How should a young professional look to invest his savings?
I'm 25 years old. I have no outstanding debt. I have a healthy emergency fund, I'm maxing out my employer's 403(b) contributions, and I make about $95K/year.
In addition to my emergency fund, I have around $35K sitting in my savings account making 1%. I want to invest this money in order to see it grow a little more. How do you recommend doing this? I don't envision needing any of this money for at least 5 years.
I've researched different kinds of advisors, and it appears that I either don't meet the account minimum, or there are large upfront costs.
I'm not particularly investment savvy, so I will need some help choosing the right investments. Is there something a little more hands-on than a robo-advisor, but less cost-prohibitive than a CFP?
Robos are too cookie-cutter and not personalized enough, and CFPs are too expensive. So what do you do if you don't want to self-direct and risk making expensive mistakes?
Due to your starting point, most brokers are going to want to sell you a product that pays a fat commission to make it worth their time. You can get around this by asking if they owe ALL CLIENTS a fiduciary duty at ALL TIMES. With a product sale, you aren't going to get any planning help, which is where the most value is for you right now. That means you can't go to any of the big name Wall Street banks and "wirehouses." What's left?
Some Registered Investment Advisors ( https://www.investopedia.com/terms/r/ria.asp ) have custom plans for millennials. I can't speak for everyone, but since my firm offers this sort of arrangement, I can at least tell you how it usually goes. You pay a flat quarterly retainer fee based on your Net Worth. In exchange for that, the firm manages your assets (including your 403b) and gives you basic financial planning advice, (eg., how to invest, what type of account, what to put in the 403b versus another savings vehicle.) As your life gets more complicated, you'll need more help, and you'll need to revisit your arrangement.
I like the Net Worth retainer-fee pricing for someone like you because it means you can really get charged for what you actually need, and the offering can grow with you. Don't expect to pay the same rate at 40 that you pay at 25, but you'll also need a lot more help at 40. Makes sense, right? It also incentivizes the planner to give you comprehensive life advice rather than making it all about investments. The entire offering is distance-based. So it includes software you'll need, and meeting are conducted via webinar or phone. So that drives down the cost of offering the service for the advisor.
Economically speaking, you are a poor short-term investment for an advisor, but you are an excellent long-term investment. So, younger advisors are probably more likely to be willing to work with you now because they want a client for the next 60 years! You are a future multi-millionaire if you do this right. Kudos to you for already thinking about the big picture!
Hope this helps!
First of all, great job placing priority on your financial future! There are tons of options when it comes to investing and working with an advisor.
If you are an individual that does not like to handle your own investment decisions, there are firms that are dedicated to helping young professionals, like yourself, plan for a successful financial future. I would look for a fee-only firm that understands your unique needs and ideals as a Millennial, one that does not require any minimums, and one that puts an emphasis on financial planning.
This day and age it is becoming more common to work with a financial professional, remotely, utilizing technology to connect from anywhere in the world. This may be a value-add for a young professional that enjoys travelling frequently or one that is not tied down to any one location or city. Starting a relationship with an advisor that can work with you from anywhere will allow for a continuous relationship no matter the changes in your life.
I am a member of the XY Planning Network, which is committed to serving the needs of the next generation of investors, and you can find a professional to work with by clicking here. The advisors on the network are all fiduciaries, putting your best interests first, and do not sell any products or earn any commisions, thus, avoiding any conflicts of interest.
I hope this has been helpful! Keep it up and you may end up on FIRE, financially independent retiring early!
Congratulations on taking the responsible path to achieving your financial goals. I will divide your question in two.
First, the investment part, you can consider opening a Roth IRA. In there you can invest up to $5,500 of earned income annually. The remainder, you can put in a personal brokerage account. it's important to have a diversified portfolio with investments in different asset classes such as large-cap, mid-cap, small-cap, and international stocks, some fixed income, and gold.
The second part, the advisor fees. Advisor's fee structure can be a little complicated sometimes. Some advisors charge financial planning fees, others charges a percentage of assets under management, a third group uses the retainers model, a fourth group uses the commission model and then, of course, there are some advisors who use the hybrid model. Some of the established advisors can have higher minimums anywhere from $250k to $1m and above. However, there are younger advisors who will be willing to work with you. Many of them frequently post in this forum.
Congrats on doing so many things right at such a young age!
The next thing I would do is to max out a ROTH IRA since your income level is currently below the ROTH income threshold of $118,000 for filing as a single. Regarding the actual investments of your ROTH and taxable money, I would start with a basket of equity, fixed and "other" mutual funds. Only you can figure out what your risk tolerance is, but given the info you provided, it seems like you have a more aggressive risk tolerance which should be able tolerate a large allocation to equities.
I would divide up the portfolio into equities, fixed income and "other".
For equities, I would probably do something like 70% US, 20% Europe & Japan and 10% emerging markets. In the US, I would allocate at least half to large caps and use index funds.
For fixed, I would keep it simple and use a total return fund like MetWest, Guggenheim and Doubleline.
The "other" category is where I would buy a REIT fund, an inflation protection fund like TIPS or commodities along with a few funds that are very, very actively managed. Morningstar can help you with the various fund selection.
I agree with you that you probably are best off with something more than just a robo but less than a CFP.
Check out the XY planning network for a list of fee-only advisors that focus on your demographic. I'm a member too and am happy to chat. However, there may be someone in your area if you'd rather have someone close by.