When I look back at my investing life, one of my biggest regrets is just not getting started sooner. It’s really kind of a shame when I think about it. I didn’t start investing until I was 27 years old, almost a decade after I had graduated from high school. That’s years of potential growth that I can never get back. It gets worse when you consider that I graduated from college in 2009, right when the market was at its bottom. If I had started investing back then, even just a little bit, I could be killing it right now.
Of course, I was a student for most of my 20s, so it’s not like I was swimming in cash. But I also worked part-time during the school year and full-time during the summer, not to mention the fact that I was privileged enough to have parents who could afford to pay for my tuition, rent, and food. Other than going out with friends, I basically had no expenses during those early adult years. In other words, I could have easily saved something.
The funny thing, it’s not that I didn’t want to invest or that I didn’t know it was something I should do. One of my formative personal finance books was The Automatic Millionaire, a book I picked up back when I was in high school. It set the foundation for the personal finance principles I follow today – pay yourself first, make saving automatic, and invest for the long term.
The problem is, even after reading that book, I never actually got around to the whole investing thing. I figured out how to open an investment account and I even put some money into it. But there was a part of the sequence that a newbie like myself couldn’t figure out – the part where you actually have to invest the money.
In today’s post, I want to address a question that I often get asked – why is it that I’m always suggesting that new investors use robo-advisors? It’s a fair question and one that puzzles a lot of people. After all, investing doesn’t have to be complicated. It really shouldn’t be that hard to just tell someone to open an account at Vanguard and put their money into a few index funds.
For me, it really comes down to one thing. Robo-advisors remove that pain point when it comes to investing – the part where you actually have to invest your money. It’s the pain point that stopped me in my tracks and caused me to start my investing life a decade later. If robo-advisors had existed back then, I’m pretty confident I would have gotten a huge head start in my investing career.
My Lost Investing Years
Even though I didn’t start investing until I was 27, I actually opened up my first Roth IRA when I was 18 or 19 years old. The problem for me was that I didn’t make it all the way to the end.
Here’s what happened to me when I started my first Roth IRA:
- I opened up a Roth IRA using E-Trade (it was the only brokerage company I knew)
- I deposited a few hundred bucks into my Roth IRA
- It sat there for a while since I didn’t know I was supposed to do something else.
It was that last step that I didn’t understand. I understood how to put money into the account, but investing the money – the most important thing I needed to do – was a mystery to me. I obviously know what I would have done in hindsight, but as a teenager, I didn’t know what ETFs or mutual funds were. To be honest, I didn’t even really understand what stocks were. No one had ever taught me this stuff. And I knew so little that I didn’t even know what I didn’t know.
So, even though I opened up a Roth IRA when I was 18 or 19, the small amount of money that I saved just sat there, uninvested, doing nothing. I never added more to it since I didn’t understand what I was doing. Eventually, I clicked around and figured out how to buy some shares of stock and I went ahead and invested the few hundred bucks I had into Borders stock. There wasn’t any real reason for me to do that – I just liked Borders and the share prices were so low that I thought it would surely increase in value at some point.
You all know what happened to Borders next. I never put another cent into that account. 10 years later, I started up my second Roth IRA. But instead of 10 years of growth, I was starting at zero.
Friction and the Investing Pain Point
The biggest barrier when it comes to investing, I think, is fighting the friction that comes with it. There’s that point that you can call the “investing pain point.” That’s the part that comes after you put money into your investment accounts, but before you actually get it invested. Opening a retirement account and putting money into it is the easy part. But you have to do more.
If you want to get a better understanding of what I mean by the investing pain point, just think about the difference between a savings account and an investment account. Ask any young person out there (or ask anyone really) and the vast majority of them will probably have a savings account. They might even have some money saved away in it. But ask that same person about their investment accounts and there’s a high likelihood that they won’t know what you’re talking about.
The reason why people have savings accounts, I think, is because bank accounts are easy. There’s no pain point. You open up your savings account, move money into it, and that’s it. You’re done.
I know it sounds so simple that it seems stupid for me to even claim that this factor holds people back with investing. But it’s a real thing that I personally experienced. It’s why I opened up a Roth IRA back when I was a teenager, then did nothing with it for almost 10 years. I’m confident I’m not the only person that’s faced this problem as well.
Robo-Advisors Solve The Friction And Investing Pain Point Problem
If robo-advisors had existed back when I was in college, I probably would have gotten a 9 or 10-year head start on my financial independence journey.
It’s my own personal experience that shapes my belief here. And when anyone asks me how to get started investing, I always direct them to whatever robo-advisor they feel like using. Betterment, Wealthfront, WiseBanyan, M1 Finance. Any of them are fine.
