The title clearly lays out our opinion. So why then should we expect you to read several thousand words when you already know our opinion? Well, because even though it’s what we recommend, it might not best the best option for everyone, or at least maybe not the best timing. So let us explain. Here’s why and when and how we believe you could be putting your money to work for you.
What is Wealthfront
But first, what is Wealthfront? Perhaps you have no idea and you’re like us and don’t have wealth so you’ve already begun to write this post off as something that isn’t for you. We believe you’d be wrong there because Wealthfront is a platform we truly believe is for anyone no matter what his or her current financial reality. And we’re going to show you why.
Wealthfront is an online platform commonly referred to within the financial industry as a “robo-advisor,” that is, a computer based financial advisor that uses data to automatically execute trades and balance your portfolio. What does that mean in laymen terms? Well, it means that the computer does the work and you reap the benefits. Rather than needing manual inputs like many investment platforms, Wealthfront uses a series of questions and information about your family to tailor an investment portfolio that fits your needs. These questions aren’t hard either. They’re simple questions that anyone can answer. How old are you? What are your financial goals? How much money do you make? Stuff like that.
Once you’ve answered these questions, Wealthfront recommends the best type of account for you and also how much risk you and your family can tolerate. Wealthfront is constantly adding new account options, but for now they offer the following:
- Individual and joint non-retirement accounts
- Roth, traditional, SEP and rollover IRAs.
- 529 college savings plans
Once you make your first deposit of at least $500 the system does the work. You simply watch your account grow.
We will be writing in the future of why we’ve chosen to go the path of robo-advisors like Wealthfront (at least for now) as we know that this is a hotly contested issue, but for now we just want to share with you that for the past two years we have nothing but praise for Wealthfront and will continue using them for the foreseeable future.
One of the things that we love most is that the fees associated with Wealthfront vs. a traditional advisor are so small by comparison, especially early on when you’re dealing with a small amount of savings (like our accounts).
Stop Saving, Start Investing
Okay, so now that you know a little bit about Wealthfront itself let’s get into what this post is actually about. What do we mean by this phrase “Stop saving, start investing.”
There was a day in the not so distant past where your savings account actually did something for you. I clearly remember my first “passbook” savings account… Do you remember those?
I would bring my little passbook (about the size of a Moleskine Cahier– which I love by the way but that’s beside the point) into the bank teller along with my $15 deposit and they’d scan the book. And I remember every time seeing that magical free money that would appear printed in my book. Early in my life I didn’t really understand where this came from, but I knew I liked it.
I’d come to find out that this magic money was called interest. Money that was paid to the account holder for allowing their money to be held by the bank. And back then it was a decent amount of interest that got paid out.
Well, it’s no secret that in 2017 your savings account really isn’t doing anything for you. I mean, take a look around, the top savings accounts in the US– even through credit unions which traditionally have better interest rates– are earning practically nothing.
Jaimee and I tend to move our money around quite a bit. For us we’ve never had the type of banking relationship where we felt like the value the bank was delivering was worth us keeping our little bit of savings tied down. Instead, we shop around for bonuses and the best interest rates. I mean, when most savings accounts are gaining like 0.05% interest you’ve got to get creative, right?
But even doing this, the return on the money you have in savings is close to nothing. It basically just sits there.
So, after paying off our car and student loans we finally had had enough of our money just sitting around doing nothing. This is when we decided it was time to stop saving and start investing.
But I can hear you now. If you’re familiar at all with investing, maybe from watching the Big Short or something, then you’re probably saying, “Investing isn’t safe.” And we totally can resonate with your sentiments because that’s how we felt at first as well. Doesn’t putting your money in an investment account mean you’re playing Russian roulette with what little money you have?
Well, not exactly.
You see, while it’s true that the absolute safest thing you can do with your money is put it in a safety deposit box or a bank account, there are ways of investing your money that will safeguard you and your family’s small amount of savings but also help you earn money.
One of those ways is through diversification. That’s just a fancy way of saying “not putting all your dollars in one place.” And Wealthfront (and other robo-advisors like them) do this for you.
The benefit of diversification is that if one of your investments plummets in value, other pieces still have the chance to go up or stay the same. Your money is split up into several pieces and in several places. All of this works to make sure that you get a relatively safe place to store your money and actually earn something.
Personal Investment Accounts on Wealthfront
When all was said and done it was clear that Wealthfront was correct in their assumption that too much money left sitting in a savings account over a long period of time was just poor management of our savings. So, after determining an amount we needed for near-term purchases, and setting aside our emergency fund money (which we will talk about in another post), we took the rest (what little their was) and opened an account.
As I mentioned above, the process was incredibly easy and within a few days our savings was now invested. Instead of earning 1% interest or less in a savings account we were now poised to make a return of almost 5x that with Wealthfront. And let me just say, after almost a year we couldn’t be happier that we took this step to stop saving and start investing. Have there been a couple ups and downs? Certainly, but our money has never come close to dipping below our initial investment and now almost a year in we don’t see that happening. With the ability to liquidate the account and take lines of credit off from it, we really believe that this is a pretty neat way to put your money to work for you.
So there you have it. Stop saving and start investing. If this is something you’re interested in we would recommend you approach it this way:
- Determine how much of your savings should remain immediately available (any large purchases coming up? how much emergency savings do you want– we recommend at least 2 months worth).
- Are you putting enough money into your retirement accounts? (Make sure you’re maximizing your employer-match contribution limits at work because that’s just free money)
- Open an Individual or Joint Investment Account with Wealthfront (This Polk Home readers get $15k managed free)
- Make your first deposit and let Wealthfront do the work for you
We really hope that this has been helpful to you. We don’t claim to be financial experts and want to be clear that this is for educational and informational purposes only. While it has certainly been the right move for our family we understand that their are lots of things to consider when you think about your money. We truly want what’s best for you so comment below with any questions and we’ll try to help in anyway we can or maybe you’ll find someone from our community who can help as well.
$15,000 Managed Free
We also wanted to mention just really quick that when you open an account with Wealthfront readers of This Polk Home will get $15,000 managed for free! Wealthfront automatically gives it’s clients $10k but when you use the links found on This Polk Home they’ll throw in an extra $5,000 managed fee-free! How cool is that!?
One of our greatest values at This Polk Home is creating an online environment of grace, trust, and community. This will always drive the content that we produce and we want you to know that. That’s why we promise to always promote and publish content that we have used, are using, and in most cases will continue using in the future. When you read a post on our blog we want you to know beyond a shadow of a doubt that what we’re recommending is something that we truly believe will be of value to you our readers. -The Morses