The easiest way to start investing…..

I bring the girls home from school twice a week. Despite a full day at nursery they are still super-energetic and after about 3 seconds of being happy to see their Mum, they start stridently shouting, running around and generally being out of control…

By the time you get a 4 year old and a 2 year old in an out of their coats, yell at them to stop fighting a few times and get around to feeding them, one’s decision making capacity is completely depleted. I usually stand in front of the fridge wondering what to feed them that isn’t frozen pizza - let me just say that sometime it is a frozen pizza. The one with pineapple on top because they won’t eat any other kind.

With a double toddler temper tantrum held to my head it is 100% necessary to get this done then and there and my brain thinks:

What’s the easiest thing to do? How do I just get this done?

When I started my business I interviewed over a dozen people who have money to invest (If you were suckered onto this email list, you were probably one of them).Two themes kept coming.

The first was the lack of time to go out and research options and the second one was difficulty in deciding what the heck to do amongst 1000s and 1000s of investment and fund options. How do you even start to pick a wealth manager?

It’s a bit like my brain when the the toddlers are clamouring for alphabet pasta rather than the buttery broccoli I’ve just prepared….

What’s the easiest thing to do? How do I just get this done?

If you can relate to this position try this approach.

1.   Use the “Sprinkling” rule of investing

2.   Use a robo-adviser

The Sprinkling rule (I made up that name by the way) basically says divide your money into small bits (Say 20:20:20:20:20) and to start just commit just one bit -- say 20% of what you need to put in. That way you aren’t trying to make a decision on your entire savings, just a part of it. If you have $100,000 to invest commit $20,000 to using a robo-adviser.

Professional investors will recognize the “sprinkling” tactic as “averaging down”. When a professional investor makes a decision to buy a stock they will commit a small percentage of what they intend to buy and then if the price falls, but a bit more and then a bit more…. Basically not going in all at once. Sensible but of course being finance it has to be made to sound more complicated.

I often used to wonder what the right number was for allocating something or trying something out - the truth is there is no right answer - at least not one you can see ahead of time. Sprinkling is a good way to just get started.

The problem with sitting on money is twofold – firstly it eats up your mental space and the more you put off things the more anxiety is generated about eventually pulling the trigger. Second you are missing out on all the market gains while they money is sitting around and inflation eats into your savings.

The second tactic to quick investing is to use a robo-adviser. These are software platforms that have been developed in very recently to automate financial advice and allocation amongst many funds. What would have previously taken a person hours to figure out (who of course you are paying for), the software does in a few seconds using customized algorithms.

Until about 5 years ago investing needed A LOT of upfront thought and analysis… you had to work with an adviser or figure it yourself out. Advisers can be hit or miss - or might not be able to give you the time you need.

I think robo-advising will be the industry standard in 15-20 years. Today I wouldn’t even dream of looking at a library card catalog for a fact in some book - I would just “google” it. In the same way 20 years from now, software will tell us which funds work best for us although the human component of financial advice will never go away. The “librarians” will change their roles into one of enabling rather than informing.

Questions to ask about robo-adviser platforms before you pick one:

  • What are their fees?

  • Will they be around in 10 years time?

  • What’s the basis of the underlying investing assumptions made to distribute your investments?

  • Are their investing algorithms sensible and not trying to be overly clever?

  • Do they have access to a variety of good funds or partnered with one of the large investment houses?

  • What’s their customer service like?

  • When the markets hit rough times are they going to be able to give you good advice?

  • Do they provide clear arguments for why robo-advising might be good for your situation?

If you want to dig further I’ve listed some of the better known US & UK robo-advisers and some good analysis on them….

Disclaimer: I have no affiliation with any of the companies mentioned below!

4 US Robo advisers

·         Wealthfront www.wealthfront.com

·         Blooom www.blooom.com/

·         Betterment www.betterment.com

·         Schwab Intelligent Portfolios intelligent.schwab.com

4 UK Robo advisers

·         Nutmeg http://www.nutmeg.com/

·         Money on Toast www.moneyontoast.com

·         Retireready www.retiready.co.uk

·         Wealth Wizards www.wealthwizards.com

There are people much more thorough than myself who have researched these options and written about them. Here are links to the 2 articles I found most useful.

USA

https://www.nerdwallet.com/blog/investing/best-robo-advisors/

UK

http://www.thisismoney.co.uk/money/diyinvesting/article-3277148/Wizards-told-invest-pension-trust-robot-look-money.html

My first investing workshop this Saturday! I’ll let you know how it goes next week. If you’re London based and would still like to come, just email me.

Have a good week!

Best,

Mallika