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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Serie: Little Books. Big Profits
- Sprache: Englisch
"This gem of a book should be required reading for everyone seeking to enhance their financial security." -Burton G. Malkiel, author of A Random Walk Down Wall Street (50th anniversary edition, 2023) Explore easy, automated, and low-cost ways to invest using online platforms In The Little Book of Robo Investing: How to Make Money While You Sleep, a pair of long-time investors and founding team members at the pioneering and award-winning online investment platform Wealthfront deliver a fun, invaluable, and simple roadmap to making your money make money. You'll learn how to start investing with the easy, automated, and low-cost strategies that robo investment advisors have made super accessible to everyday people. You don't need a ton of detailed knowledge about the financial and investment sectors to make impressive returns. The authors walk you through how to use techniques like automation, diversification and indexing to manage your risk and keep things absurdly simple. You'll also learn: * The most common mistakes that new investors make when they're just getting started in the markets and how to avoid them * Strategies for getting the ball rolling and investing your first dollar * Valuable insights from behavioral economics and psychology to help you steer clear of major investing errors that even experienced and knowledgeable investors tend to make Perfect for working professionals, members of young and growing families, and people beginning to think about their retirement plans, The Little Book of Robo Investing is a straightforward, engaging, and fun read that will get you ready to put your money to work intelligently and responsibly.
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Seitenzahl: 282
Veröffentlichungsjahr: 2024
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Table of Contents
Cover
Table of Contents
Title Page
Copyright
Dedication
Foreword
Acknowledgments
Introduction
Our Qualifications
How the Book Works
Section One: The Science, Business, and Art of Robo Investing
Chapter One: Make Investing Work for You
Knowing How to Use a Robo Platform Is a Superpower
What Is Investing Today?
What Is an Index Fund?
The Key Concept of Asset Classes
You Can Use Index Funds to Invest in Many Different Kinds of Asset Classes
So Here Is Our Practical Definition of Robo Investing
Stock-Picking Is Boring and Painful When You're Not Making Money
Shortcut to Robo Investing
Final Note
Key Takeaways in This Chapter
Notes
Chapter Two: A Brief History of Indexing and Robo Investing
Public Stock Trading
The Index Revolution
What to Do about Conflicts of Interest?
Part Two of the Index Revolution
Robo Investment Platforms versus Online Brokerages
Key Takeaways in This Chapter
Notes
Chapter Three: The Philosophy of Robo Investment Advice: Avoid the Gimmicks, Embrace the Science
The Long-Term Regimen
Giving Up the Illusion of Control Is Hard
The Robo Investment Platform Formula
Invest for the Long Term: Make Time Your Ally
Investing Is the Only Way to Beat Inflation
Sorry, Timing the Market Doesn't Work, Either
Relax and Do Less
Key Takeaways in This Chapter
Notes
Section Two: What the Platforms Do
Chapter Four: Diversify and De-risk Investments
Diversification in Action
How Scary Are Bear Markets?
Asset Allocation Takes Diversification to the Next Level
The Most Disciplined Rebalancers
Let the Rebalancing Happen—Don't Time the Market
The Problem with Timing the Market
Key Takeaways in This Chapter
Note
Chapter Five: Increase Your Return over Time with Lower Fees
How to Think about Fees
Robo Platforms Are Low Cost
How Much of a Difference Does the Lower Fee Make?
The Other Big Fee: Fund Fees
Hidden Fees in Finance
Does Expensive Mean Better? No. Cheap Means Good in Investing!
