My personal finance education began here at Get Rich Slowly. I went from owing more money than I had to being debt-free (although now I have a mortgage). And along the way, I learned about money on websites and blogs. I used Mint to get my spending aligned with my goals and to track debt repayment. I opened and started managing my husband's and my Roth IRAs online too.
Basically, I did it all via the Internet, no human contact involved. That really worked for me, both because I'm a research-nerd and because, as a perfectionist, I wasn't about to tell a soul that I had credit card debt. And even when I had the money to start putting toward retirement, I still didn't get advice from an adviser because I didn't think the amount I was investing was significant enough. I thought only people with real money hired advisers. Also, I just preferred to set up a target date fund and be done with it, rather than risk hearing a sales pitch or feeling pressured.
I guess when it comes to personal finance, I'm a Lone Wolf McQuade, if you will. (Sorry, I'll stop now.)
But according to a new Gallup poll, I'm in the minority, at least for now. “Even as access to the Internet has become ubiquitous in the U.S. and data analytics is highly touted for use in finance, U.S. investors are more likely to have a dedicated financial adviser than to use a financial website to obtain advice on investing or planning for their retirement, 44 percent vs. 20 percent*,” writes Lydia Saad for Gallup.
Furthermore, 35 percent of investors use a financial advisory firm with an advice call center and 29 percent rely on a friend or family member. So using financial planning and investing websites comes in dead last. Shocking, I know!
And of course, it's not like investors are getting advice from one and only one source.
“Overall, 79 percent of investors report using at least one of the four financial advice resources tested, while 21 percent don't use any of the four,” writes Saad. “The largest percentage of investors — 40 percent — rely on just one source, but almost a third (30 percent) rely on two, 7 percent on three, and 2 percent on all four.” (Wait — 21 percent of investors polled don't use any of those four sources for investing and finance information? I'd sure like to know more about that!)
Who's afraid of online investing?
Not surprisingly, there's a good reason why most investors are weary of the web even though everyone you know uses it for everything they do.
According to the Gallup poll, it's investors with significantly more invested ($100,000 plus) and retirees who are most likely to use a financial adviser human. They have more money at stake, for one thing. Also, a lot of it is generational. Among non-retirees, 66 percent were somewhat or very comfortable investing and getting financial advice online, compared with just 35 percent of retirees.
Help! I need somebody…
At least for now, the majority of investors want advice from an expert to help them and give them advice.
“Despite lots of buzz about online financial tools that allow users to submit their portfolios to computer algorithms, most investors still feel more comfortable involving a human, whether in the form of a dedicated personal adviser or a financial advisory firm that gives them access to live counselors in a call center,” writes Saad.
But ideally, investors would use a combination of methods. “[This shouldn't be an either-or situation,” she writes. “Investors who want the best of both worlds can probably get it by seeking a partnership with financial advisers who are tapping into the same powerful analysis tools being offered to consumers online. In fact, such a marriage of humans and computers could be a strong selling point for the financial services industry — bridging consumers' reluctance to go it alone online with their desire for a human connection and the best possible performance for their investments.”
*Poll findings are based on a sample of U.S. investors with $10,000 or more in stocks, bonds, mutual funds, or in a self-directed IRA or 401(k).
So, readers, are you Team Human, Team Robot, or do you use a combination of the two? And if you prefer to go it alone online, would you change your mind if you had $100,000 invested or were near retirement?
Author: April Dykman
As a freelance writer, editor, and blogger, April Dykman specialized in personal finance, real estate, and entrepreneurship topics. Her work has been featured on MSNBC, Fox Business, Forbes, MoneyBuilder, Yahoo! Finance, Lifehacker, and The Consumerist. Now she does direct response copywriting but, in her free time, April is a wannabe chef, a diehard Italophile, and a recovering yogi.
I’m definitely team robot. I have $75k now, and I don’t think I will change when I reach $100k or more.
