Stock investing for dummies
Blooom’s technology isn’t rocket science. They use a basic asset allocation strategy to keep you invested towards your retirement goals. Overall, they favor lower cost and broad based index funds. But for $10 a month, you can outsource your 401(k) management to a robot. Plus, for that fee, you can also ask pretty much any financial question to them, and get an answer. That’s not a bad deal for financial advice these days.
For a lot of people, that’s a great deal. Want some help managing your 401(k)? Here’s what you need to know about Blooom.
What Blooom Does
Think of Blooom as a Robo-advisor for your 401(k) (or other employer-sponsored workplace retirement plans including 403(b), TSP, 401(a), and 457 accounts. Based on your age, and your target retirement age, Blooom will recommend an allocation for your portfolio.
For younger people, they recommend a 100% stock allocation, but they also offer diversification within stocks. For example they will select large, mid and small cap domestic stock funds and various international stock and possibly even “alternative” funds.
If you don’t like Blooom’s asset allocation, you can opt for a different ratio of stocks to bonds. Blooom doesn’t offer diversification outside of stocks and bonds.
On top of that, you cannot adjust Blooom’s asset class allocations. That means, you can’t opt for more developed market international or more small cap stocks if that’s your preference.
Whenever possible Blooom will select a low-cost index fund to meet your portfolio’s requirements. In general, this means that you’ll get low cost performance that tracks the market. If you’re someone who accidentally selects all the highest cost mutual funds, this could bring substantial savings to you.
Blooom will rebalance your portfolio every 90 days, based on their algorithm (along with any changes you’ve made to your stock to bond ratio).
People who like to tinker with their portfolio allocation, won’t like Blooom’s one-algorithm fits all methodology, but for the average person this is a great service. Once you choose you accept Blooom’s recommendations, Blooom will manage your portfolio in perpetuity (as long as you pay your monthly fee).
Blooom also allows their users to ask financial questions – beyond just the 401k management – and get responses from real advisors. Should you invest or pay off student loan debt? Ask? Planning to have a little one soon? Ask about it.
How Bloom Charges Fees
Blooom charges $10 per month for their 401(k) management. Instead of withdrawing money to pay themselves, Blooom charges your credit card for their service.
To me, this is a standout feature of Blooom. Fees can be a big drag on your portfolio, but charging a credit card means you’ll cash flow your investment expenses.
I also love that they don’t charge a percentage of your assets under management. Most Robo-advisors charge a .25%-.45% asset management fee, but Blooom has one fee for all consumers. In my mind, that makes a lot of sense.
Should You Use Blooom?
I think Blooom is an excellent solution for people who want to set and forget their 401(k) contributions. The $10 per month fee is very reasonable, especially if you have a 401(k) balance in excess of $5000.
In fact, for most people, the $10 per month fee charged by Blooom will be even more cost effective than a Target Date Mutual Fund (with the exception of the very low cost funds offered by Vanguard and a few other brokerages).
Personally, I wish Blooom offered more diversification into alternative asset classes, and the opportunity to customize holdings. However, for the average 401(k) investor, I like Blooom’s standard recommendations. Blooom maintains a fiduciary standard, so if you appreciate their approach, Blooom could be a good fit for you.
You should note, if you’re aiming for socially responsible investing, you should not choose Blooom at this time.
What do you think of Bloom and would you start using it? Why or why not?
stock investing for dummies