Cheap Means Good but Free Is Suspect
Key Takeaways in This Chapter
Chapter Six: Lower Tax Bills
Leaving Your Money in the Market Is a Good Tax Strategy
Tax-Deferred Accounts
Investing in General Is a Good Tax Strategy
Avoid the Temptation to Cash Out
Minimize Taxes as the Wealthy Do
How Tax-Loss Harvesting Works on Robo Platforms
How Robo Platforms Help You at Tax-Filing Time
We Know This Is Really Tedious
Key Takeaways in This Chapter
Notes
Chapter Seven: Technology Brings It Home
Features That Make Investing Easy
What the Wealthy Know
Key Takeaways in This Chapter
Section Three: How to Use a Robo Platform
Chapter Eight: Be Self-Aware about Money
Overspending When You're Young
Holding On to the House
Paying for College Instead of Your Retirement
Keeping a Job You Hate—Forever
Mind Traps That Hurt Investors
Key Takeaways in This Chapter
Chapter Nine: Investing Is Dating for the Long Term
The Novelty Trap
Low-to-Medium Novelty
High on Conscientiousness
Low on Neuroticism
Stay the Course
Key Takeaways in This Chapter
Chapter Ten: Budgeting and Wealth Building
Live Below Your Means
Emergency Fund
Robo Investment Platforms Are Great Places to Save for Retirement
How to Establish Your Retirement Age and Your Financial Goals
Saving for Medium-Term Goals: High-Yield Savings, Roth IRAs, or Bond Accounts
Fun Goals
Key Takeaways in This Chapter
Notes
Chapter Eleven: Understand Risk and Pick the Right Risk Tolerance
How Robo Investment Platforms Assess Your Risk Tolerance
How to Work with Robo Investment Platforms
The Cost of Money
Identify Your Values
There Are All Kinds of Risks
Key Takeaways in This Chapter
Notes
Chapter Twelve: Live for the Present, Invest for the Future
The Key Is Balance
If You Have the Wherewithal to Be a Frugal Millionaire, Go for It
Develop a Healthy Respect for the Power of Time
Keeping It Real
Control What You Can Control
Key Takeaways in This Chapter
Section Four: Where You Begin
Chapter Thirteen: Is a Robo Investment Platform Right for You?
Two Categories of Investors Who Shouldn't Be on a Robo Investment Platform
You Can't See What You Don't Know
Key Takeaways in This Chapter
Notes
Chapter Fourteen: Find the Right Platform
Comparing Robo Investment Platforms
Robo Investment Platforms
Values to Keep in Mind
Stock Trading or Custom Allocations
ESG (Environmental, Social, and Governance)
The Math on Fees
Hidden Fees
Features of Robo Investment Platforms
Relative Returns: How to Check Up on Your Approach
Key Takeaways in This Chapter
Notes
Chapter Fifteen: Now I've Finished the Book and So What?
Explanations of Investing
Key Takeaways in This Chapter
References
Introduction
Chapter One: Make Investing Work for You
Chapter Two: A Brief History of Indexing and Robo Investing
Chapter Three: The Philosophy of Robo Investment Advice: Avoid the Gimmicks, Embrace the Science
Chapter Four: Diversify and De-risk Investments
Chapter Five: Increase Your Return over Time with Lower Fees
Chapter Six: Lower Tax Bills
Chapter Seven: Technology Brings It Home
Chapter Eight: Be Self-Aware about Money
Chapter Nine: Investing Is Dating for the Long Term
Chapter Ten: Budgeting and Wealth Building
Chapter Eleven: Understand Risk and Pick the Right Risk Tolerance
Chapter Twelve: Live for the Present, Invest for the Future
Chapter Thirteen: Is a Robo Investment Platform Right for You?
Chapter Fourteen: Find the Right Platform
Chapter Fifteen: Now I've Finished the Book and So What?
About the Authors
End User License Agreement
Guide
Cover
Table of Contents
Title Page
Copyright
Dedication
Foreword
Acknowledgments
Introduction
Begin Reading
References
About the Authors
End User License Agreement
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Little Book Series
In the Little Book series, the brightest icons in the financial world write on topics that range from tried-and-true investment strategies to tomorrow's new trends. Each book offers a unique perspective on investing, allowing the reader to pick and choose from the very best in investment advice today.
