It’s a slippery task to try painting an entire generation with one brush stroke. Millennials — those 80 million or so folks born after 1980 — are no exception … particularly when it comes to money and investing.
Still, plenty of people have been quick to call this group lazy, entitled or narcissistic. Refreshingly, Beth Pinsker of Reuters suggests offers a more nuanced and optimistic take: that a hefty chunk of the generation is enjoying great financial success.
Pinsker points out that, unlike prior generations, millennials are less interested in the familiar trappings of wealth, like cars, boats, mansions and other outward signs of conspicuous consumption.
Another big shift: Many aren’t hung up on traditional forms of retirement planning — like a 401k or IRA plan. Instead they’re moving to do-it-yourself brokerage accounts and online wealth management firms.
InvestorPlace‘s resident millennial and young investor Alyssa Oursler, for example, signed up for a simple online brokerage account (on top of enrolling of taking the old-school path and enrolling in the company’s 401k program). Piece of cake. The brokerage account has a small minimum investment requirement, and no upfront fees. It’s very much do-it-yourself.
Something you hear about less often, though, is the latter option: Online wealth management firms — like Wealthfront. Wealthfront is an SEC-registered, software-based financial advisor and services provider. The pitch: a fully diversified, risk-based personalized account for either taxable or non-taxable portfolios.
The website looks slick and … well … young. The homepage, for example, shows a like of up-and-coming folks that use the service, including the HR director of IBM (IBM), the senior product manager of LinkedIn (LNKD), the director of marketing developing for Facebook (FB) and a senior management of Salesforce.com (CRM).
What’s different from the usual online brokerage model? A few critical items:
- The minimum investment is $5,000.
- There are no management fees for the first $10,000 of investment — something that could be especially appealing to those just starting out.
- Amounts over $10,000 are charged a 0.25% annual fee.
- Your money is invested strictly in exchange-traded funds.
- Wealthfront tailors your portfolio investments based on a risk profile determined through a questionnairre.
While the focus on ETFs is intriguing, it’s that last bullet point that really got me, and the main puzzle piece that really sets this option apart from a financial advisor, simple online brokerage or an investment in a target-date fund.
See, Wealthfront’s questionnaire consists of six subjective questions to determine risk, and four to make sure the investor will have enough money saved at retirement to afford his or her desired retirement “lifestyle.” The answers — and your profile — set the parameters for investment among a variety of ETF classes, based around everything from U.S. stocks to emerging market stocks to real estate.
Of course, it remains to be seen whether or not online wealth-management tools are indeed the wave of the future. The questionnaire may not be hands-on enough for many just starting out millennials to get a full grasp of the markets.
Then again, as Tim McCabe, the head of Stadion Money Management, mentioned recently, countless folks simply don’t have the time of desire to really dive head first into the financial world. In that case, a simplified approach may help them stay the course.
Either way, it’s important for investors to — at a minimum — read and understand the detail about any service, fees, portfolio management style and so on before making an investment.
Still, after taking a first glance at Wealthfront, I think it’s worth the time for any wannabe investors to do that digging. Active investment management and advice are both important parts of investing, and this new-age option may be one great way to get both.
Marc Bastow is an Assistant Editor at InvestorPlace.com.
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