Today we're pleased to announce full support for more than 50 additional 401(k) plans with more coming each week based on user requests.

The full list: https://www.futureadvisor.com/401k.

Not yet a FutureAdvisor user? Sign up for free at https://www.futureadvisor.com/signup.

Permalink | Leave a comment  »

We’re happy to announce that today, FutureAdvisor is open for signup to all, offering free and unbiased investment advice across all of your investments - even your 401(k). We’re delivering on the mission to make quality investment advice accessible to everyone, not just the rich.

Here are just some of the awesome features we’re launching to everyone:

Get a target portfolio for your situation

See where you stand compared to your target

Get actionable recommendations on how to improve

We'll even give you alerts to re-balance your portfolio when market movements change your asset exposure.

If you already have a financial advisor, you may want to review your statements. They could be charging you more than you think, costing you thousands of dollars in fees over your lifetime. If you don't, it's easier than ever to start investing for your future with FutureAdvisor. Take control of your portfolio today and give FutureAdvisor a try, it’s Free!

Thank you and enjoy!

-The FutureAdvisor Team

Permalink | Leave a comment  »

Inspired by Kevin Kingsbury's piece at MarketBeat, we decided to take a look at the flow of capital in and out of asset classes over time to see how good investors are at predicting market movements. In his piece, Kingsbury notes a spike in outflows from long-term mutual funds just before a late November market rally, citing ICI for his data on money flow. When we saw they had a downloadable spreadsheet with historical data going back to January 2007, we decided to take a closer look at the ability of investors to time the market.

How did they do? In the following scatterplot, each dot represents a month and an asset class. On the x-axis we show the flow of capital into an asset class, on the y-axis we show the corresponding percent change in that asset class[1].

If investors as a whole are good at timing the market, then we should see a positive correlation (visually, a trend line with a positive slope). Instead, we see a noisy plot consistent with a hypothesis of no correlation. So, at best, investors do not consistently predict market movements and allocate assets accordingly. At worst, they're more likely than not to sell out of a market before gains are realized. The average trend-chaser never catches up.

The difficulty of achieving above-average returns via market timing is well-documented. Here's Jack Bogle (as quoted in Malkiel's A random walk down Wall Street):

In 30 years in this business, I do not know anybody who has done it successfully and consistently. Indeed, my impression is that trying to do market timing is likely, not only not to add value to your investment program, but to be counterproductive.

As a recent example, here's Larry Swedroe writing for CBS MoneyWatch. He warns against the impulse to pull out of the stock market during these uncertain times:

While it's difficult to stay in the market when risks are high, that's when expected returns are high. It's easy to stay in the market when risks seem low, but that means you buy when expected returns are low and sell when expected returns are high, which doesn't make sense.

The market is a poor advisor: don't let it make your allocation decisions for you. Determine an acceptable level of risk, allocate your investments accordingly, rebalance, and reap rewards in the long run.

Note: 

1. We used index funds VTI, VEA, and VBMFX as proxies for the domestic equity, foreign equity, and total bond markets.

Edit: We clarified the conclusion we're willing to draw from this data set.

For more, you should follow us on Twitter: @FutureAdvisor

Josh Tokle is a member of the finance team at FutureAdvisor.

Permalink | Leave a comment  »

At Morningstar.com, Christine Benz asked message board users to rate their 401(k) plans. Fees and sector coverage are foremost on people's minds, with employer matching and other perks (like good user interface) further down the list. Here's the full article.

Permalink | Leave a comment  »

Over in Time.com's financial section, Stephen Gandel talks about new research from the Center for Retirement Research. As you would expect, a company that offers more in contributions to a 401(k) will pay lower salaries. The surprising part of the article is that the tradeoff between wage and 401(k) contributions is much more favorable for those making low incomes than for higher income earners. Mr. Gandel focuses on the negative impact: employer 401(k) contributions drive wages down and poorer Americans who can't afford to save see no benefit.

That's a valid point, but here's a more positive (if somewhat speculative) take on the research: if you make less than the 60th percentile income (around $57,000 per year) and you're taking full advantage of employer contributions to your 401(k), then your total compensation is higher than what it would be if you were being paid a salary only. That is, employer contributions increase total compensation (for those who can afford to save).

Stay tuned for a more detailed write-up of these findings.

Permalink | Leave a comment  »

It's the end of the year: last chance to take stock of your 2011 tax obligations. As an investor, you should make particular note of any realized capital gains. Maybe you sold out of a top-performing asset class to keep your portfolio in balance. Maybe you liquidated some of your holdings to finance a new project or a new expense. In any case, if you sold shares at a profit then the IRS will be asking for their cut.

