The majority of the financial services industry pays little attention to young people.
For example, unless you’re sitting on a seven-figure trust fund, the best financial advisors probably won’t return your calls. (And you should be wary of those who do, especially if they’re hawking life insurance policies to you when you’re 24, single, and childless). And if you do find a trusted financial advisor, you may not be able to afford regular planning sessions.
But just because you don’t have millions in the bank (at least not yet) doesn’t mean you don’t deserve investment advice you can trust.
Enter Bo Lu and his company FutureAdvisor.
Bo and his team realize that not every investor is best served by exclusive—and expensive—financial advisors. That’s why they’ve launched FutureAdvisor, a new Web application that provides automated portfolio analysis and diversification recommendations. Essentially, it’s a virtual investment advisor.
Today, I bring you the FutureAdvisor story for two reasons. For one, I think FutureAdvisor is a promising product—especially if you agree with my simple, low-cost investing philosophy. But this post is as much about entrepreneurship as it is investing, and a good start-up story should inspire anybody, whether you’re trying to make it on your own, too, or just earn a few extra bucks to get on top of your finances.
*To clarify something that came up in the comments, I am NOT part of FutureAdvisor’s affiliate program nor do I have any sort of financial relationship with them…Bo approached me through a fellow blogger and I liked his ideas and company, hence the post.
Seeing The Need
Long before FutureAdvisor, my cofounder Jon and I were rookie software engineers at Microsoft. Like many of our peers, we were geeks in our early 20s who never before had much money (nor cared much for it), and suddenly started earning almost six figures.
As you might expect, some predictable things happened: friends bought BMWs, posh waterfront apartments downtown, and all the plasma TVs and video games you could imagine.
But something else happened, too: some of us started asking each other: “I want to start saving some of this cash to maybe buy a house, and even retire early someday…but how? Where do we start?” And eventually, some of my friends started complaining to me that it wasn’t easy to figure out how to start or manage 401(k)s.
Becoming Reluctant Advisors To Our Friends
Some of our friends went to find financial advisors, but found two problems.
One, many advisors have asset-minimums, meaning that you needed usually $250,000 or more in assets before they would take you as a client. We in our early twenties didn’t have anywhere near that much.
Second, the few advisors who would consider working with us wanted to charge 1% of our total portfolio value, which was a ton of money, and would quickly become thousands of dollars a year as we got older.
Meanwhile, I had been investing since I opened an IRA with money from my first summer job at the age of 16. I had read up on the research behind index investing, and why low-fee, broadly diversified mutual funds and ETFs are the absolute best way to invest.
My friend Simon, who is a CFA and had worked for Putnam Investments and the Bank of England, ran his investments the same way. We helped our friends over numerous dinners, teaching the underlying tenants of passive investing and proper asset allocation. Slowly, one-by-one, we helped our friends clean up their 401(k)s and create broader portfolios.
It took forever, but along the way we quickly realized that while everyone’s financial situation was different, much of the underlying tenants of our investing advice were broadly applicable.
We realized that the underlying math to pick the best funds for a particular purpose (such as finding the lowest-cost way to broadly index domestic blue-chip stocks), and the algorithms to tailor a portfolio to an individual’s financial situation (such as a 27-year old who wants to retire early at 55), was something that computers were well-poised to handle.
I talked this over with my good friend Jon, an experienced investor himself and a graduate of MIT’s Computer Science program, and we decided to build ourselves a prototype to see if our hunch proved out. We applied to the start-up incubator Y Combinator, a California boot camp for new companies run by experienced entrepreneurs.
We consider ourselves exceptionally fortunate to have spent the summer working with some of the best start-up advisors and fellow founders in the world. Soon afterwards, we built a team of engineers and finance professionals and began our journey in the historic Pioneer Square district of Seattle.
FutureAdvisor’s Mission and Methodology
FutureAdvisor is a registered investment advisor now serving thousands of clients with unbiased, personalized investment advice delivered via the web application FutureAdvisor.com.
We implement well-known best practices of personal investing and apply it via algorithms to address the unique financial situations of each of our clients. We believe that you shouldn’t pay mutual fund managers thousands of dollars in fees to pick stocks for you, because research shows that stock picking doesn’t work for the long-term. We believe in asset allocations that match your time horizon and risk tolerance, implemented in low-cost, passively-managed mutual funds and ETFs.
(Here’s a screen shot:)
Throughout the application, whenever we give advice, that advice is backed by research and clearly-written explanations.
We believe FutureAdvisor is especially needed now, as companies completely move from pensions (defined benefit plans) that guaranteed employees a certain amount per month in retirement, to 401(k) and similar plans (defined contribution plans) under which your financial future is in your own hands.
We also think that professional quality investment advice should be personalized, research-driven, and available to clients anytime…even in your pajamas. Most importantly, we believe that advisory services should be accessible regardless of how much money you have now or will have invested someday.
This is our story; we hope join us on our mission to democratize unbiased and high-quality financial advice and make it affordable to all.
Learn More: Give FutureAdvisor a free test drive for 14 days.
*Note on the free trial. The FutureAdvisor site currently requires a credit card to enroll in the free trial, but Bo has offered to waive that requirement for Money Under 30 readers if you email him at [email protected].