Diversification help comes in many forms
Q: What choices are there for investors who want a diversified portfolio but want it to be done automatically for them? A: When it comes to cars, you can get a manual transmission if you want control, or an automatic if you don’t want to bother deciding when to shift.
There’s been a similar divide for investors. Those who want control tend to be do-it-yourselfers. They look for an online brokerage that provides them with tools that allow them to buy and sell stock as cheaply as possible. In the opposite camp are the automatic types who either dump everything into a mutual fund and forget about it or hire a financial planner to take over.
But now there’s a rise of investment firms for people who don’t want to manage their money themselves but aren’t ready to turn it all over to a human planner. These emerging companies represent a new way for investors to build and manage portfolios. So far, the options fall into several camps including:
-Portfolio architects. Some investors want to buy and sell themselves. They just want help picking investments. Portfolio architects will do that for a fee.
Marketriders and Invest-it-yourself.com fit into this category. Both measure your appetite for risk and recommend investments, typi- cally exchange traded funds, that fit. You then take the portfolio design and enter the orders with your broker yourself. It’s up to you to track your performance and make sure you’re optimizing your tax strategy. Marketriders costs $15 a month. Invest-it-yourself.com provides some of the same recommendations for free.
-Portfolio- building brokers. Some investors want more than just a plan. They want to build a portfolio and then get help putting the plan in motion in an automated way. Betterment, Folio Investing, Sharebuilder and Wealthfront are set up in this way. Each will help you design a portfolio, and can also execute your trades.
How they get paid, though, varies. Sharebuilder is a broker that makes money on commissions. Sharebuilder’s Portfolio Builder helps select index funds that are suitable for you. You then pay the standard commissions when you buy or sell the investments. Commissions are $4 if you agree to have all your orders executed once a week.
Folio Investing is designed to get away from the commission structure, although investors may opt for per-trade fees, too. Folio Investing lets you choose from many pre-made portfolios and offers an unlimited plan for $29 a month.
Wealthfront’s website quizzes you to measure your appetite for risk. Wealthfront then matches you with a portfolio suitable for your needs. The portfolios are largely made up of Vanguard’s family of exchange traded funds. Wealthfront takes a cut of your portfolio’s value as a fee.
-Digital financial planning services. Some portfolio-building tools help you build your portfolio online and ultimately hand you off to human financial planners.
Index Funds Advisors (Ifa.com), Assetbuilder and Personal Capital help you measure your taste for risk and recommend a portfolio. When it comes to managing your money, though, your information is passed along to an adviser.
Ifa.com has historical data on its website that helps visitors understand how the firm’s financial advisers manage money using funds from Dimensional Fund Advisors. Assetbuilder advocates a number of portfolios depending on investors’ needs. Its highest fee is 0.5% a year of assets.
Personal Capital provides a free online tool to help investors manage their money. Once it comes time for money management decisions to be made, investors can choose to pay a financial adviser assigned by Personal Capital.
There’s no shortage of options for investors looking to manage their portfolios online. Choosing the method that’s best for you will require you to sit down and assess how much help you need when it comes to running your money and how much you’re willing to pay for additional help.