The good news is that some of your investments may have lost value. While not generally the sort of thing people celebrate, a capital loss provides you the opportunity to defer taxes by a method referred to as tax loss harvesting. In short, losses from one asset sale can be used to cancel gains elsewhere.

Read the rest of this post by Josh Tokle in the FutureAdvisor Research Notebook.

Not yet a FutureAdvisor user? Find out if your workplace retirement plan is supported and request an invite at https://www.futureadvisor.com/signup.

Your questions, comments, and suggestions are always welcome at advisors@futureadvisor.com.

Permalink | Leave a comment  »

Today we're announcing that the FutureAdvisor algorithms now include better diversification through application of the well known Fama-French Three Factor Model. Use of this model allows us to fine tune your risk vs. reward tradeoff by including an appropriate amount of lean towards small cap and value equities in an effort to maximize long term returns.

Highlights from the FutureAdvisor Research Notebook:

Check out recent posts from Josh Tokle of our Finance Team that explain the Fama-French Model and our lean towards small cap and value equities for long term investing.

Fama, French, and beyond: greater diversification means lower risk for your expected return

You're young: seek out higher returns by investing in small cap and value stocks

A graph from the above post demonstrates how small cap and value equities have outperformed large cap and growth equities over the last 80 years.

Within our app you will see two visible changes:

First, we show the position of the equities in your recommended portfolio compared to your current portfolio on the familiar size vs. style matrix.

Not yet a FutureAdvisor user? Find out if your workplace retirement plan is supported and request an invite at https://www.futureadvisor.com/signup.

Your questions, comments, and suggestions are always welcome at advisors@futureadvisor.com.

Permalink | Leave a comment  »

At the core of the FutureAdvisor service are tools to help you optimize your portfolio-wide diversification, minimize fees, utilize tax advantaged accounts, and rebalance regularly. Equally important is saving enough in order to reach your retirement goal as quickly as possible. Here's a look at how we help you evaluate your savings to date:

See if you're ahead or behind for your retirement goal; we show how your current assets compare to the target for your age:

Find out how much you need to save per year to meet your retirement goal:

Get best, worst, and average performance projections for your retirement goal:

Work at Microsoft or Google? You're in luck as FutureAdvisor already supports your 401(k). Email us at advisors@futureadvisor.com as we'd love to send you a beta invite code.

Work somewhere else? Let us know at https://www.futureadvisor.com/signup and be among the first of your coworkers to experience FutureAdvisor.

Permalink | Leave a comment  »

The latest from Josh Tokle of the FutureAdvisor Finance Team:

"With active management you're placing a bet that your fund manager can beat the market after taxes and fees. Like all bets, the odds favor the house, in this case passively managed index funds."

Read the rest of this post on the FutureAdvisor Research Notebook.

Permalink | Leave a comment  »

At FutureAdvisor our passion is in bringing unbiased and academically-backed investing advice to individual investors via algorithms and a user friendly web interface.

While we've designed our web application to be as self-service as possible, we realize that folks occasionally have a question about a unique financial consideration or maybe just need a little additional clarification. To help in these situations we’re happy to announce our “Ask an Advisor” feature which can be found on the left sidebar once inside the application.

Questions are answered by one of our investment advisors in no more than one business day, although usually much sooner. This service is included with all FutureAdvisor subscriptions.

Do you have a suggestion for how FutureAdvisor can better help you optimize your portfolio? We’d love to hear from you at advisors@futureadvisor.com.

Permalink | Leave a comment  »

While FutureAdvisor recommends building long-term retirement portfolios with low-fee mutual funds and ETFs, we recognize that some of our users may want to hold individual stocks for a variety of reasons.

We are happy to announce that we now recognize stock holdings and fetch the most recent closing price for almost all stocks listed in major US exchanges. This includes not only stocks of companies domiciled in the US, but also American Depository Receipts of foreign stocks. For our users with stock holdings this update will improve the accuracy of our asset allocation analyses and the resulting rebalancing recommendations.

In the below screenshot, we have assigned Vodafone (UK), BP (UK), Nokia (Finland), and Toyota (Japan) to the Foreign Stock asset class, in addition to a holding of ETF shares of the Vanguard Tax-Managed International Fund, a fund we frequently recommend as a low-fee way to gain broadly diversified exposure to foreign stocks.

Do you have suggestions for how we can make FutureAdvisor more useful? We would love to hear from you. Just email us at advisors@futureadvisor.com.

Permalink | Leave a comment  »

One of the most frequently requested features over the last few months has been the ability to manually enter existing investments into the FutureAdvisor application, as an alternative to the direct connection option we currently offer at several dozen of the largest US financial institutions. As our current users may have already noticed, we quietly launched the first version of this feature several weeks ago. Today we are pleased to announce this feature publically, now that we have added the functionality to automatically fetch the last closing price for most mutual funds, ETFs and stocks in US markets.