My parents got financial advice from their local bank and it got them nowhere. They were always told to invest in something that had been doing well in the past but it always turned out that they got in too late. Generally my parents have not made profits with their investments (luckily also no losses). So therefore I don’t trust financial advisors anymore; and I’ll just find my own way, thank you very much.
Can I be nosy? What kind of “robots” do you use? I’m just starting to explore online tools for investing, though I’ve used them for other financial decisions.
I’ve been playing around with FutureAdvisor.com, and it seems to be a great resource. It uses formulas and algorithms to make sure your portfolio is diversified, and you can either get free advice (where you have to manually buy/sell during times of re-balancing) or pay the premium (which makes trades for you). So far it seems pretty good for me (I’m currently using the free), and I will probably upgrade when my assets get a bit higher.
“Humans” versus “robots”? Really? Algorithms aren’t robots, and there are people designing the online tools and writing the online advice out there. I’d love to hear more about what automated tools people are using though. What works for me is weighing information from a variety of sources. This article focussed on investing, but I’ve turned to online tools, an advisor, friends and family when making a big decision. For instance, when I was contemplating buying a home, online mortgage calculators helped me decided I was ready and helped me try out mortgage payments for different scenarios. An advisor helped me… Read more »
Once I focus on investing I will use a combination of my own research and advice. There is a ton of information you can research for yourself, looking at the track record / performance of stocks and fund over the years. Once I have my picks I may want to bounce them off someone for their opinion just to get a POV I may not be considering.
I first started investing about 25 years ago. I relied on my own resources to decide what would make up my portfolio. I wasn’t investing much. I invested for a few years, then drifted away from it. In 2010, I took Dave Ramsey’s Financial Peace class. In 2012, I started investing again and did my own research. In 2013, I was laid off. My wife knew a financial adviser she met through the Chamber of Commerce. So in late 2013, after I was laid off, I consolidated my investments with this financial adviser’s firm and have been using her advice… Read more »
Thank you for your service! You have earned every penny and more of your pension.
I follow my grandfather’s advice: Do not use a broker – they’re goals are not yours.
My money is all self-managed and in TradeKing and my company 403(b). I use PersonalCapital to monitor all of my accounts in one place (I do not pay for investment management from them).
I got all of the basics from books, and I get my specific investment advice from personal finance sites like this one. In fact, just yesterday I switched my stock index fund based on advice from 1500DaystoFreedom.
Thanks for this! Personal Capital looks great.
For most people it doesn’t matter since they don’t save enough money to begin with.
I’d rather save 20k a year than 3k and figure how to invest it. Besides the bulk of your compounding happens after you have reached a certain plateau in savings. Would rather be earning 15% on 20k savings or 6% on 500k. For most people simple, indexed, inexpensive with some diversification is best. So many people outsmart themselves. Save as much as you can when you are young and you will have more options when you are older.
I’m good with the Bogleheads basic advice, which matches with the best advice from research. Which essentially means you want to diversify your portfolio as cheaply as possible considering your risk tolerance and how close you are to needing the money. There are so many bad financial advisors out there who are motivated by selling you high cost funds so that they can get kick-backs. Fee-only financial planners are great if you need help, but a lot of places are not fee-only and are going to give you far worse advice than if you just randomly guessed what to do.… Read more »
You don’t need to talk to a tax attorney. Anything you need to know is on the net. Since you mentioned the bogles here is an article to start with: http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placementrent in The gist of it is that funds that are least tax efficient should be placed in tax free or tax deferred funds and vice-versa. For instance my least tax efficient funds are in my Roth where I won’t have to pay taxes on them or be subject to rmds. Plus even if you are over income limits for roth you now can do backdoor conversions yearly. The best… Read more »
Yes, but that takes time. At the point in which we would have enough money to need more advanced tax placement than we have now, we’d most likely rather just hand our files to someone and let them deal with the details. Right now we do the basic stuff with retirement, and we don’t need to do more. (Does Mitt Romney do his own tax advantaging? No! And not just because he wants plausible deniability, but because time is valuable.) Taxes also have a nasty habit of changing from year to year, so what you learn doesn’t stay constant. There’s… Read more »
Here are my three interactions with “advisors”. A year after I started contributing to my 401(k) I asked the adviser how much I would have in retirement. He basically shrugged his shoulders and said something like $300K. There was no effort to educate me about contributing more than the match etc., and I sure as heck did not appreciate his condescending manner. It was during that interaction that I realized I better learn about investing and not rely on some bored shmuck. Then we got a new advisor that handles our 401(k) and found him just as WORTHLESS. One time… Read more »
There is a ton of information here with links!
