Robots and Money

I am a person who thinks a lot about what I should be doing with my money (i.e. how much of it should be going into retirement, or to help my parents, or to all the fun things I want to do), but I don’t think much about it when it comes to investing it beyond a retirement account (i.e. opening and managing a brokerage account). I’ve still got student loans I’m paying off, and the general rule is that you should take care of your debt before you even think about investing (unless you’re Miles Teller?).

At Fusion, Felix Salmon goes into a long discussion about whether any of us should be using “financial robo-advisors” run by companies like Betterment, Wealthfront, and Charles Schwab — the latter of which recently managed to raise half a billion dollars for Intelligent Portfolios, its robo-advisor arm. Robo-advisors manage portfolios using automated software, and as Salmon explains, “they’re much cheaper than traditional financial advisors, and they custom-build an efficient portfolio for you based on your very own personal risk profile.”

Do you care about any of this? That was the thought I had while reading this (“none of this really matters to me”), and Felix Salmon does the smart thing on a website geared towards millennials and reminds them that if they’re not already coming from a position of wealth, none of this should matter to them either:

A good general rule for young people is: invest your money only if there’s nowhere more pressing to deploy it. Do you have credit card debt? Then use your money to pay off your credit cards, don’t try to invest it. Do you have student loans carrying an interest rate of more than about 5%? Then use your money to pay off your student loans, don’t try to invest it. Do you have any other debt at all, besides a first mortgage, like a car loan? Then, again, pay down your debts before starting to invest. Once you’ve done all that, your next task is to start building up an emergency fund in a savings account.

Once you’ve paid off all your debts, gotten yourself a cushy emergency fund with about six months’ worth of expenditures in it, and accumulated several thousand dollars in cash over and above the emergency fund — then you can start thinking about robo-advisors. If you’re the kind of person who’s happy entrusting your cash to a website, rather than an individual, then doing so is likely to get you higher returns for lower fees. But only take that step if you’re OK with seeing the value of your investments go down rather than up, and if you don’t plan on using that money any time soon.

This is just really solid advice. Salmon reminds us that most of us don’t get rich by investing — we do it by inheriting wealth or working for it. When it comes to our money, robots are far down the list of things we are worrying about.

Photo: JD Hancock

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