Below are some of my final thoughts about why I think robo-advisors are a legit way to start investing:
It Removes The Investing Pain Point. The key with robo-advisors is that they make investing seem the most like a bank account. You put money into the account and then you just walk away. When someone is just starting out investing, they need as little friction as possible.
The Fees Won’t Kill You. Generally, fees for most robo-advisors will be around 0.25% That’s very reasonable in my mind. There are also robo-advisors that don’t charge any management fees, which takes away that objection completely. A Vanguard Target Date Retirement Fund is going to have a 0.15% expense ratio. You’ll probably end up with 0.3% to 0.35% as an overall expense ratio if you use most robo-advisors. Yeah, you’re paying more for a robo-advisor, but if the difference is getting someone investing vs. not investing at all, that’s well worth the cost. And that small difference in fees is NOT going to be the reason someone can’t hit their savings goals.
It Makes Sure You Do Things Right. When I first started investing, my big fear was doing something wrong (I ended up doing everything wrong anyway, but that’s beyond the point). Robo-advisors have the benefit of making sure you invest right, even if you know absolutely nothing.
It Gets You Started In A Way That Isn’t Terrible. When it comes to investing, it’s so important to get started. But more importantly, it’s important to get started correctly. When things seem too confusing, the thing a lot of people do is walk into some financial advisor’s office and ask them to do the investing for them. That’s exactly what my brother did. With no idea of what to do with his money, he walked into an Edward Jones office and had them do his investing for him. All of those funds are now invested in actively managed mutual funds that carry a 1% expense ratio and a 5.75% front load. He messed up to start his investing career, and now his option is to either keep it there and pay those high fees, or sell it all, take the tax hit now, and reinvest it again somewhere else.
No, the robo-advisor route isn’t the best option for everyone. It’s not even the optimal way to invest (the optimal option would be to DIY it all yourself with Vanguard).
But we all make value judgments about what’s worth our time and what isn’t. The fact is, most people aren’t going to spend the time to learn even basic information about investing. They aren’t going to learn about asset allocations or mutual funds or ETFs or any of that stuff. So if a robo-advisor is going to get someone over that last hump, it’s worth the cost.
I know it would have been worth it for me. Starting out my investing career at 18 vs. 27 would have made a huge difference.
I wrote this post in response to some questions I’ve received about why I tell people to use robo-advisors. I know many will disagree. Feel free to share your thoughts. How’d you figure out how to start investing? What do you do with your friends and family members that are new to investing?
More Recommended Ebike/Scooters
Check out these other ebikes/scooters I've had the chance to do a review for:
- GEN3 Outcross Bike – The GEN3 Outcross is a solid, affordable fat tire ebike that does a good job of doing what I need it to do. It works great for city riding, giving me a smooth ride in all conditions. It’s works really well as a winter ebike since the fat tires give it good traction over snow and ice. Check out my GEN3 Outcross Review.
- Himiway Escape Bike – The Himiway Escape is an interesting bike for anyone looking for a moped-style ebike. If you’re a gig economy worker, the Himiway Escape is particularly interesting and it’s possible to think of it as an investment, especially if you can opt to do deliveries with the Himiway versus using a car. It’s not cheap, but you can definitely make your money back when you compare the mileage you’ll put on your car versus using an ebike. Check out my Himiway Escape Bike Review.
- Espin Sport Bike – The Espin Sport is a good ebike for someone who is looking for an ebike that feels and rides more like a regular bike. There are many ebikes that are really only bikes in name. In reality, they’re basically electric mopeds. The Espin Sport, by contrast, is a bike you could probably ride without the battery and you’d feel like you’re just riding a regular bike. Check out my Espin Sport Review.
- Varla Eagle One Scooter – The Varla Eagle One is an excellent scooter that can make sense for a lot of people. It can work as a primary mode of transportation. You can use it to work on gig economy apps like DoorDash, Uber Eats, and Grubhub. And it can also be a recreational vehicle if you’d prefer to use it for that. Check out my Varla Eagle One Review.
- Fucare H3 Scooter – The Fucare H3 is a fun scooter and I’ve enjoyed testing it out. For a daily commuter or quick trips or errands, the Fucare H3 is probably the scooter I’ll use. It’s portable and easy to maneuver, so it’s just easier to take on the road when I need it. Check out my Fucare H3 Scooter Review.
More Recommended Investing App Bonuses
For additional investing app bonuses, be sure to check out the ones below:
- M1 Finance ($10) – This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $10 for opening an account. Check out my M1 Finance Referral Bonus – Step-By-Step Guide.
