Category: Personal Finance Software

MarketRiders Review: The Best Financial Mangement Software Provides Affordable Financial Management Services

Updated for 2014

MarketRiders is an online personal financial management service that utilizes ETFs to create a risk-adjusted, individualized portfolio for their clients. The company’s proprietary software guides users in asset allocation, dividing their portfolio into various classes according to their age and toleration of risk. Use MarketRiders if you want to automate your investing, but don’t mind making the trades on your own. Sign up for MarketRiders by clicking here.

MarketRiders helps over 12,000 people manage over $4 billion in assets and has been in this game since 2007, making them one of the very earliest adopters of technology and the Internet as a means to help ordinary people manage money like professionals. You don’t need a trust fund to get great advice on how to manage your money. All you need is MarketRiders.

The company touts a few differentiators: their proprietary software for portfolio allocations, their low fees, and their independence from brokers.

Superior Software for the Best Investing Methodology

Marketriders has developed proprietary software based on the best investment advice available. The software focuses on diversifying assets over at least six different asset classes, which lowers the risk profile of the investment portfolio. They do not attempt to pick individual stocks because that raises the overall risk. Their software helps you to identify your personal risk profile by looking at ” your age, investment experience, risk tolerance and years until you need the money.” Using these factors, a recommended portfolio is created.

Once the portfolio is created, you head to your broker and make the trades. More sophisticated investors can make changes to their portfolio and customize it according to their personal preferences or requirements. Just another way that MarketRiders helps you to do-it-yourself.

ETF Focus

The proprietary software will next recommend a group of ETFs for investment. They primarily utilize ETFs from Vanguard and iShares. Vanguard is the leader in low cost investing. They are the industry standard for low fees. iShares has developed a portfolio of outstanding ETFs. Marketriders has sorted through over 900 ETFs and selected the best 20 for their clients.

Unbiased Financial Advice

Marketriders is not a broker or dealer hawking a particular stock or Mutual Fund. They are a portfolio management company assisting clients with guidance and direction for their investments. Because Marketriders is not affiliated with a particular fund, they can focus on improving and developing their proprietary software, and it’s good software. The company will provide investment advice and asset management advice that is based on the best methodology instead of the latest hot fund or investment manager.

Their investment methodology is based on Modern Portfolio Theory (“MPT”). As noted previously, it is an asset allocation methodology that eschews attempts to time the market and focuses instead on keeping target allocations inside predefined ranges based on the amount of risk tolerable to an individual investor. MPT is based on ideas created by some of the brightest finance minds. People like Vanguard founder John Bogle and legendary professors like David Swensen of Yale, Burton Malkiel of Princeton, and Dr. William Sharpe of Stanford.

Cost of Service

MarketRiders relies on ETFs to keep investment fees low. The savings generated by relying ETFs instead of Mutual Funds is significant. Their website summary on the savings generated is excellent. This quote encapsulates the potential savings,

“For example, take a $100,000 portfolio. Using the long-term average growth of a stock and bond portfolio of 8% a year, compounding your gains over 20 years, and deducting the 2% in fees and taxes, you’d have $304,946. But if your fees and taxes were 0.2% instead of 2%, you would have $446,906 – a difference of $141,960 or 47%! Throw a financial adviser’s fees on top of the mutual fund expenses, and you can see how much money you are losing to the Wall Street machine.”

Further savings are generated if you use a broker that offers commission-free trades on certain ETFs and index funds. These commission-free trades are available at Schwab, Fidelity, TD Ameritrade, Firstrade, Scottrade, and Vanguard. MarketRiders will build your portfolio using the commission-free funds if you use one of those brokers, however you will need to execute all trades on your own.

You can see that their methodology will produce significant savings because they eliminate the traditional cost structure imposed by Wall Street. Normally, you would pay a financial advisor, who would help you invest in mutual funds, and then have trading fees and taxes to scrape additional money away from you. With MarketRiders, you will eliminate the financial advisor fee, the Mutual Fund fees, and potentially, the broker fees. In the end you are left with small trading fees and he fee for using their software, which is $14.95 monthly or $149.95 annually.

There is no minimum required investment outlined in the terms of service, however, per an email conversation with a company representative, MarketRiders recommends a $25,000 if you are getting most of your trades for free. If you are paying for each trade, the Company recommends a $50,000 minimum investment. They will provide estimates of costs in the final stage of your portfolio build, allowing you to see your personal cost for using their methodology and services along with your outside broker.

In summary, MarketRiders offers premium financial advice for 80% of the cost. Their proprietary software lets you invest using the same methodology as top endowment funds without the expensive advisor fees, brokerage fees, and management fees. This is one of the very best personal finance software options available to the ordinary investor. It levels the playing field for the middle class giving them the same financial advice that endowment funds and very wealthy investors receive. Leveraging the power of ETFs lowers the costs and gives access to entire markets for a fraction of the cost.

It’s easy to recommend MarketRiders for online financial management services, but this is not a “set it and forget” style. While they will remind you to rebalance, it is not automatically done on your behalf so diligence and discipline is still required on your part. You should use MarketRiders if you need help identifying the right portfolio mix and then rebalancing, but are still interested in executing the trades and maintaining some of the do-it-yourself aspects of portfolio management. I’d pair MarketRiders with SigFig. MarketRiders suggests the trades and SigFig aggregates your portfolio so that you can see its status.  I especially recommend Marketriders to people with an account at Schwab, Fidelity, TD Ameritrade, Firstrade, Scottrade, or Vanguard because this can significantly lower the cost of investing.