http://www.dol.gov/ebsa/publications/savingsfitness.html
including calculators.
I guess I am a research nerd,too. I like to read varied information. I just wish I could increase my risk tolerance.
Team Robot, all the way. I don’t trust financial advisers any more than used car salesmen. The thing most people fail to realize is that ALMOST every human being you interact will have some sort of conflict of interest. Or, at the least, something diverting attention from what you need their help with. Computers are far better at providing objective, unbiased, and clear analysis.
This is one of the many emails I sent to my students who have graduated but choose to stay in touch. http://www.marketwatch.com/story/retirement-reality-your-principal-cant-last-forever-2014-07-01 When I started teaching, I talked about 10-12% return for stocks. Then I studied history and discovered that a 3% real return (after taxes and inflation and advisor fees) was the best I could hope for. I began using 3% with 0% inflation in my planning and was I ever shocked! Don’t lie to yourself! You too will do no better (and probably much worse) than 3%. This means that you will need to save more, much more(20%).… Read more »
That looks like excellent advice right there!
Perhaps I’m an outlyer here when it comes to financial planning, but I’ve determined that my accountant is part of my Team Human. As a dual US-Canadian citizen living in Canada, the tax landscape for me is brutal. My accountant has advised me well on how to manage my current investment so the IRS doesn’t come a-knockin’. I’m not sure there is a robot for this situation:/
I have over 100k in investments plus a some cash. I decided a long time ago to manage my investments myself. I research and pick my own mutual funds, manage my debt and am trying to pay down the house.
At this point in time I don’t see a reason to get specific advice from an “advisor”.
BTW, I’m 39.
I’m 35 and have over 100k spread between RothIRA (Vanguard), 403b (Fidelity), and 457b (Fidelity).
I’ve looked into Future Advisor, Personal Capital, and JemStep. These services don’t necessarily help me because most of my nest egg is tax sheltered, and these companies want to manage after-tax investments.
I used Morningstar to vet my current asset allocation. CNN Money Portfolio also provides pretty good analytic information. One thing to verify is whether your portfolio approaches the efficient frontier based upon your risk tolerance (http://www.moneychimp.com/articles/risk/efficient_frontier.htm). I currently am at around 85% stocks and 15% bonds.
I’m 50 and a semi-retired CPA. We have about $1.5M in investable portfolio (60% stocks, 40% bonds and cash). I’ve never used an advisor, but I’ve been studying personal finance for many years. Before the internet, I would read books. I still take personal finance magazines (Money, Kiplingers, etc.) I probably have a dozen books on IRAs in my library, so I’m not normal:) My suggestion to those starting out: 1) Save, Save, Save Shoot for a minimum 15% 2) Stay out of debt 3) Quit trying to beat the market – nothing wrong with just index funds (Vanguard) 4)… Read more »
Patrick, you sound my long lost twin. I am doing exactly what you are doing (collection of investment books included) but I don’t have what you have yet.
Any good books you can recommend?
I just got through reading the books below. Ed Slott is the Guru on IRA’s and I found the Dana Anspach book really good for people close to retirement.
Control Your Retirement Destiny: Achieving Financial Security Before the Big Transition by Dana Anspach
The Retirement Savings Time Bomb . . . and How to Defuse It: A Five-Step Action Plan for Protecting Your IRAs, 401(k)s, and Other Retirement Plans by Ed Slott
Thanks. I have watched some of Ed Slott’s specials on PBS so I am familiar with him.
