I have $25,000 in savings and I don’t know where to put it (Hint: Robo-advisor)

This is a refrain I’ve heard from many of my colleagues/former classmates. I’ve consolidated and refinanced my student loans to the lowest interest rate possible. I’m saving for a house or I already have a mortgage. But now, I’ve got this stash of cash on hand and am not sure where to put it. Furthermore, I don’t have the time nor the knowledge to actively manage my money. What should I do?

For someone in that category, perhaps utilizing a robo-advisor would be up your alley. A robo-advisor is ostensibly an automated financial advisor that charges less than what an actual financial advisor would charge to manage your money. A typical fee structure assessed by an actual financial advisor is 1% of your entire asset portolio. Now, I’m not saying financial advisors are irrelevant because that’s simply not true, but I will say that for new grad CRNAs, the amount of money you’re holding or saving right now is not enough for you to get involved in any big-time investments. In fact, you should be focused on these 5 steps to financial independence. Once you’ve comfortably reached those goals and you have a sizable amount of money in savings (~$100,000), then I’d say (and that’s still a big maybe) you should start thinking about using an actual financial advisor to help manage your money.

A robo-advisor, as defined by Investopedia,

is an online wealth management service that provides automated, algorithm-based portfolio management advice without the use of human financial planners. Robo-advisors use the same software as traditional advisors, but usually only offer portfolio management. Robo-advisors are typically low-cost, low account minimums.

I caught wind of robo-advisors soon after graduating from school. I initially invested my money with Future Advisors, but this past summer, I decided to switch companies and went with Wealthfront instead because their annual fees (0.25%  on assets above $10,000) were less than Future Advisors (0.5% of entire asset portfolio).

In a nutshell, robo-advisors use sophisticated computer algorithms to invest in exchange-traded funds based on an assessment of your risk profile. There are a plethora of reviews you can find online. This blog is to document my personal experience with one of them (Wealthfront).

I decided to invest $27,000 with Wealthfront to see how they would perform. So far, I’d say they’re doing a good job. I was able to realize a ~7% gain on my investments after about two months.

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My Wealthfront account

Diversified Approach to Investing

Wealthfront does a great job of detailing where your money is invested based off of your risk profile that you set up when opening an account with them. Investments are rebalanced frequently and without fees.

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Tax-Loss Harvesting

Lastly, they offer a service (which is one many other robo-advisors offer) called tax-loss harvesting, which is taking advantage of tax deductions by selling investments that have decreased in value. In other words, what Wealthfront does is find investments that have lost value and they sell them to the market so that you can use the losses as a tax-deferral strategy (lowering your tax bill). Wealthfront claims that they look for tax loss harvesting opportunities on a daily basis, so you can be assured that your money constantly being monitored in order to ensure your financial situation is optimized.

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401(k) Management

Some robo-advisors (such as Future Advisor and Bloom) will manage your retirement plan for a small fee (ranging anywhere between $5-$99, depending on the balance). They will view the investments offered through the company you’re employed with and will make recommendations on how you can optimize your investments. This is certainly a potential solution if you’re the type of person who wants to have a portfolio that’s customized to your needs rather than investing in a one-size fits all target date retirement fund. Currently, Wealthfront does not offer such a service.


Conclusion

Overall, I’d say if you’re sitting on some money, have maxed out your retirement accounts, paying down your student loans, have no credit card debt and have some time, I recommend parking some of that money with a robo-advisor, at least as a beginner investor.

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