MarketRiders also offers a free 30-day trial to new subscribers so you can take a look at their service before diving all the way in.

MarketRiders has produced a great video that demonstrates their portfolio management software. They note their core values of asset allocation, low cost ETFs, worry-free rebalancing, world class investment strategy, and unbiased advice.

Here’s what the press is saying about MarketRiders:

Tara Siegal Bernard at the NYTimes:

I like MarketRiders because it jibes with my investment philosophy, and reminds me exactly what I need to do and when: “Buy 10 shares of this, sell five shares of that.” And it costs me little more than my Netflix subscription.

 

MarketRiders.com

Covestor Review: Active Investment Management

Covestor Review

Covestor finds a portfolio manager suited to your investment philosophy and automatically follows the trades of that manager on your behalf. You can tailor the service to suit your investment needs. At its heart, Covestor is a company that pairs you up with active investment managers based upon how much you can afford to invest, your risk tolerance, and specific asset classes.

Maybe you are a very safe investor. Your money is in a low fee index fund and has been nicely allocated across a broad range of investments. Perhaps you’re using MarketRiders and faithfully reallocating your money every quarter when you get an email from them. Maybe you have been working with an advisor from Personal Capital who is helping you safely put your money into a diverse portfolio. But there’s a small part of you that thinks someone out there is smarter than the market and you’d like a piece of the action. If you have a little bit of money to put at risk and you haven’t found a Motif that you like, Covestor could be the place to put your money.

At Covestor, you get to follow the trades of active investment managers who have been screened by the company. These managers have various investment philosophies and portfolios. Covestor allows you to automatically make the same trades as these managers. It feels like GuruFocus without the Gurus.

Let’s look at the company’s investment philosophy as per their site:

Our investment philosophy
We believe you deserve a better way to invest:

1. Asset management should start with the individual needs of the investor. As investors’ needs are as varied as investors themselves, no single approach – or computer algorithm – satisfies everyone’s requirements.

HB Comments: This is true. I agree. We are all in different situations that require different allocations of money and liquidity. Identifying a good advisor is helpful, but Covestor seems rather impersonal. This statement advocates a personal touch, but Covestor is really using software to narrow down potential advisors who you won’t actually meet. Instead you will see if you agree with their philosophy and then have Covestor mirror their trades. If you want more personalized service but want a lower cost then you should consider Personal Capital.

2. Active portfolio management, including periodic rebalancing, plays an important role in risk management, which can significantly enhance investor performance over an entire market cycle.
HB Comment: In my book, rebalancing is not “active portfolio management.” It is a method to ensure that you get the maximum return based on your risk tolerance. Market changes cause your portfolio to become misaligned from your optimal risk profile. Therefore, it is imperative to rebalance. That’s not active portfolio management though.

3. Passive index funds, including index ETFs, enable individual investors to gain broadly diversified exposure to entire asset classes at very low cost. Most investors should use passive indexing strategies for their core equities and fixed income allocations and should consider active approaches to round out a strategy, in line with their investment goals.
HB Comment: Excellent. Totally agree. Here are a few places to find passive investment opportunities at a low price.

4. A financial adviser can help individuals make the right decisions for themselves, including selecting portfolio managers who can help them reach their financial goals.
HB Comment: What I get from this is that Covestor considers itself to be a financial adviser. That’s reasonable. They are trying to match you up with good investment opportunities for a fee.

5. Investors deserve fully transparent accounts, clear performance and risk reporting, understandable language, and no hidden fees. Securities should be held in investors’ own brokerage account as, after all, it is their money (we believe in separating advisery from custody services).
HB Comment: I like this a lot. The transparency provided by Covestor is far and away the best thing about the site. You get the full history of the active money managers along with straightforward information about minimum investment requirements and fees. I also like that they allow you to mirror an investment manager without actually giving the manager all of the money. This gets to the heart of their service and is their greatest strength.

6. Many investors have a viewpoint on economic trends at the macro or sector levels that they wish to express through their holdings. Active management via a portfolio manager who shares their particular viewpoints and convictions allows for such directed investing.
HB Comment: Right. It’s active management. You must hope that this person knows something that you don’t know and that the market hasn’t figured out yet.

7. Emerging fund managers with fewer assets under management tend to outperform their peers at larger, older funds, due to the greater opportunity set available to the emerging manager. We therefore seek to identify talented emerging managers and to offer our clients unprecedented access to their strategies.
HB Comment: This is where they differ from GuruFocus. Covestor is looking more at finding emerging talents. You might find a Guru before they become a Guru. I read this and thought, “Meh.”

8. Not all great portfolio managers work on Wall Street. The internet allows us to source, vet and grant access to compelling investment strategies from portfolio managers across the globe, including those with extraordinary domain expertise and local market intelligence.
HB Comment: So maybe you can find someone in India who will give you better information on India than Goldman Sachs. Plus, if you could afford Goldman Sachs, you probably wouldn’t be on this site reading about Covestor!

9. The recent, broad rush into index investing products creates additional opportunity for talented active managers to find market inefficiencies.
HB Comment: It also creates opportunities for those managers to fail.

10. Regular commentary from portfolio managers provides clients valuable insight and transparency on their portfolio status and changes.
HB Comment: No argument there. You want to hear frequently from your portfolio manager and understand their philosophy and where they are going.

I think if I were going to use Covestor, I would probably try to find someone who uses a Black Swan investment methodology to hedge against the catastrophic risks. I’d remember that this is probably not for all of my portfolio and I’d keep most of my money in the good old fashioned index funds.

Have you tried Covestor? I’d love to hear what you think.