I guess the question isn’t really robot v human, more personal advice v general information + own judgement. There’s pros and cons of both approaches, no matter your asset level. Someone with low assets getting great personal advice can skyrocket their investments and net worth, and just as someone willing to do their own research and make their own judgement can also grow their wealth fast. I prefer to DIY at the moment – I’ve spend a few years in the finance industry and even more years researching investments, finance etc for my personal info. But I totally get that… Read more »
I use both approaches for financial advice. I have about $1M in investments (including retirement funds) managed by a fee-only financial advisor. (The bulk of these funds were inherited.) I don’t plan to touch those funds for at least 10 or 15 years. Apart from those funds, I have cash accounts, a couple of CDs, and a Betterment account for short-term and mid-term goals (there’s the Team Robot approach). I’ve been studying personal finance for about two years, and don’t know if I will ever feel confident enough to manage my entire portfolio. And I accept that. That means I… Read more »
It depends on the advice. When I buy shares, I research the company I’m interested in buying, then I speak to my broker and get his opinion, but the ultimate decision is mine. The same went for when my fiancé and I wanted life, TPD, and trauma insurance. I figured what we might need and then consulted with a broker who found a company that matched our needs and suited our budget. I think independent research is extremely important when it comes to investing your money because no one will care about your money and your returns as much as… Read more »
As has been stated before, no one cares more about your money than you do. I’ve had poor results with advisors. Many act like they listen, then put a product in front of me that I immediately recognize has little to do with the concerns we’ve been talking about, but often upon checking would provide them with significant profits at my expense. Others, like the 401K advisor for my wife’s account, set things up pretty much as I would have done anyway and provide no additional information. Another tried churning my MIL’s investments to yield fees for his company because… Read more »
As a software engineer I am trying to use machine learning to choose funds. I am sure Wall street is way ahead of me in this and I am quite sure my code is no match. Those algorithms run extremely fast think milliseconds This raises 2 problems A) technological unemployment is already killing the jobs in financial industry so it will be worse overall in terms of knowledge work employment. B) having a diversified portfolio without automatically rebalancing every day might not be enough. Definitely going the index fund route with new investments after I pay my mortgage hopefully in… Read more »
Some of these options are better than others, obviously. People who listen to friends and family are at the greatest risk, but even the best of the others cannot be depended on absolutely. You must learn from a variety of sources and question carefully the bias of each one. Each will tell you of their strengths and mysteriously (not so much) fail to mention important areas that might weaken them. You can bet that the folks at Enron were not warned by their fund manager that all their eggs were in one basket and that it was dangerous. Once you… Read more »
I follow a pretty simple investment strategy from years of following GRS and The Simple Dollar online. I’m 32 and have about $100k in investments, all of which reside in target date funds (401k and Roth IRAs). Not to generalize, as I’m sure there are some great advisers out there, but I’ve also seen some pretty shady stuff where older family members have been sold on funds with front-end loads and high fee structures due to their lack of understanding of those products. As my nest egg grows, I may look for some targeted advise from a fee-only adviser, but… Read more »
My approach is pretty similar to Patrick’s. The key is educating yourself (more on that below). My experience with financial advisers has been that the more they charge the worse their advice. I once paid American Express Financial Advisers $1000 for a comprehensive assessment of my situation. They showed me a nice series of graphs and concluded that on my own I was within 5% of the efficient frontier. They wanted to have me switch to their (loaded, high fee) funds, but I declined. Had I done so I’d have been much worse off than i am today. I’ve been… Read more »
Lots of good points there, Dennis. One thing you said more as a description of what you have done than a statement of principle was that you made the effort to learn for yourself what to do rather than depend on others for advice. There are many reasons for this being so important, not the least of which is the fact you mentioned about different advisers being biased by their perspective. They may not be dishonest, but they are influenced by it. It is not hard to learn the basics of money management, producing more income, saving and investing but… Read more »