I like the general idea -- many company's 401k options range from slightly sub-optimal to terrible, and helping people make the best of whatever choices they face can be very useful.
On the UI/UX side, the look and feel is very slick, but I'd like to see some deeper tutorial type explanations for things like beta and risk profiles rather than short "help" style definitions.
More fundamentally, it is hard to garner a real understanding of the sites' investment philosophy. That's something I'd really want to know before I send a friend or relative to this sort of website.
For example, although it is clear that the site favors active portfolio management, beyond just re-balancing, what is its take on active versus passively managed underlying funds? Is past performance being used as a predictor of future performance? What is the weight given to fees? What about internal leverage? And so on.
Thanks, Bradley. Tutorial explanation comment is noted - we have some ideas on that front.
There are a few themes that we're playing on with regards to the advice, and we'll try to express them more clearly on the site as we move forward. These are:
1) Most of the investment options available to participants are really a mix of a number of market sectors...for example, Vanguard Wellington (http://www.kivalia.com/assets/vwelx/vanguard-wellington-inv). The name tells me nothing, but if one evaluates it, it looks like the mix of assets shown at the bottom right of the page referenced above...a mix of stocks and bonds. So we do a good job of mapping what various investments look like.
2) Getting the overall allocation right is the most important aspect of investing...and explains maybe 80% or more of one's overall returns. How much do I want in large cap growth, small cap value, international, etc.? That's incredibly hard for an individual to do when you have a bunch of vaguely named funds. Of course it's much easier to do when one has a list of sector-based index funds to work with.
3) Philosophically we're indifferent between active and passive funds...they're each just combinations of asset classes with a fee tacked on. What's most important to us is the exposure to various sectors a particular fund provides you, after fees.
4) Yes, our algorithms take into account each fund's respective management fees; so all else being equal we'd be biased towards the lower cost (better performing) alternative.
5) Past performance is definitively NOT a predictor of future performance. We simply show results for transparency sake in an effort to allow users to see whether or not we're adding value to the process.
6) We do build in "tilts" to our advice based on expected returns over a substantially long time horizon. These tilts are intended to bias portfolios towards sectors that look more attractive at any point in time, and away from sectors that are less attractive in our view. That said, it is a simple process to tighten down our algorithms to force the recommendations to a more benchmark-y look and performance.
Even beyond price, it is hard to know exactly what you are getting. A fund may be in the large cap value segment generally, but what if the fund manager hates financials or loves energy? Or even worse what if he hates financials this year, but loved them last year? Trying to diversify properly with such idiosyncratic building blocks seems a frustrating excise.
Re: overall allocation
I noticed that you have three model portfolios based on risk tolerance (conservative, moderate, aggressive) and you measure them versus target date funds as a benchmark. Are those different models intended to account for personal risk tolerance as well as time to retirement?
re: managed funds
or what you're getting in a particular fund. Our style maps for each fund (shown in the bottom right of any fund detail screen) break down how a fund is behaving relative to the overall market, showing % weights in 30 different sectors. Sectors at present are only as granular as small cap growth, emerging markets, international value, etc. but it's a start. We'll make it more granular over time.
Re: Allocations
The models will not adjust (ie. decrease beta) like target date funds over time. The various models are meant for personal risk tolerance more than time to retirement.
Yea, my biggest problem with my employer 401k is that I can't just invest in a Vanguard low fee fund, but I have to use their 401k management to get my matching funds.
I once had an employer who gave away .5% of my 401k every year to a no value add consultant who selected the overpriced funds. I lost 1% every year I didn't roll into an IRA, but it beat having the principal taxed @ 25%.
I wonder where the inflection point is where you are better off investing after tax.
Annoying, isn't it? Every time Frontline or one of the major networks runs a scare story about how much money people are losing due to high fee 401k plans, I get angry. Not so much at the lost money, but that the 'in-depth journalism' never seems to bother with any suggestions on what to do if you're in one of those crummy plans. (To be fair, I guess "quit and go to work for Google or Goldman" wouldn't go over well, either...)
This of it another way. If you put in the least amount possible to max the matching (often 50% of first 6%) and put it into a money market or stable value fund then the "return" (the matching) will exceed the market returns you'd get on any index fund.
That seems like a complete conflict of interest. Do you mean that they require you to have your account managed, for a fee, in order to get matching funds?
No, we just have to choose from a list of funds that are in our Fidelity account. I just pick the one with the lowest fees, but they aren't quite as good as a Vanguard fund.
Well, that's exactly what Kivalia does; helps you decide which funds to own at any point in time - and how to combine them. Of course you have to create the list at Kivalia, but then you're good to go - immediately and quarter after quarter.
Low fees are clearly better than higher fees, but you probably won't be able to build a very diversified portfolio based on selecting investments based solely on fees. For example,international investments will always be more expensive than domestic, small caps will be pricier than large, etc.
If you're selecting lowest fee fund within specific classes, that will probably serve you relatively well...of course then you need to weight the fund classes. How do you handle that decision?
On the UI/UX side, the look and feel is very slick, but I'd like to see some deeper tutorial type explanations for things like beta and risk profiles rather than short "help" style definitions.
More fundamentally, it is hard to garner a real understanding of the sites' investment philosophy. That's something I'd really want to know before I send a friend or relative to this sort of website.
For example, although it is clear that the site favors active portfolio management, beyond just re-balancing, what is its take on active versus passively managed underlying funds? Is past performance being used as a predictor of future performance? What is the weight given to fees? What about internal leverage? And so on.