Robo Advisors are all the rage. Launched over the past several years, several have grown to over one billion in assets under management. Wealthfront manages $2 billion, Betterment and Personal Capital about $1.5 billion. While still small compared to the goliaths of the industry (
Most of these automated investment services, however, have a significant shortcoming. They can’t help with a 401k workplace retirement account. Employers, not employees, decide who manages a 401k, and this often leaves robo advisors out of the picture.
There are, however, some tools and resources that can help an investor with a 401k account. These options range from fully automated to self-education. Here are four worth considering.
Blooom (yes, 3 o's)
Blooom is the only robo advisor specifically aimed at the 401k market. For just $15 a month, you can connect Blooom to most 401k accounts. The service analysis your portfolio and makes investment recommendations. Importantly, it knows (or you can cell it) what mutual funds are available in your 401k. It offers a very easy to understand assessment of your investments. And if you use the service to manage your 401k, it will invest your monthly contributions and rebalance your portfolio as needed.
There is one significant drawback to Blooom. It doesn’t handle IRA or taxable accounts. As a result, it evaluates your 401k investments assuming that you have no other investments. If you are like many, however, you have multiple accounts and allocation your investments across all of them. As a result, evaluating your 401k in isolation from your other investments may not be helpful.
As an example, Blooom complains that I have too much invested in bonds (note the wilting flower to depict my poor asset allocation):
While my 401k has two-thirds invested in bonds (because it offers a Vanguard bond index fund), my overall allocation across all my accounts is about 25% bonds. For those with a majority of their investments in a 401k, however, Blooom may prove to be a useful resource.
Future Advisor
Future Advisor can also manage some 401k accounts, but it accomplishes this in a much different way. Future Advisor, like most robo advisors, manages IRA and taxable accounts. Unlike Betterment and Wealth Front, however, you don’t transfer your assets to Future Advisor. Instead, your investments are held at either Fidelity or TD Ameritrade. They have two ways to assist with 401k retirement plans.
First, investors can connect their retirement and non-retirement accounts and get free investment advice. Future Advisor evaluates all your investments and recommends changes based on its investment philosophy (Modern Portfolio Theory). You are then free to implement its advice yourself in your 401k.
I've reviewed Future Advisor's investment advice here based on using the service. One aspect I like is that its recommendations are specific to you investments. It literally provides a list of your investments along with how much Future Advisor recommends exchanging into other investments. You can lock an investment you don't want to sell, and Future Advisor will recalibrate its recommendations.
Second, Future Advisor can actually manage your 401k if it is administered by Fidelity and you have access to Fidelity’s BrokerageLink service. BrokerageLink gives Future Advisor the ability to trade in your account, which in turn enables the firm to manage a 401k.
My tool of choice for evaluating mutual funds is
Another tool that is often overlooked is Morningstar’s portfolio service. When you sign up for a free account you can track your portfolio in Morningstar’s Portfolio Manager. While you must manually enter your investments (there is also an import feature), the data you get back is exceptional. You can customize your portfolio view to include the data most important to you. For example, I typically track the equity style box, P/E ratio, P/B ratio, PEG ratio, expense ratio, and dividend yield. You can also see this data by fund or for your entire portfolio.
Three Books
There are many excellent books that can help an investor with their 401k. Here are three of my top choices:
The Bogleheads' Guide to Retirement Planning: Particularly for those just starting to invest, this book is a must read. The Bogleheads are named after Vanguard's founder, John Bogle. They preach a low cost, passive investing approach popularized by Vanguard. The book provides an excellent overview of retirement saving in general and investing for retirement.
All About Asset Allocation: To dive deeper into asset allocation and investing, Ric Ferri's book is an excellent source. It's the kind of book that produces one aha moment after another. Finish the book and you'll know everything you need to know to implement a solid investment plan.
Unconventional Success: The third book is the most technical on the list. Written by David Swenson, who manages Yale's endowment, Unconventional Success offers an excellent explanation of Modern Portfolio Theory. Swenson offers his take on a sold portfolio, with recommendations on specific asset classes and mutual funds.