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The Little Book of Sideways Markets
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The Little Book of Big Profits from Small Stocks
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The Little Book of Currency Trading
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The Little Book of Bull's Eye Investing
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The Little Book of Emerging Markets
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The Little Book of Behavioral Investing
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The Little Book of Hedge Funds
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The Little Book of Bull Moves
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The Little Book of Alternative Investments
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The Little Book of Bulletproof Investing
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The Little Book of Picking Top Stocks
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THE LITTLE BOOK OF ROBO INVESTING
How to Make Money While You Sleep
ELIZABETH MACBRIDE
QIAN LIU
Copyright © 2024 by Elizabeth MacBride and Qian Liu. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4470, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permission.
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Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Further, readers should be aware that websites listed in this work may have changed or disappeared between when this work was written and when it is read. Neither the publisher nor authors shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.
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Library of Congress Cataloging-in-Publication Data
Names: MacBride, Elizabeth, author.
Title: The little book of robo investing : how to make money while you sleep/Elizabeth Macbride, Qian Liu.
Description: Hoboken, New Jersey : Wiley, [2024] | Includes index.
Identifiers: LCCN 2023046413 (print) | LCCN 2023046414 (ebook) | ISBN 9781394225224 (hardback) | ISBN 9781394225248 (adobe pdf) | ISBN 9781394225231 (epub)
Subjects: LCSH: Financial services industry—Technological innovations. | Financial engineering.
Classification: LCC HG173 .M223 2024 (print) | LCC HG173 (ebook) | DDC 332.10285—dc23/eng/20231103
LC record available at https://lccn.loc.gov/2023046413
LC ebook record available at https://lccn.loc.gov/2023046414
Cover Design: Paul McCarthy
Qian
To my parents, who raised me to be an independent, optimistic, and resilient woman. To my elder sister, who recognized my potential and encouraged me to reach for the sky.
Elizabeth
To all the strong women in my family. There are too many to name of past and present generations. Among them are Nancy, Helen, Laurie, Wendy, Kate, Abby and Katie, and most especially, my mom, Carol, and my daughters, Lillie and Quinn.
Foreword
By Andy Rachleff
I MUST ADMIT I HATE the term “Robo advisor.” It was conceived the first year Wealthfront offered our automated investment service, by a financial advisor who probably felt threatened by the negative impact we could have on his business. I believe he chose the term “robo” to convey something impersonal and perhaps even as annoying as marketing “robocalls.”
Our clients didn't care what we were labeled in the media. They loved our service and our low fee.
Still, the knock against Robo advisors as impersonal always struck me as odd. The goal of investment management should be to maximize your return after fees and taxes have been deducted. Over the past 60 years quite a bit of research has been done to show that the only thing that matters when optimizing a portfolio for you is your tolerance for risk. An optimized portfolio gives you the best chance of a high return at a level of risk you can tolerate. As Elizabeth and Qian explain in this book, risk and return are a matched pair, a yin and yang that you can't separate. The first and only job of an advisor is to create and maintain an optimized portfolio that works for you. Everything else an advisor does can actually detract from your returns.
So I agreed with the many financial advisors who took to Twitter in the early days of Robo advising to make the point that Robo advisors won't be there to hold a widow's hand at her husband's funeral. Is that really what you pay a financial advisor for? As the book explains, you could be paying extraordinarily excessive fees to have someone hold your hand, and it gets even worse when you include subpar performance for focusing on the wrong issues. Most clients of traditional investment advisors don't even realize how much they're paying.
The other term associated with automated investing I hate is “algorithms.” Oxford defines algorithm as “a process or set of rules to be followed in calculations or other problem-solving operations, especially by a computer.” Many common definitions of Robo advising (perhaps also put about by traditional advisors) lead you to believe Robo advisors use scary algorithms that could go awry at any moment, which could lead to your portfolio taking a big loss. Many technology companies attribute their “secret sauce” to proprietary algorithms. However, there is nothing proprietary or mysterious about the algorithms Wealthfront or its competitors use. All we do is automate (meaning implement in software) the best practices of the financial advisor industry. The best practices are based on research published in the late 1950s that earned the Nobel Prize in Economics in 1990. This is perhaps the biggest reason I prefer the term “automated investing.”