As can be seen in the above screenshot, all we need to know is the symbol of the security and the number of shares you own. With that information, FutureAdvisor will fetch the full name of the security, its latest closing price[1], and calculate the current value of your holding. At that point we treat it just like a holding that came in via the direct connection method. In other words, we analyze each security and assign its constituent pieces to the proper asset classes before assessing whether or not your portfolio needs adjustments to ensure you on are track for your retirement savings goal.

Your questions, comments, and suggestions are always welcome at advisors@futureadvisor.com.

[1] Data provided by Lipper and Xignite.

Permalink | Leave a comment  »

For years, depending on the financial institution where you held your investments, certain mutual funds incurred a transaction fee while others did not. In recent years with the widespread adoption of ETFs, this has been complicated by brokerages offering a set of ETFs commission-free, while commissioned applied to other trades. While these opportunities to reduce transaction fees were good for clients, the confusion of changing alliances between fund families and brokerage companies meant that it took a lot of effort to take advantage of these savings.  

Today we are happy to announce that FutureAdvisor's recommendations now incorporate knowledge of these brokerage-specific commission-free ETFs and No Transaction Fee Mutual Funds for several of the brokerages we support. This means that now when we recommend you shore up an underexposed asset class by buying a particular fund, we’re generally picking a commission-free ETF or No Transaction Fee Mutual Fund, as appropriate[1]. You can see when a recommended fund is No Transaction Fee by the green NTF icon next to its name.

Also this comes with two important changes to the user experience.

1. Each recommendation now adds detail about the account the recommendation applies to. FutureAdvisor at this time leaves your account choices and allocation of funds between accounts in place, such that our recommendations do not imply moving money between accounts, but simply between funds within the same account to either decrease fees or improve your asset allocation, and oftentimes both.

2. When we recommend a fund that you might consider purchasing, we'll show you a one or two sentence explanation of why we picked that fund.

As always, we'd love to hear what you think we should add to FutureAdvisor. Just drop us a note at advisors@futureadvisor.com.

[1] Note that just because a certain ETF trades commission-free or a certain mutual fund is no transaction fee doesn't mean it's always the right choice. Oftentimes fund companies compensate brokerage companies the commission (thus why that particular fund is commission-free to consumers), and this often leads to those funds having higher annual expense ratios. FutureAdvisor takes this into account wherever possible, to balance commission-free with low annual fees. 

Permalink | Leave a comment  »

Many mutual funds and ETFs invest across more than one asset class. One classic example is a so-called “Balanced” fund holding a mix of stocks and bonds. FutureAdvisor’s diversification algorithm has always broken individual funds into its constituent pieces to give you a more accurate portfolio-wide diversification picture. Today, we’re making it easier to see this piece-by-piece breakdown:

Now, when only a portion of a fund is contributing to the asset class you’re looking at in detail we’ll show exactly what percentage of the fund is contributing, and how much that is in dollars. In the above screenshot you can see that 4% or $3,785.20 of the VFIFX position and 17% or $861.09 of VWIGX are contributing to the Emerging Markets asset class. Again, this is not an algorithm change; merely an improvement to the way the application reflects the existing algorithm work under the covers.

As always, we’d love any and all feedback. Just email us at advisors@futureadvisor.com.

Permalink | Leave a comment  »

More than 30 years ago Vanguard invented the index fund amidst derision from traditional mutual fund managers [1]. In the years since, history has proven the overwhelming triumph of index investing, as Vanguard recently overtook Fidelity to become the largest mutual fund company in the country [2]. 

30 years later, support for integrating account data from Vanguard is the most requested feature here at index investing firm FutureAdvisor. As of today, we're pleased to announce we are rolling out support for securely importing account information from Vanguard for FutureAdvisor analysis and recommendations. 

As always, we're eager to hear your feedback and suggestions on new features or insights you'd like on your portfolio. Please don't hesitate to get in touch. 

[1] Read more about the story of the formation of the first index fund on Vanguard's website.
[2] In 2010 Vanguard became the largest mutual fund company in the country [ABC News] 

Permalink | Leave a comment  »

Thanks to David at MoneyUnder30, today we are being featured on their homepage, with a post written by Bo which includes a detailed background on why and how he and Jon founded FutureAdvisor: The Start-Up That Thinks Quality Investment Advice Shouldn’t Just Be For Rich People.

Permalink | Leave a comment  »

This month the personal finance blog Moolanomy is hosting the latest article from Josh Tokle of the FutureAdvisor finance team. In the article Josh compares two investors living at different times in history, and evaluates the impacts of recessions happening at different points in their lives. Visit the FutureAdvisor Research Notebook for more articles by Josh and the rest of the FutureAdvisor finance team.