- SoFi Invest ($25) – SoFi Invest is an easy brokerage account bonus that you can earn with just a few minutes of work. Use my SoFi Invest referral link, fund your SoFi Invest brokerage account with $100 and you’ll get $25 of free stock. I also have a step-by-step guide for the SoFi Invest referral bonus.
- Moomoo (5 free stocks) – Moomoo is a free investing app currently offering 5 free stocks (usually worth around $75-$100) if you open an account using a referral link and deposit $2,000. Read my Moomoo referral bonus guide for more information.
- Webull (5 free stocks) – Webull also gives you 5 free stock valued between $3-$3,000 each if you open an account using my referral link. Here’s a guide I wrote about how to earn your free stocks using Webull.
- Robinhood (1 free stock) – Robinhood gives you a free stock valued between $2.50-$225 if you open an account using my referral link.
- Public (1 free stock) - Public gives you a free stock valued between $3-$70 if you open an account using my referral link.
More Recommended Bank Account Bonuses
If you’re looking for more easy bank bonuses, check out the below options. These bonuses are all easy to earn and have no fees or minimum balance requirements to worry about.
- Chime ($100) - Chime is a free bank account that offers a referral bonus if you use a referral link and complete a direct deposit of $200 or more. In practice, any ACH transfer into this account triggers the bonus. This bonus is easy to earn and posts instantly, so you’ll know if you met the requirements as soon as you move money into the account. I wrote a step-by-step guide on how to earn your Chime referral bonus that I recommend you check out.
- Upgrade ($100) – Upgrade is a free checking account that’s currently offering a $100 referral bonus if you open an account and complete three debit card transactions. These bonus terms are easy to meet, so it’s well worth doing this bonus as soon as you can. Importantly, this bonus says that it’s now scheduled to end on October 31, 2022. As long as you get your account opened before October 31st, you should be eligible. Here’s a post I wrote with more details: Upgrade $100 Referral Bonus – Step By Step Directions.
- SoFi Money ($350) – SoFi Money is a free checking account from SoFi. They’re currently offering a $25 referral bonus if you open a SoFi account with a referral link and deposit $10. You can also make an additional $300 as well if you complete a direct deposit. This is a good bank that is also 100% free, so you won’t have to worry about managing this account. Here’s a post I wrote with instructions on how to earn your SoFi Money bonus: SoFi Money Referral Bonus: Step By Step Guide.
- Fifth Third Bank ($250) – This offer is limited to customers in the following states: Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, North Carolina, Ohio, Tennessee, West Virginia, and South Carolina. If you don’t live in one of those states, you won’t be able to open an account online but you can still open an account in-branch if you happen to be visiting a city that has a branch. This is a fairly easy bank bonus to earn, especially since there are plenty of data points showing what will trigger the direct deposit requirement. In addition, you can open the Fifth Third Momentum Checking bank account, which comes with no monthly fees or minimum balance requirements. Read my guide on this bonus here.
- Current ($50) – Current is a free fintech bank that’s offering new users a $50 referral bonus after signing up for an account using a referral link.Current is an easy bonus to earn and also gives you access to three savings accounts that pay you 4% interest on up to $2,000. That means you can put away up to $6,000 earning 4% interest. That’s very good and makes Current an account I recommend to everyone. Check out my step-by-step guide on how to earn your Current Bank bonus.
- OnJuno ($100) – OnJuno is a fintech/neobank that is currently offering a $100 referral bonus if you open an account using a referral link and complete a direct deposit of $250 or more. The account has no fees or minimum balance requirements. Even better, the bonus posts immediately after you meet the requirements. If you can meet the direct deposit requirements, OnJuno is an easy bank bonus that’s worth snagging. Check out my OnJuno referral bonus guide here.
- Varo ($50) – Varo is a free fintech banking app similar to Chime or Current. It’s currently offering a $50 bonus to new users that open a new Varo account with a referral link. The bonus for this bank is very easy to meet, all you need to do is spend $20 within 30 days of opening your Varo account. Check out my step-by-step guide to learn how to earn this bonus.
- Fairwinds Credit Union ($100) – Fairwinds Credit Union is offering a referral bonus for users that sign up using a referral link. Fairwinds has no fees or minimum balance, so this is a particularly easy bonus to earn. Since this is a smaller credit union, my gut instinct tells me this offer won’t be around long, so if you’re in a position to meet the bonus requirements, grab this bonus before it’s gone. Here is my step-by-step guide on how to earn your Fairwinds Credit Union bonus.