Over the years, Wealthfront tried to get the press and analysts to adopt “automated investing” instead of Robo advising but to no avail. They found the term Robo advising “fun” and more importantly, controversial. As a result, I have reluctantly accepted that the modifer “robo” is here to stay … and that this book had to be called Little Book of Robo Investing.
The book does a superb job of explaining why following some simple rules, based on many years of academic research can lead to far superior performance than you might expect from a traditional financial advisor. These rules can be implemented (with a lot of difficulty) manually, but the fee you pay a Robo advisor to implement them is generally covered many times over by the tax savings they are able to provide.
I never intended to found what became the largest independent Robo advisor (as of summer 2023). It happened quite by accident. After working for 21 years in the venture capital industry, including cofounding Benchmark Capital in 1995, I decided to retire in 2005. I wanted to use my retirement as an opportunity to give back for all the incredible opportunities afforded to me. I joined the faculty of my graduate school alma mater, Stanford Graduate School of Business, to teach courses on tech entrepreneurship and joined the board of trustees of my undergraduate alma mater, the University of Pennsylvania. My wife, Debbie, and I also partnered with the Damon Runyon Research Foundation to create an innovative cancer research funding initiative.
One of my trustee responsibilities was being involved with Penn's endowment investment committee, which I enjoyed. The Ivy League endowments are among the best managed diversified pools of capital in the world, and Penn's was no exception. The idea for Wealthfront came to me during a presentation by the endowment investment team on how they manage their portfolio. Coming from the world of tech entrepreneurship, I was struck by how much of their manual work could be codified into software. If someone could do that, I realized, they could make endowment-style investing accessible to everyone.
This hit a nerve, because over my many years as a venture capitalist, I was often asked for investment advice by people I recruited to my portfolio companies. I could never advise them to do what I do, because I'm in the very fortunate position of being able to afford the high minimum account sizes associated with the best investment products and services. This always struck me as wrong. Everybody needs access to high-quality investment services because it's so hard to save for a house or to retire without them.
As a seasoned venture capitalist, I knew successful companies were usually started by highly authentic entrepreneurs who took advantage of inflection points in technology to build products that served new audiences desperate for the product. Brokerage firms had recently made application programming interfaces (APIs) available. APIs enabled a fully automated investment management solution that could be combined with software to replicate most of how the Ivy League endowments invested. That, in turn, seemed like it could democratize access to the world's most sophisticated investing. I had no desire to be an entrepreneur, but I felt like I needed to pursue it for the social good.
I naively thought I would get the company going and then recruit a much more capable CEO with relevant experience within a year. Unfortunately, it took us three and a half years until we worked out all the kinks and launched our Robo advisor in December 2011, so I had to stay on as CEO much longer than I would have liked. We were not the first Robo advisor in the market, but we were the first one that offered our service at a fraction of what traditional advisors charged, so we were the first company in our space to take off and define the new category of Automated Investing (er … Robo advising). I'm proud to say that as of the completion of this book, we now have more than $50 billion under management and are still growing rapidly.
I was very excited when Elizabeth and Qian approached me to tell me about the book they were writing about Robo advising. The combination of their backgrounds makes them the ideal pair to write a book on the subject. Elizabeth is an international business journalist who served as Wealthfront's initial content editor. She played a huge role in defining the language that helped investors understand what a Robo advisor does and why it might make sense to use our service. One of our earliest engineers, Qian wrote the original code for several of the most important features of automated investing, including tax-loss harvesting. Tax-loss harvesting is arguably the greatest value of a Robo advisor, available to everyday investors for the first time. Elizabeth and Qian's deep knowledge and chemistry make this book an invaluable read if you care about growing your wealth.
They do a great job covering all the questions you might have before considering investing with a Robo advisor. First and foremost, they address the many misconceptions individual investors have around investing. You might be surprised to learn that nothing about good investing feels right, which is why so few people do it well. Once you understand the misconceptions, you'll understand how a Robo advisor can help you make money.
