Earlier this week I got an email asking me where a beginner should invest $1000 today. I make it a policy not to give investment advice (I'm not legally qualified), but I immediately went into Boglehead mode. That means putting the money into a Vanguard mutual fund with very low investment fees. I think the Vanguard Star fund would be a good fit. It also happens to have a $1000 minimum.
However, with a little more time to think about it, I might change my answer. When I was at Fincon (a personal finance conference) a few months ago, I saw an interesting product from TradeKing. I had known TradeKing for years as a brokerage allowing you to buy and sell stocks. However, the product they were pitching is a robo-advisor.
For those who don't know, a robo-advisor is a fairly new investment platform. Instead of investing yourself or seeking an experts advice, a computer asks you questions to gauge risk tolerance and creates a suitable investment for you. It's perfect for the person who doesn't want to think about their money and for those who don't want to spends hundreds on a human advisor.
I just took the TradeKing robo-advisor for a spin and found that my risk tolerance is a 4 on a scale of 1 to 5. That sounds about right to me. It is kind of cool that you can try it out with no commitment. They did ask for my email address, but they didn't email me (and I could have given them a fake one).
Once it analyzed me it gave me two options, a "Core" one and a "Momentum" one. The Core "offers diversified investments and are designed to be flexible enough to help you pursue a wide range of financial goals" while the Momentum "uses a tactical investment style to help capitalize on the tendency for returns to trend over time. They seek above-average returns by investing more heavily in asset classes that are currently outperforming and less in those that are underperforming."
The Core has low investment fees (0.25%) and a minimum of only $500 to get started. The Momentum has higher investment fees (0.5%) and a minimum of $5,000. I really don't see the point of the Momentum choice. I'd rather go with the anti-Momentum as it seems you'd be paying top price for stocks. I prefer to buy them on a discount. So the Core is better fit for me all around.
Both the Core and the Momentum seem to focus on Vanguard funds. If nothing else it is fun to see what the robo-advisors feels is a good fit for you.
At the end of the day, there's still a good place for the Vanguard Star fund and other balanced funds like it. If you know a little of what you are doing they are fine. However, I think there's a good place for robo-advisors like TradeKing's. I can picture my optometrist friend saying, "Hey I want to invest money, but don't want to manage it. You are "the Lazy Man." What's the Lazy way?" To that person, I'd just tell them to click this link. It's true there are other robo-advisors out there. I need to look into them and compare and contrast them, but this one looks promising.
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