- Novo Bank ($40) - Novo bank is a free business checking account that’s currently offering a $40 bonus if you open a Novo business checking account using a referral link. In addition to being a good bank bonus, Novo is also a good business checking account. It has no monthly fees or minimum balance requirements and operates a good app and website. Indeed, it’s the business checking account I currently use for this blog. Check out my post on how to easily open a Novo account.
- Spiral ($50) – Spiral is a fintech bank that's currently offering new customers a $50 signup bonus after opening a free checking account with them. The Spiral referral bonus is especially good because it's a free checking account and doesn't require a direct deposit to earn the bonus. Here is my step-by-step guide on how to earn your Spiral Bank bonus.
- One Finance ($50) – One Finance is a fintech bank that’s currently offering a $50 signup bonus if you open an account using a One Finance referral link and have a direct deposit of $250 or more. This is a completely free bank account with no minimum balance requirement, so if you can meet the requirements, it’s worth doing. Check out my One Finance referral bonus guide here.
- Albert ($150) – If you can manage to do a real direct deposit, Albert is an easy account you can use to earn a referral bonus. Here’s a review about Albert I wrote. And here’s a step-by-step guide on how to earn your Albert referral bonus.
- Netspend ($20 + 5% Interest Savings Account) – Netspend is a company that provides 5% interest savings accounts. If you sign up using my referral link, you’ll get a $20 signup bonus once you make your first deposit into your Netspend account of $40 or more. That means you get a 5% interest savings account and a free $20 to start! Make sure to check out my in-depth guide on how to set up these accounts.
Kevin is an attorney and the blogger behind Financial Panther, a blog about personal finance, travel hacking, and side hustling using the gig economy. He paid off $87,000 worth of student loans in just 2.5 years by choosing not to live like a big shot lawyer.
Kevin is passionate about earning money using the gig economy and you can see all the ways he makes extra income every month in his side hustle reports.
Kevin is also big on using the latest fintech apps to improve his finances. Some of Kevin's favorite fintech apps include:
- SoFi Money. A really good checking account with absolutely no fees. You'll get a $25 referral bonus if you open a SoFi Money account with a referral link, and an additional $300 if you complete a direct deposit.
- Upgrade Bank. Upgrade is a free checking account that’s currently offering a $100 referral bonus if you open an account and complete three debit card transactions. These bonus terms are easy to meet, so it’s well worth doing this bonus as soon as you can. Note that it’s now scheduled to end on October 31, 2022.
- Novo Bank. Novo bank is a free business checking account that’s currently offering a $40 bonus if you open a Novo business checking account using a referral link. It’s the business checking account I currently use for this blog.
- M1 Finance. This is a great robo-advisor that has no fees and allows you to create a customized portfolio based on your risk tolerance. You also get $10 for opening an account.
- Personal Capital. One of best free apps you can use to monitor your portfolio and track your net worth. This is one of the apps I use to track my financial accounts.
Feel free to send Kevin a message here.
Why do you feel robo advisors are better than low price target date funds?
To me, it comes down to that last pain point – the part where you have to choose to invest the money. I like robos because they take away that last step – you put the money into the account and then its automatically invested for you correctly. If I go and tell mybrother to open an account at Vanguard and invest in a Target Date Fund, he will literally have no idea what that means. I’d have to sit with him and click the buttons for him. But if I tell him to go open an account at Wealthfront and put money into it, he do that.
Ultimately, it’s a value judgment. Target Date funds cost more than doing the same thing yourself. But we make the value judgment that its worth it because it makes it easier. In my mind, I’ve made the value judgment that robos are worth it just because of how they make investing really feel like just putting money into a bank account.
I would love to see a simple calculation/estimation of how investing even a little bit per month over those 9/10 years would have added up.
Well, I think during that period, returns were an average of about 5% since there was that big crash in the middle. $2,000 a year would have been very easy for me to do, even as a student. So it’d be about $23k today at that rate. That’s double what I have in my Roth IRA now, with pretty minimal saving.
The thing is, I suspect that if I had started investing back then, I’d probably have been motivated to try to max things once I saw the money going in there. So I bet it would have been more.
My first investments, aside from a company-sponsored 401(k), was an IRA with Vanguard. I think I had the money in a total market fund for a while. I didn’t really know what I was doing but had read some books that gave me more understanding that some people just coming out of college.
I’m fairly neutral on the subject of robo advisors. I don’t want to pay the fees myself, plus I like having control to make my own decisions. But I think they’re a good option for some people.
You are way ahead of most people. If you had told me back then to invest in a total market fund, I wouldn’t have known what that even meant. Robos aren’t for everyone – I just know they would have been a big service for me back in the day.
One of the many things that deter young people from saving is lack of know-how. The fact that they don’t know where to start means that they end up with regrets later since they failed to start saving early.