If you like to understand how something works before you buy it, you're in luck. Elizabeth and Qian explain in very simple language how Robo advisors deliver superior outcomes and how you can properly use them. They even provide the tools necessary to choose the right Robo advisor for you.
Before this book, determining which Robo advisor was appropriate for you was challenging. Many websites, blogs, and podcasts purport to help you solve this problem. But they can't be objective if they want to attract the advertisers they need to meet their financial goals. There is no right answer for everyone, but Elizabeth and Qian have made it easy to figure out which Robo advisor is right for you.
On a personal note, the friendships, professional connections, and even some marriages made over the years among Wealthfront employees mean a lot to me. It took outstanding groups of people years of hard work to make sophisticated, automated investment advice available to everyone. We built a company and launched a Robo advisor movement. The end of a book foreword is a rare moment in writing: an end, a beginning, and a handoff, all at once. Have fun reading this Little Book, as I did. You're in good hands: Elizabeth and Qian will show you how a Robo advisor builds an optimized portfolio for you so you can make money in your sleep.
Acknowledgments
THANKS TO OUR TEACHERS, reviewers, readers, and supporters, who are too many to list. Here are a few:
John Cummings, Marjorie Conner, Charley Ellis, Maggie Jing, Tao Jing, Christina Ku, Ying Liu, Burton Malkiel, Zara Stone, Jeff Rosenberger, Wei Wang, Athena Williams, and Janice and Omar.
Introduction
BACK IN 2011, ELIZABETH was feeling decidedly disillusioned with traditional Wall Street firms. As an editor for a business newspaper in New York City, she had covered the 2008–09 financial crisis. Everyday investors, including Elizabeth, had taken hits on their retirement savings while big companies got bailouts. On a trip to California, she met Andy Rachleff at a backyard party for investment advisors, where he was gathering intel for the company he was launching.
He leaned awkwardly across a makeshift tiki bar to look her in the eyes—he's six feet three, and she's a full foot shorter. He explained himself and his idea in a voice so loud someone could have heard it across the Grand Canyon. People in Silicon Valley used to say, “No one says no to Andy Rachleff.” He eventually persuaded Elizabeth to join Wealthfront, which in true lean start-up mode was operating out of a former dry cleaner's storefront in the center of Palo Alto. Andy was already a successful investor, but his big idea was to help regular people—anybody, in fact—invest well. He was putting together a team from outside the world of traditional finance, people who could think about the problems that investors faced with fresh eyes.
The company had many of the right pieces in place. Unlike brokerage firms, Wealthfront was registered as an investment advisor, for one thing. All online and offline registered financial advisors have a legal obligation to do what's in their clients’ best interest, not theirs. The executive team was accomplished: Andy had cofounded one of the most successful investment companies of all time, a venture firm called Benchmark Capital. And as a trustee he helped oversee the endowment of the University of Pennsylvania. Eventually, famous economist and Princeton University Professor Burt Malkiel—a longtime advocate for individual investors—joined to design investment strategies. And so did a woman named Qian Liu, who was just coming out of the University of Pennsylvania and already building a reputation as one of the smartest people in financial technology, or fintech. Qian did groundbreaking technical work to build Wealthfront (and to invent the category of online investment advice), while Elizabeth established the language and narrative that helped launch the robo investment movement.
Wealthfront, as you probably know, took off, thanks to the whole team.
In 2023, Bill Falloon, a top editor at Wiley, asked Elizabeth about writing a robo investing book. Elizabeth in turn asked Qian to join the effort.
Both of us have known financial vulnerability. Elizabeth is a single mom with two kids, who worked her way through the University of Maryland with the help of scholarships and support from her family. Qian is an immigrant. In 2003, she arrived in the United States from China with a PhD scholarship to the University of Pennsylvania and $1,000 cash in her pocket, to rent a room in UPenn's graduate student dorm building. Qian's PhD advisor—then the department chair of the UPenn's computer science department and now an executive at Google—recommended her to Andy. At Wealthfront, she studied and passed the test to become a chartered financial analyst.
