Ellavest – Roboadvisor for Women

ellavest

Alma Aguilar, who works for a cloud-storage software firm in Austin, recently asked me what I thought about Ellavest. Aguilar had heard about the woman-oriented roboadvising software service after following founder Sallie Krawcheck’s short video offerings “Money in 60 Seconds.” Aguilar, married and the mother of a one year-old, wondered if she should branch out her investing activities beyond the 401(k) retirement plan she contributes to at work. 

My confession to Aguilar: I’d never heard of it. 

Ellavest has been growing and evolving since 2016. For those looking for an easy on-ramp to investing, my sense is this is worth checking out.

One of the clever features of roboadvising apps is that they enroll you in savings or investing right away from the initial interactions with the website or phone app. Like similar finance apps I use and recommend, such as Acorns, M1 Finance, and Qapital, Ellavest asked me for my name, zipcode, household income, and financial goals. Unlike those, Ellavest also asked about my gender and number of children.

Although Ellavest is targeted for women, the app allowed me to enroll online as a male. 

As I type this, I imagine the Texas legislature is meeting to pass emergency laws to prevent me from entering a woman-oriented finance app as a male-bodied person. But that’s another story for another time. 

Do women want, or need, an investment advisor targeted to them? I don’t know if most women do, but likely some will.

Kathleen Burns Kingsbury, a Vermont-based consultant and wealth psychologist who literally wrote a book called How To Give Financial Advice To Women, is open to the idea that women approach their finances differently. She pointed me to research by Merrill Lynch, which found women nearly three times more likely than men to have had a negative gender stereotype experience with their financial advisor. The Merrill study also found that when a mixed-gender couple sits in front of an advisor, the man typically commands 60 percent of the advisor’s attention, compared to 40 percent for the woman. 

As I enrolled, the Ellavest app asked about my financial goals, and also about what my biggest obstacles may be. The menu of choices include “navigate a career change,” “feel confident negotiating,” or “tackle imposter syndrome.” While these are universal human challenges, they also struck me as signals to women that the designers of this app understand their particular perspective.

Roboinvesting, by theory and design, means setting up an investment account that does not need to involve speaking to another human. Typically we interact with roboadvising software on our phones, with small initial dollar amounts, and receive simple investment plans automatically from a few data points about our goals, risk tolerance, income, time horizon, and life status. 

I ascribe to the idea that – done correctly – the hardest part of investing is just getting started. For that reason alone, I am a proponent for setting up a simple plan with a roboadvisor, and then getting out of the way of our own tendency to mess with the plan. Ellavest appears solidly aligned with this goal and method.

What you should never do on your financial phone app – and I cannot emphasize this strongly enough – is daytrade Game Stop shares because anonymous poster u/FartStocks told you on a Reddit forum that you could stick it to some some imagined short-selling hedge fund. But I digress.  

Ellavest’s stated goal of appealing to women as they ramp up investing seems laudable. 

About her retirement programs at work, Aguilar told me “none of them have been easy to navigate or understand. Ellevest makes it easy and clear to get set up and start investing.”

Something about the educational content of Ellevest also appealed to her. As Aguilar told me “I quickly appreciated that the investment algorithm takes into account a woman’s issues such as the gender pay gap and longer life expectancy. They also do a great job at educating women about why it is important for them to take charge of their finances.”

Kingsbury pointed out that the right way to think about tailoring financial advice to women might be mis-stated. As Kingsbury says, “In the future, I think we will move to services that are more human-centric, rather than gendered.” Kingsbury noted that one person’s experience in the world may be quite different from someone else’s, so that a one-size fits all approach doesn’t work. 

“That may be an argument for a woman-centered roboadvisor. It may also be an argument for a human investment advisor,” says Kingsbury.

In addition to clearly-stated and fixed monthly fees (which I like!) the Ellavest site offers coaching sessions, something that I happen to think is a highly useful financial service that most humans – however gendered – need.

The Ellavest signup presents plans for $1/month, $5/month, or $9/month with a heightened suite of services at the top price point. The $1/month cost is in line with other roboadvising services Once you’ve accumulated at least $1,000 or more, the fees become moderate. As with most investing costs, they come down as a % of assets as assets increase.

Also, given the gender pay gap, will the software would be content to receive on average 82 percent of what a male-oriented roboadvisor charges? 

What? I’m just asking the question.

A version of this post ran in the San Antonio Express News.

Please see related posts on Roboadvisors:

About Qapital

About M1 Finance

About Acorns (This one is my favorite)

About Robinhood (This one is my least favorite)

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ETFs vs. Mutual Funds

etf_v_mutual_fundMutual funds and exchange traded funds (ETFs) do pretty much the same thing, which is allow an investor, with a single purchase, to own a diverse pool of assets – usually stocks or bonds, but also sometimes commodities, currencies, futures, bank loans or other financial exotics.

