Interview With Bo Lu, CEO Of FutureAdvisor On Startup Life, Online Wealth Management, And More

Bo Lu, FutureAdvisorsIt’s been a while since I last interviewed a CEO of a San Francisco-based tech startup so I’m pleased to share an interview I did with Bo Lu, the CEO of FutureAdvisor. FutureAdvisor is an algorithmic money manager as opposed to Personal Capital, which employs human financial advisors to help clients manage their money. The target clientele is quite different due to the services offered, the asset management threshold, and the corresponding pricing.

I was introduced to Bo through Sam Yount who used to work at Personal Capital as the VP of Marketing and now works at FutureAdvisor in the same capacity. Sam was the one who brought me in to Personal Capital’s Redwood City headquarters to speak to Bill Harris, CEO of Personal Capital and Jim Del Favero, CPO back in the summer of 2013 for an hour and a half. Now I’m fulfilling one of my bucket lists of working at a startup part-time thanks to Sam’s intro. You can read more about my interview with Bill here.

The one thing I can say about the San Francisco startup world is that it’s a pretty tight community. Everybody eventually knows everybody, which is why you never want to burn any bridges. There’s a “brothers in arms” type of feeling among competitors given everyone appreciates we’re all trying to create something meaningful. Most of us fail at creating a sustainable product or never get amazingly wealthy, which is why humility is a good ongoing trait to have.

I invited Bo over to play tennis and chat about business in between games. I’m fascinated by the entrepreneur’s story and I hope you’ll find this interview insightful. Bo shares his thoughts about the future of the online wealth management business, immigrating to America, why he decided to leave his job at Microsoft, the Y Combinator experience, and more. 

The Best Time To Buy Property Is When You Can Afford It

Historical Nominal Home Prices

Now that I’m back in the property hunt, I realize more than ever that the best time to buy property is when you can afford it. Perhaps my belief is not as true for cities that are dying from the inside. But for those people who want to buy property because their incomes are growing, a baby or two are on the way, or they simple no longer want to be price takers in an ever rising rental market, buying property when you can afford to buy is most likely a good choice.

It’s important to realize that if you rent, you are short the property market. Every time rents and property prices go up, you’re losing. If property and rental prices go down, you’re winning. Over the long run, shorting the property market doesn’t make sense because property prices having been going up since the beginning of property ownership in our country.

Shorting the property market is like shorting population growth or inflation. Bad move if you want to build wealth. I encourage readers to be at least NEUTRAL property. And the easiest way to be neutral property is to own your primary residence. Your asset will rise and fall with the market, and your payments will remain fixed or go down in real dollar terms over time.

When Saving Money Is No Longer Worth Your Time But You Do It Anyway

Cash MoneyAfter drinking a couple beers with a buddy a couple months ago, I dragged myself across the street to get a flu shot at Walgreens. Supposedly this season was one of the worst, and I had no desire to get swine flu. I hate needles. The insertion isn’t what bothers me. What irks me is the uncomfortable feeling of liquid getting pushed into my veins as the injector tries to hold the needle still. I don’t know how heroine users do it!

I actually didn’t feel a thing this time around because I was a little tipsy. Perhaps you too should give needle injecting a go after a couple drinks (see doctor for professional medical advice). When I went to pay the bill the pharmacist said, “That’ll be $34.95.

Over the past 11 years I don’t recall ever paying for a flu shot. The first nine years was because my old firm was awesome enough to bring a pharmacist in to our office and inject us all for free. And the last two years my insurance provider paid in full. But this pharmacist was adamant that Cigna, my insurance company, wouldn’t pay for the particular strain I was about to get. Odd.

Normally I would have told the pharmacist to hold up so I could give my insurance company a call and ask them what’s up. But this time, I just couldn’t be bothered with this picayune amount. “OK, no problemo! Charge away.” I didn’t want to have to spend 30 minutes on the phone for the chance of sending in my receipt to get reimbursed $35. Maybe if I was absolutely bored out of my mind with a lot of time to kill I’d go through the entire discovery process, but I just didn’t have the patience.

How Much Do I Have To Make As An Entrepreneur To Replace My Day Job Income?

Entrepreneur Cash OnlyEntrepreneurship is great due to the high correlation between effort and success. If you want autonomy and believe you have what it takes to create income out of thin air, go for it! There’s nobody to blame for your failures, just like there’s nobody to reward but you for your victories.

Anybody who incessantly complains about their job should just give entrepreneurship a go – they will probably never complain again. A day job is a walk in the park compared to entrepreneurship because of the necessity to wear many different hats e.g. accountant, operations, marketing, sales, producer.

What I’d like to do in this post is provide a rough estimate of how much you have to make as an entrepreneur in order to make equivalent money as a worker bee. Hopefully this post will give you a better idea before taking a leap of faith. After all, you don’t want to quit your job and die alone do you? There’s no honey when you got no money.

Pay Down Debt Or Leverage Up To Buy More Property?