Permalink | Leave a comment  »

Morningstar releases new ratings system for mutual funds [via SmartMoney]

Not coming until Fall 2011, but nonetheless good news that the influential Morningstar ratings system will take fund fees into account more strongly. Fees have been shown (actually by Morningstar itself) to be the best predictor of future performance, and rightly deserves a more prominent role in the ratings system that so many people rely on. 

A bit concerned about the element of human judgement here though - the lack of transparency in that can lead to bias, and we'll be keeping an eye on that. It becomes hard to explain to the public that what looks like a concrete rating in a ratings system is actually comprised of a large part of the personal opinion of the analyst.

I'm a huge fan of more transparent ranking systems such as MaxFunds, and of course, our own FutureAdvisor Fund Search which has a laser focus on fees. 

-Bo

Permalink | Leave a comment  »

We recently welcomed our newest member of the engineering staff to the FutureAdvisor team, and as we wrap up the hiring process I wanted to jot down a quick data-driven note to ourselves (and in case this helps anyone else planning to do the same thing). This team member joined us via the public job postings we had put up on places like 37Signals, GitHub, and StackOverflow. So, how much work was involved? YMMV, but we humbly present a single data point from a single company. 

• 120 applications, each containing a programming problem in the applicant's choice of language. On average, we expect the problem to have taken most applicants an hour or two, and we carefully reviewed each and every code submission. 
• 23 of those applicants passed code review, and we spent an hour on the phone with each both discussing past projects and doing additional design problems on the phone.
• 8 of the phone interviews resulted in an invitation for a full-time interview at our offices in Seattle. Our interviews are all day, comprised of both "classical" design and algorithms whiteboard questions and a full afternoon of coding together with us. 
• 1 engineer: in the end we brought onboard one full time engineer, which was the point of this entire exercise. 

Lessons learned:

• Get as much resolution as early in the process as possible. We realized quickly that resumes were not high-resolution enough to filter with, so the programming problem proved critical in figuring out whom we wanted to invite to phone interviews. In hindsight, we should have also accepted a public GitHub repo containing a project of more or equal complexity, and next time we hire we’ll be sure to put that in the posting.
• Needless to say, this process gulps time: conservatively, we estimate that we spent 10 hours doing code review, 23 hours on phone interviews, and 56 hours interviewing in person. In addition, we spent about another 50 hours scheduling, responding to mail, and just managing the process. In more human terms, it leveled a founder for about a month and took about a quarter of two more people’s time. 
• Interesting to note that while we had never intentionally designed it this way, in reality while the number of candidates fell precipitously as we moved deeper into the funnel, the number of hours we spent grew. In hindsight, this feels about right. At the beginning of the funnel you worry about efficiency since you’re filtering, but at the end of the funnel you’re worrying about fidelity.
• The best way that we’ve found to interview is to do the job you’re interviewing for. We the founders are all products of great internship programs in college, and learned that an internship is probably the best interviewing method available, when possible. Next best is full-day hackathons together with the team the candidate might be joining. This was by far the most high-fidelity way we could find to answer the question this entire process was about: would this candidate be a great member of the team?

And even given all this, it was far and away worth it. It's been said many times, many ways, but hiring is really the most important job a founder can do. 

-Bo

Permalink | Leave a comment  »

It's almost better to invest for a few years while you're young and then not save a dime ever again, than to start late and save up all your life. Here's an example:

Sara starts early, then quits

Sara and Bo are friends from college and graduate together at the age of 25. Sara starts saving for her future by putting aside $1,000 a month[1]. Meanwhile, Bo figures it's too early to start saving for retirement and does not.

Ten years pass. When they're both 35, Bo finally decides to start saving and copies Sara's approach: investing $1,000 a month. At the same time, Sara becomes tired of being the good frugal one and stops putting in money, never saving another dime in her lifetime. When does Bo's retirement nest egg finally catch up with Sara's[2]?

At age 55. After 20 years, and after putting in twice as much as Sara did, Bo finally catches up. 

What if Sara doesn't stop investing?

As tax season comes around and everyone starts make plans around expected IRS tax refunds, it's a small bit of math to keep in mind. 

- Yun Zhang & Bo Lu

--

[1] The exact amount doesn't matter for this example, since both people will be putting in the same amount every month. In addition, we're using inflation-adjusted growth here, to remove inflation from the equation. 

[2] We use 5.04% as the annualized inflation-adjusted growth rate (i.e. growth in purchasing power, not nominal dollars). We'll cover the background research for this in a future post. 

Backstory: we called this post "Nonintuitive" because most people don't intuitively think that compounding interest is this powerful. And the names aren't actually made up: they're from my high school economics class eons ago when Sara and I were actually brought up to the front of the room to demonstrate this example. I've never forgotten it since. 

Permalink | Leave a comment  »