Since they mostly do the same thing, the most interesting question is usually not “mutual fund vs. ETF?” but rather a question about “asset allocation” – that is, what things you actually own within an ETF or mutual fund.

Asset Allocation

I wrote a few months ago what I consider to be the final word on the asset allocation question. To repeat:

“You should invest via dollar-cost averaging in no-load, low-cost, diversified, 100 percent equity index mutual funds, and never sell. Ninety-five percent of you should do that, 95 percent of the time, with 95 percent of your investible assets.”

What about ETFs?

You probably noticed I said ‘mutual funds,’ not ETFs. Well, 95% of the time you could substitute ETF for mutual fund and get the same result.

The rest of this column is about the 5% of the time when it makes a difference. The factors that make up that 5% include timing, minimum investment amounts, costs, liquidity, and availability of assets.

Timing

I like to call ETFs “mutual funds with ADHD” because you can trade them at any time of the day that markets are open, including multiple times a day if you like. This contrasts with mutual funds, which you can only buy or sell based on the end-of-day price, after the 4pm market close.

This feature of ETFs is not an advantage from my perspective. Since the right holding period for investing in stock markets is somewhere between 5 years and forever, the ability to trade in the middle of any day, for an individual, should be wholly irrelevant.

Minimum Investment

Some mutual funds and some mutual fund companies require a minimum investment such as $10,000, or $5,000, or $2,500. Or, different prices apply for different minimum investments. ETFs, by contrast, often can be purchased for as little as $100.

mutual_fund_v_etf

As a result, for newbie investors with their first $500 or $1000, ETFs can be the first step needed to get ‘in the market.’ Which is nice.

Costs

ETFs and mutual funds come in both high cost and low cost varieties.[1] For myself, I almost always seek out the low cost flavor, which tend to be in ‘passive’ or ‘index’ funds, rather than ‘active’ or ‘managed’ funds.

Vanguard – the giant brokerage and mutual fund company – reports that among ‘active’ strategies the average ETF is cheaper than the average mutual fund. Among ‘passive’ strategies, however, the average mutual fund is cheaper than the average ETF.[2]

The key to understanding your costs, of course, is to go beyond the ‘average,’ and to actually figure out the specific cost of any mutual fund or ETF you’re thinking of buying. Depending on the size of your portfolio and the time you have to invest, minimizing management fees will save you tens to hundreds of thousands of dollars over your lifetime.

So, it’s worth taking those five extra minutes and figuring out the fees, for a return on your time spent of, like, infinity.

Finally, depending on your brokerage company, purchasing some funds and ETF may incur ‘loads’ when you buy, and transactions costs when you buy and sell. Naturally, avoid if possible.

Liquidity

ETFs appear at first to offer better liquidity than mutual funds, because of the moment-to-moment prices for trading ETFs, rather than the once-a-day price of mutual funds. That kind of liquidity advantage, however, should be irrelevant, since your investment holding period ought to be measured in years, not hours or minutes.

In another sense, however, ETFs may in certain cases be less liquid than mutual funds. As you move on the spectrum from plain vanilla to more exotic ETFs, it’s possible that the illiquidity of the underlying assets raises the cost of transacting in ETFs.

During this past August’s market turmoil, for example, traders reported that certain ETFs in relatively illiquid assets such as bank loans or corporate bonds mispriced during the trading day.

As an individual investor, you should assume the ‘mispricing’ will not be in your favor in these situations. Market makers will raise the cost for investors of getting in and out of these illiquid ETFs through a larger wider gap between the price you can buy or sell the ETF, known as the ‘bid-ask spread.’

Availability of assets

Some brokerage or mutual fund companies where you do your investing may have a better inventory of products in ETFs versus mutual funds – or vice versa – making it necessary to buy one rather than the other. Because most of the time mutual funds and ETFs in the same assets do the same things, normally you can substitute one for the other without worry.

As always, the choice of ‘asset allocation’ – what underlying things you’re buying – matters more than the packaging, whether wrapped in an ETF or a mutual fund.

 

[1] To give you a benchmark for high or low costs, some active mutual funds and ETFs charge 1.5% fees or more, while some passive mutual funds and ETFs charge 0.15% fees or less. That’s an order of magnitude of ten times the cost between the low and high cost varieties.

 

[2] The average index ETF charges a 0.29% management fee, while the average index mutual fund charges a 0.14% fee. So index mutual funds are cheaper, on average, than index ETFs. The average actively managed ETF charged a 0.62% fee, while the average actively managed mutual fund charges 0.80%. So actively managed ETFs are cheaper than actively managed mutual funds, on average. Source: Vanguard webinar on ETFs v. mutual funds.