In other words, neither of us was an expert investor, and both of us, over time, learned how to use a robo investment platform with ease.. The two of us have stayed friends over the years. Qian and Elizabeth's kids have competed head-to-head in Taboo! Qian learned from them and almost won. Qian also learned how to outsmart dating apps' algorithms to actually meet decent people and shared that knowledge with Elizabeth. (If you make it to Chapter 9, you'll learn the secret and also how investing and dating are similar.)
Our Qualifications
Our own knowledge of investing comes from years of working in the finance and technology industries, helping everyday investors understand the market, economy, and technology.
In the years after Wealthfront, Qian went on to work for GoFundMe, an online social fundraising platform, and then as chief data officer for Guideline, an online investment platform that manages small business 401(k) plans. She's one of the hidden figures of the movement over the last 15 years to bring high-quality financial services to everyday investors.
After the Great Recession, Elizabeth traveled all over the world as a business journalist, writing about entrepreneurship in the Middle East, international trade, and always keeping an interest in personal finance and investing. She worked with the United Nations, Georgetown University, and Massachusetts Institute of Technology on projects to make the economic systems in the United States and abroad more fair for everyone. In 2021, she coauthored a book about how and why to invest in Main Street businesses, The New Builders.
We want to particularly express our appreciation for Burt Malkiel's A Random Walk Down Wall Street, Charley Ellis's Winning the Loser's Game, and David Swensen's Unconventional Success. In previous decades, these men were some of the first to advocate for a research-based approach to investing, one that puts the needs of everyday investors, not wealthy people, at heart. We love those books and are honored to have worked with Burt and Charley and to distill some of their wisdom into this Little Book.
The winter before Bill asked Elizabeth about writing the Little Book of Robo Investing, Qian and Elizabeth were in Costa Rica on a girls' trip: Qian was learning to surf. Elizabeth went on a yoga retreat. One lesson to be a successful investor is balance. And one gift of financial security is time: when you feel that you're set up for the long term, you can relax and splurge a little bit on the short term. Together, we wrote this book to teach you how to invest well, using a robo platform. By “invest well,” we mean that you'll feel secure and confident about making enough money for your future so that you can relax and enjoy life more. Most investors spend way too much time and money trying to beat the market. Our approach is different: figure out how much money you need, and then invest as safely as possible to reach your goals. Robo investing was invented to help you do just that.
Let's put some numbers on our results on the platform. Since 2014, when she started using a robo investment platform, Elizabeth has almost doubled her retirement investment, earning a 90% return while taking a middling level of risk. Eventually, she started a taxable account because she knew the platform would help keep her taxes low; it has saved her about $1,100 in taxes in three years (from tax-loss harvesting, a feature introduced and popularized by Wealthfront, which will be explained at length in Chapter 6). Her cash, meanwhile, is returning 4.85% per year in the summer of 2023. These are good rates of return, and we'll tell you more about how the platform helped achieve them in the following chapters.
Qian started a Roth IRA and a taxable account at Wealthfront in December 2011 while developing the very first version of the company's investment software, as part of the “eating your own dog food” product development practice in the technology industry. She earned a higher return than Elizabeth did because she took more risk: so far the cumulative return in the two accounts are 120% and 140%, with estimated tax saving of about $5,200. Qian also used the company's line of credit feature, a button click triggering an instant cash transfer, and borrowed $10,000 at a low interest rate to pay an unexpected bill in early 2022, without having to sell her investments. She repaid the loan about 40 days later with $40 interest.
These are features pioneered by Wealthfront, which today is a thriving large company. Wealthfront was the first company to take off, but after we broke the ground, many other companies joined the industry. As of 2022 more than 7 million people use online investment advisors, or robo advisors or robo investing platforms (we use the terms interchangeably).1 Like many good ideas, most of these features have spread across the industry. If you join the millions of investors using online services, these features will be available easily to you, too.
