If you are just tuning in, I am investing $500 into three different ways to see which one grows. You might have some money and want to grow your wealth, but don’t know how. For Millennials and those new to investing, it can be overwhelming. Convenience is king, and with robo advisors new to the scene, I will be testing out their investment strategy versus another low cost way, with index funds.
I will be setting up an account with Vanguard to invest in their S&P500 index fund. I will have $500 with Betterment, a robo advisor as well as with Wealthfront, one of their competitors.
I chose general savings since we don’t have a specific goal in mind for this money other than building wealth.
Here, my guess would be that they are looking to get some additional information from their investors. I chose not to have someone completely manage my investments, because I still like to be involved in where I am putting my money. Although convenience would be nice, as of right now, I want to be completely in charge.
Now, why would a financial engine care? Well based on your age, they will determine your investment horizon or basically, how long will you keep your money in the stock market.
If say you wanted a house in the next year or so, they would be adjusting your allocation to have more liquidity (or easier access to your money).
Seems weird to ask about maximizing gains (duh) but if you are focused on minimizing your losses, there are tax implications that could offset your income.
Here they are doing a risk assessment. If the market does something, how panicked will you get about your money? The key here is if the market is volatile, it means the stocks are “on sale”. The more likely you are to keep your money in the stock market, the higher chances of your returns.
So based on my answers, here is where I end up.
Some people want to take advantage of tax-loss harvesting (a way to lower your taxes based on the loss you might incur from investing in the stock market). With Wealthfront, it turns out that you have to have $50,000 or more to get this benefit.
Here, if we did not put anymore money into the account, you could see over 20 years, that we could be able to build our wealth to $1,488. Doesn’t seem like a lot, but without ever having to touch it again, is not too shabby.
Let’s say you contributed $25 a month to your account. Over the course of 20 years, your account would grow to $12,411. For $300 a year for 20 years, you would only be putting in $6,000 total. With the $6,000 you would contribute overtime and the initial $500, you would only be putting in $6,500 and getting $12,000 back!
Let’s say you contribute a tad bit more and put in, $50 a month. You can see your outlook is $23,333 compared to the $12,411 you would be earning if you contributed just $25 more. That’s like 3 drinks a weekend at the bar.
So maybe you are really aggressive and want to grow your money. You can contribute $200 a month – great job! Over a 20-year outlook, your money would grow to $88,868. If you contributed $200 a month for 20 years, you would have deposited $2,400 a year or $48,000 across the 20 years. You are basically doubling your money!
Now to do an auto-contribute with Wealthfront, we found that you had to deposit $100 a month. To keep the test fair, I opted to not invest any more at this point.
Here is the overview of where and how my $500 will be invested. Now, the goal will be not to touch it and just to monitor it.
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