 

A version of this appeared in the San Antonio Express News

 

 

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Getting Started – The Hardest Part of Investing

Let's start at the very beginning, a very good place to start...
Let’s start at the very beginning, a very good place to start…

School started for my girls this week, so I’m in the mood for new beginnings. New school uniforms, freshly sharpened #2 pencils, and lined notebooks still unblemished with unicorn stickers.

Besides inheritance (obviously the very best way, because remember your first $5.43 Million arrives tax free!) the next two best ways for a person to get wealthy are investing throughout your lifetime, and starting a business.[1]

Neither of these two methods – slow-and-steady investing beginning at a young age or entrepreneurship – require extraordinary talent or prior knowledge. In fact, the biggest common barrier to both methods is simply getting started.

But how does one even do that? Let’s not under-estimate the difficulty of the “getting started” part!

“Let’s start at the very beginning, a very good place to start,” sings my children’s favorite nanny-from-the-movies, Maria.

I have a reader who regularly emails me to the effect (I’m paraphrasing a bunch of his emails) “You need to tell everybody – especially young people – how to call up a brokerage company and how to buy their first stock or mutual fund. They don’t need special knowledge, they just need to get started now, contribute regularly, and never sell. And they’ll end up rich.”

Of course he’s right. You should all totally do this.[2]

Even so, many will resist the advice.

discount_brokerage_firms
A managerie of discount brokers. Sadly, none of them pay me to list their brands

My question back to my reader: How do we get people to start at the very beginning, that very good place to start?

I really don’t know how to fulfill my reader’s wish of inducing people to call up a brokerage firm, open up an account, and buy their first stock or mutual fund. I wish I had the words to express the importance of beginning, like, right now.

famous_goethe_quote_beginning
Goethe didn’t really say this, but…

The German writer Johann Wolfgang von Goethe didn’t really say, but sometimes gets credit for, this inspirational thought:

“Until one is committed, there is hesitancy … the moment one definitely commits oneself, then Providence moves too. All sorts of things occur to help one that would never otherwise have occurred. A whole stream of events issues from the decision, raising in one’s favor all manner of unforeseen incidents and meetings and material assistance, which no man could have dreamed would have come his way. Whatever you can do, or dream you can do, begin it. Boldness has a genius, power, and magic in it. Begin it now.”

Pseudo-Goethe is very mystical and awesome, but do you want to know what else has “genius, power, and magic” in it? Compound interest! That’s my personal favorite finance topic – and the reason why a lifetime of boring, simple, investing begun in your twenties will make anyone, eventually, wealthy.

My friend David is a 26 year-old public school administrator who recently asked me for financial advice. Like almost everyone his age, David has both student-loans and personal debts. Unlike many his age, he also has the beginnings of both an IRA plan and a 403b plan. He worries about his debts and has kept me updated over the past few months as he pays them down. What I know for sure – and he doesn’t yet fully believe – is that if he continues to contribute to his IRA and 403b, year in and year out, he’s going to end up just fine. Wealthy even.

Simply because he started now, while still in his twenties. (So start now!)


David’s initial $5,500 in his IRA this year, compounding at an assumed 6% annual growth over the next 40 years until age 65, should grow to $56,571.

His annual contributions of $5,500 each year, for the next 40 years, compounding at an assumed 6% growth rate, should grow to a total of $902,262.

That, combined with an employer-matched 403b and teacher pensions plans, should provide David plenty of comfort when he stops working.

But compound interest works best over long periods of time, which means you have to begin now.

To people who wonder – “given all the risks today and all the ups and downs – when should I invest in the stock market?”

The true answer, always, is about thirty years ago.[3]

But the next best answer, for anyone not already in the market is always:

Now. Today.

The hard part: Beginning. Remember that beginning has genius, power, and magic in it.

[1] Another method, rising to the top executive echelons of someone else’s company, requires an unusual combination of talent, hard-work, and luck. In the past few decades the rewards for ‘super-managers’ who did not start out as business owners have been great. But I think the odds are stacked against most people being able to ‘make it’ that way, when compared to simply investing, or starting your own business.

[2] Although I can’t tell you which brokerage to call (because none of them pay me. If you work at the marketing firm of a big retail brokerage firm, it’s you guys who are really the best of the best and my readers deserve to know that. Here, let me send you my PayPal account.)

[3] Just like the truly best way to get wealthy would be via inheritance. But the best way, in both cases, is impossible to do for oneself.

 

Please see subsequent post:

Getting Started With A Business

 

 

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