Another new online portfolio management tool is FutureAdvisor. I want to say they were invite-only for a while, but they appear to be wide open to new accounts now. Their basic account is free “forever”, and you can add 24/7 portfolio rebalancing alerts along with an annual videoconference call with an advisor for $49/year. The process of setting things up is pretty simple with the following steps laid out:
Enter pertinent information such as current age, current income, desired retirement age, and desired retirement income. I like that they don’t just assume that you want to spend 80% of your current income in retirement. However, the total of your portfolio holdings entered here will be replace by whatever you share in the next step. I’m not really sure why they bother asking.
You can either manually enter your portfolio holdings or have them import it automatically using your username and password. Most major brokerage companies including 401k accounts are available, but I did notice some that are currently not supported. The supported list includes Vanguard, Fidelity (w/ Netbenefits), Schwab, Merrill, and TD Ameritrade. The unsupported list includes TradeKing, Zecco, and Interactive Brokers.
Based on the information given and that same ole’ multiple-choice risk questionnaire, they will suggest to you a model asset allocation. You can tweak the target by picking between Conservative (60/40 stocks/bonds), Moderate (80/20), and Aggressive (90/10). Here’s the conservative asset allocation assigned to me:
The overall breakdown of stocks and bonds in their recommended asset allocation appears to be static, with only the stocks/bond ratio changing.
43% US Stocks
21% Foreign Developed Stocks
15% Emerging Markets Stocks
21% US REITs
50% Investment-grade nominal bonds
50% Inflation-protected bonds
The first part of the analysis tries look at the big picture and gauge whether you are on track to reach your stated retirement goals. There is a long list of assumptions going into this prediction, including inflation-adjusted income growth, Social Security, inflation, and supposedly conservative stock performance (5th percentile). My gut feeling was that it was still rather rosy, but maybe I’m just being pessimistic.
The second part of the analysis is focused on your investment holdings. How well do you match the recommended portfolio? Do you own low-cost funds? Are they tax-efficient?
Here, a nicely organized checklist provides you action items to improve your portfolio. However, if I’m going to nitpick, I found some details be a little off.
One example was a results of my 0% REIT share (even though REITs are part of most index funds especially small cap funds). FutureAdvisor told me to buy shares of the Focus Morningstar Real Estate Index ETF (FRL), which is a tiny ETF with only $5 million in assets that has only been barely a year. The ETF is so small it’s in danger of being dissolved soon if it doesn’t gain in popularity soon, which would result in tax complications and other headaches. Put another way, the entire ETF generates $5 mil x 0.0012 = $6,000 in fees per year. That won’t keep the lights on. In addition, FRL has really low volume and large bid/ask spreads.
In my opinion, a better recommendation would be the Vanguard REIT Index Fund ETF (VNQ) with $11.5 billion in assets, big volume, and tiny bid/ask spreads. They are both equally cheap at 0.12% expense ratio, so why pick the Morningstar one?
Overall, I like where FutureAdvisor is going with their online brokerage syncing and I like the simple and clean approach. They only provide advice, and do not directly control or hold any assets. The free version includes all the critical features, including the ability to ask questions a real person with a promised reply within 48 hours. I’m assuming they’ll help you out with basic clarification-type of questions. $49 a year for rebalancing alerts and an annual face-to-face review sounds like a reasonable price for added features.
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