If you’re a friend of mine and you don’t have a retirement account setup yet, I want you to open one today. Yes today. Right now. Hopefully you have $5,500 sitting in a savings account or CD earning you nothing right now. Why $5,500? Because that’s the maximum you can contribute to a ROTH IRA which is the retirement account you want to open (if you earn less than $183,000, which I’m pretty sure you do).
I’m going to help you put that money to work for you by opening an investment account with WiseBanyan. There are tons of investing brokerages, but I’m going to highlight one of the easiest places to open an investing account today. You’re going to open it, answer some questions, send your savings there, and let it sit for a year. If you’re not happy with it after a year, you can take it back it and put it back where you have you now. But I’m confident you’ll be so happy with the result after a year, you’ll not only keep your money there but you’ll add more to it.
Before you get started, you’ll want to make sure you’re ready to invest. Lucky for you, I wrote an article titled, What to know before you DIY invest.
Step 1 – Skip the Line
WiseBanyan is currently stemming the tide of new investments so that they can handle growth at a steady pace. Normally, if somebody signs up, you have to invite 5 people before you’re allowed to actually open an account. Lucky for you, I’m a founding member, developed a good relationship and got a special link that allows you to skip the line. Please don’t use this link lightly. Click the image below when you’re ready.
Step 2 – Answer the Questions
WiseBanyan will ask you a series of questions like your age, your income, and some questions designed to estimate your risk tolerance. Don’t worry. There are no wrong answers. It’s all reversible at the end. Here are some screenshots to relieve your worries:
Obviously you can go through the questions and just answer whatever you feel to be true for you at the moment. Don’t worry about making the wrong choices. There is no failing in this questionnaire. You can manually adjust your ‘risk score’ at the end of the questionnaire and at anytime after you invest. All decisions are reversible.
There are hints in the screenshots to give you an idea of how the answer will affect your ‘risk score’. Just answer the questions until it gives you your ‘risk score’. Then come back here to understand what this score means so you can adjust to something you might like a little better.
There are a couple questions similar to this about what would you do if your investment lost or gained 10%. Basically, if you would sell, it means you’re risk averse and should have a lower risk score to invest in more stable investments with likely lower rates of return. But if you would buy more or hold, then you’re not scared of volatility when means you’ll feel okay investing in riskier investments that could offer a higher return (aka a higher risk score for you).
Below is the most important part. This is your recommended risk score showing you the portfolio asset allocation for that score.
Pause when you see this screen and read the information below.
Understanding your Risk Score and Asset Allocation
This is the golden part of WiseBanyan and other robo-advisors. You can diversify and invest in a fantastically balanced portfolio amazingly easily. This is why you should invest your money here – because you’re too lazy to pick a diversified, balanced portfolio with low fees that will maximize your return and minimize your risk. And you’re smart enough not to over pay some advisor to hold your hand and do it for you. Let me explain a little so you can feel like you’re investing in the best way specific for you.
Rule of thumb: if you’re younger than 40 and don’t plan to use this money until you’re 55 or later (more than 15 years later), I would recommend selecting a higher ‘risk score’ because that extra time will allow you to weather the increased risk (and volatility) while most likely earning yourself higher returns. But if you’re getting closer to retirement, or you plan to use this money in less than 10 years (ie. as a down payment on a house), then you’ll want a lower ‘risk score’ to invest in more stable (less volatile) investments like bonds.
Stocks = higher risk and higher return
Bonds = lower risk and lower return
Naturally, you should invest a little more in stocks compared to bonds if you want to earn more money though with a little more risk. And if you’re worried about losing your money, don’t – invest more in bonds and you’re money is much safer, though you’ll earn a bit less over the long term (but that’s okay, because you really don’t want to lose any).
If you know the asset allocation you prefer, you can simply adjust the risk score to match that allocation. If you want 60% stocks and 40% bonds, just slide the score until it shows that breakdown. The highest risk score is 10 and that sets the allocation to 91% stocks and 9% bonds. (That’s where I have it set for my portfolio – I’m 31 and don’t plan to use this money for at least 15 years.)
Shawn’s Advice (higher returns with a little more risk)
The old rule of thumb is to hold your age in bonds. That means if you’re 30 to hold 30% of your portfolio in bonds and 70% in stocks. This rule has been modified in recent years as people are living longer. You need to invest a little more aggressively to meet the needs of a longer retirement. The new rule is your age minus 20 in bonds. So a 30 year old would invest 10% in bonds and 90% in stocks. I subscribe to this modern rule of thumb. I’m also young, healthy, not afraid of risk and hope to retire earlier than average.
Investing for Retirement (Age – 20 in bonds)
|55 (retire at 70)||65%||35%|
Investing for Retirement (Age in bonds)
|55 (retire at 70)||45%||55%|
Consider your specific situation and adjust accordingly. The most important thing is that you save, invest, and diversify. WiseBanyan is allowing you to do this easily (and for free).
Step 3 – Fund the account
Time to commit. Link the bank account you wish to transfer to and from WiseBanyan. It can be your savings account where you’re holding your money now, but I’d recommend connecting your main checking account. Transfer your savings to your checking and then that money to WiseBanyan from your main checking account. This way you can transfer in and out to your main account.
You can choose to do a one-time deposit (like me) or set up an auto-deposit weekly, monthly, or quarterly. If you can handle auto-deposit, studies have shown it’s the best way to ensure you’ll have money in your retirement. But if not, send what you have and within 4-5 days, your money will automatically be divided up and invested in a properly diversified portfolio like a real investing pro. And all you did was answer a few questions and click a few buttons.
Ready? Go to WiseBanyan now and sign up for an account.
If you have any questions or comments, leave them below.