Active asset management has come under attack in recent years, as individual investors have started to realize that for all the focus on over- or under-performing the market, high fees and tax inefficiencies can do more damage to your portfolio than missing out on a good trade. But people who allocate some of their money to Treasuries and the rest to an index-tracking ETF may have gone too far in the other direction, saving money on fees but missing out on having a really effective strategy in place.
One company that’s working to find a middle ground between these two extremes is FutureAdvisor, a modern wealth management tool originally backed by tech incubator Y Combinator (famous for Dropbox, Reddit and Disqus, to name just a few) that’s bringing the kind of professional service that used to be reserved for the already wealthy to anyone thinking about the future.
The FutureAdvisor process
The process is straightforward. First FutureAdvisor asks for your age, how long until you expect to retire, and your risk tolerance so that it can create a target portfolio that meets your needs. The target portfolio diversifies stocks by style, market cap, and geography, and also holds TIPS, international bonds, and REITs to round everything out and estimates your inflation-adjusted returns based on Monte Carlo simulations.
Welcome to our latest issue of ValueWalk’s hedge fund update. Below subscribers can find an excerpt in text and the full issue in PDF format. Please send us your feedback! Featuring Point72 Asset Management losing about 10% in January, Millennium Management on a hiring spree, and hedge fund industry's assets under management swell to nearly Read More
But the really cool part is when FutureAdvisor compares its target portfolio to your actual portfolio on Charles Schwab, TD Ameritrade, or basically any other online brokerage and then rates it in four different categories: performance, diversification, fee efficiency, and tax efficiency. Then it offers a step-by-step guide to rebalancing your portfolio, explaining why each trade is recommended with tooltips.
Of course you don’t have to take all of their suggestions, but you can make the trades that seem reasonable to you and then check your portfolio’s new rating to see the improvement. You can keep using your free FutureAdvisor’s account to check back in as market conditions evolve (or tax laws change) to see what else it recommends.
Choosing FutureAdvisor as your personal asset manager
If you’re impressed with the site’s recommendations, you can have FutureAdvisor take direct control of your investments for a 0.5% management fee with a minimum of $10,000 invested. They have arrangements with TD Ameritrade Holding Corp. (NYSE:AMTD) and Fidelity Investments to take custody of client assets, and if you’re currently using a different brokerage they can manage the transition (with an eye on tax implications of course).
In addition to bringing your portfolio in line with their recommendations, FutureAdvisor will automatically rebalance as the market changes, manage which assets are held in your taxable and non-taxable accounts for the most efficiency, and handle tax harvesting, a more complicated tactic that many individual investors don’t even consider.
You can even hang on to some of your favorite stocks by ‘locking’ specific positions, as long as they don’t make up such a large proportion of your portfolio that it interferes with FutureAdvisor’s process, although it would probably just be easier to let them manage the bulk of your portfolio and then open a separate account for any stock picking you might want to do.
Opening a free account at FutureAdvisor and linking it to one of your online brokerage accounts takes a couple minutes so you can decide for yourself how good their suggestions really are.
This is a sponsored post. “The views expressed represent the opinion of the author and are not intended to reflect those of FutureAdvisor or serve as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities.”