?
In case you’re not already familiar with them, let’s begin by discussing what investment websites actually are. To put it simply, they’re sites that offer some amount of automation for those looking to save.
While software is used to handle this sort of thing for many investors, thanks to the cloud, sites are now a far superior option.
Some examples of popular investment websites include:
The list continues to grow as these investment websites have become big business.
As Arielle O’shea at NerdWallet points out:
“Research from management consultant firm A.T. Kearney suggests so: According to its number crunching, robo-advisors will manage $2 trillion in assets in the U.S. by 2020.”
You may have heard investment websites referred to as robo-advisors before. Either way, their attraction is that they’re simple and affordable to use, yet can actually help you reach your goals.
For instance, IncomeClub’s asset dedication approach is a great way of helping your retirement savings swell.
Generally, you start an account and then pick a goal. In this case, you may be saving money for retirement. You’d choose the amount you want, and the date you want it by; then the site would break down what that will mean for each paycheck.
However, these investment websites also take things a step further, and this is when they begin acting more like traditional advisors. They can also automate other financial responsibilities you have like:
This takes a lot of the guesswork – and struggle – out of being financially responsible.
Best of all, because they’re investment websites, you don’t have to schedule meetings with them like you otherwise would with a professional advisor.
Investment Websites vs. Traditional Investment Advisor
As we’ve pointed out before, even the experienced investment advisors are only human. They’re capable of making emotional decisions and no more able to predict the future than anyone else.
Stress is a constant in their field – no matter how brave a face they put on – and it can take a toll on their judgment.
This is one of the reasons why “robo-advisor” were born. They can’t possibly be rattled. The best or worst market conditions would not keep them from making the most objectively correct decisions.
“Robo-advisors” can work 24 hours a day without any rest and make moves faster than any human advisor ever could.
Now that you understand what investment websites do, you’ll need to make a decision about which one to entrust your money to.
Obviously, this is a big decision. Also, recall that we mentioned how these sites were growing in popularity.
This means more and more options continue to come on the market, so you’ll have to be even savvier about knowing which ones are right for your needs.
Most investment websites only invest in ETFs (Exchange Traded Funds) with expense ratios that usually average below 0.20%. This goes a long way toward keeping your retirement planning affordable.
Still, you never want to assume this is the case, so be sure to look into this amount.
You want to know the total cost of choosing a robo-advisor, which would be the management fees and the underlying expenses for the type of investment vehicle used.
For example, IncomeClub builds target date portfolios by purchasing and holding individual bonds until maturity. It means that, unlike ETFs, individual bonds have no expense ratio at all, though investors need to pay some small brokerage commission when bonds are bought.
Opening an account with a robo-advisor is very affordable. Traditionally, you’d have to spend somewhere in the area of $100,000 or more just to open an account with a traditional investment advisor. If you don’t have this amount, most advisors simply won’t want to work with you.
Thanks to robo-advisors, you can still get the help you need without spending a fortune. For example, at IncomeClub, we manage accounts starting as low as $5,000. Some “robo-advisors” have not any minimum requirement at all.
With an automated investment process, they can generate profits without the same requirement of such large amounts.
Most of your options will deal solely with IRAs and taxable accounts. If you already have a 401(k) that includes company match, it makes sense to allocate your assets there first and max it out before using an investment website for further investments.
Typically, investment websites will charge you an annual fee for managing your money. It will be assessed as a percentage of your entire investment assets.
However, this can be done a number of different ways. For example, sites like Betterment use a sliding scale. Others will manage a certain amount for free (e.g. SigFig won’t charge you for your first $10,000).
Fortunately, the fees assessed by investment websites are nothing compared to what you’d need to pay for an actual professional to handle your portfolio. This is extremely important according to Kevin Mercadante at Cash Money Life:
“Management fees reduce the net return on your portfolio. An annual fee of 2% can turn an 8% total return into a 6% net return. That will make a huge difference on a portfolio over a decade or more. The fees charged by robo advisors are so small that they hardly impact your net investment return.”
To put that into perspective, if you had a $200,000 bond portfolio that returned 5% per year for the next two decades, you’d only see about 3% of that if you used a traditional investment advisor (5% less the 2% management fee).
However, use a robo-advisor, and you’d be looking at 4.8% (0.20% in management fees deducted from the 5%).
At the end of 20 years, a traditional advisor would leave you with $361,222. With a robo-advisor, you’d have significantly more: $510,806. That’s almost an extra $150,000! It is several years of your retirement income!
As long as you’re smart about choosing the right option, investment websites hold a world of potential for people who save for retirement.
You could put away dozens of years of retirement income without ever having to step foot in an advisor’s office or pay the exorbitant fees they charge.
Just make sure you’re saving your money properly and one of these websites will take care of the rest.