Palace Of Fine Arts, San FranciscoI’ve been dreading this day for the past five years. First Republic Bank sent me a letter in the mail stating that one of my 5-year CDs is coming due and that I have a seven day grace period to withdraw my funds before they renew for another 5-year term. I would be fine with renewing except for the fact that the renewal interest rate is only 2.2% vs. the 4.2% I’ve been receiving. I’m not locking my money up five years for a lousy 2.2% a year, no way.

The post “CD Investment Alternatives: Why I’m No Longer Investing In CDs” provides a longer explanation of why buying a CD now is suboptimal. But curiously enough, it doesn’t highlight the one investment that I’ve been gravitating towards since I received the letter from the bank: real estate.

Real estate is my favorite asset class, even though I’ve discussed selling my rental properties in the past due to the headache of dealing with tenant issues. I just love being able to live in my investment, do things to improve the value of my investment, and wake up 10 years later with a high probability of holding an appreciated asset with a lower mortgage. The tax benefits aren’t bad either.

A deep dive assessment of all my assets shows that real estate has provided the highest return on capital invested with the least amount of stress. I have a tendency to speculate in stocks in order to find that multi-bagger return that has eluded me since 2000. Many of my speculative bets have turned sour and I don’t want the temptation to speculate with larger amounts of money. The last thing I want to do is use my risk-free money to invest in stocks. I absolutely hate losing money and I’ve already got 25% of my net worth in the stock market. (See: Net Worth Allocation Recommendation By Age)

Earnings Beyond The Wallet: How Do You Measure Success In Life If Money Isn’t Your Thing?

Colleen Kong-SavageHow do you measure success when money is not your forté? Numbers overwhelm me. My fourth grader cruises about YouTube looking for videos on binary code, pi, and the fourth dimension. He does this for FUN at age nine, gets excited, and tries to share his newfound knowledge. When he speaks, I hear, “Ooglety bogfogf ones fndi zeroes ovoeicwi xmy diameter. Do you know what a hexadecimal system is?” No idea. For the life of me I cannot remember his height or weight. I only know that I cannot carry him anymore and that when he hugs me standing up, my chin is in his hair.

Like a lot of artists, I’m a little short on financial savvy. As a new divorcee I am all too aware that as a person without a job, I am completely dependent on the alimony my ex-husband provides. The situation is humbling—on dark days, humiliating. After nine unsuccessful months of applying for graphic design jobs, I shifted to plan B to find work as an illustrator. I figure if I’m going to spin my wheels, I may as well spin them in the direction I want to go. The clock is ticking as I struggle to establish a business before the spousal support ends.

In March I complete my first year of being an officially middle-aged person. Because I spend enough time flailing about in uncertainty, I am dedicating this post to the idea of Success. I asked friends, “How do you measure success in your life?” The most common response boiled down to “Happiness.” My friends are largely artists like myself—visual artists, dancers, musicians, film-makers. Those of us who haven’t been ground down by the pragmatics of earning a living, are still clawing our way towards professional recognition. Most artists aren’t rich, but life feels rich. While I feel shaky these days, I marvel that I am exactly who I want to be. How is that?

At What Income Level Does The Marriage Penalty Tax Kick In?

Marriage Penalty Tax In HawaiiOne of the most disappointing things about the government is their institution of the marriage penalty tax. The government is smart to laud the act of marriage in order to collect more taxes. When you’re in love, what’s an extra $1,000 or $10,000 a year in taxes you’ve got to pay? Love is blind and the government tries to take full advantage of you.

Lucky for us, we are not blind. We don’t mindlessly follow everything our politicians have to say. We question why the government suddenly allowed Roth IRA conversions during the height of the financial crisis. We think for ourselves, and that’s why the lot of us are going to be much better off than the rest.

This post will present examples of various fictitious couples with various income levels and deductions to give you an idea of how much extra you must pay the government in order to get married. All data comes from this marriage penalty tax calculator by the Tax Policy Center.

I encourage you to input your own numbers and see what happens after this post as well. Remember, please take your anger out on the government, not on me. I’m just the investigator trying to shine a bright light on this ludicrous situation. Just the fact that I had to spend loads of time figuring out various income permutations to see when the marriage penalty tax kicks in is maddening. 

How To Easily Analyze Your Investment Portfolio For Concentration Risk, Sector Exposure, And Style

Investment Checkup Of Your PortfolioThe first quarter of 2014 is in the books and it’s important to rebalance your portfolio at least twice a year because your positions can change quite drastically as a percentage of your portfolio over time. If you really care about your finances, rebalancing once a quarter is probably even better. Whether you actually make some adjustments to your investment portfolio is a different matter. You might find you’re happy just the way things are based on your risk profile and leave well enough alone.

Just the fact that you’re staying on top of your investments 2-4X a year by checking your position sizes, reading your fund’s quarterly statements, and monitoring your general risk exposure is better than most people. Even if you employ a financial adviser to watch over your money, you should check in to see that your money is allocated properly. One person I knew thought she had 70% of her portfolio in the S&P 500 in 2013. When she finally opened up her year end financial statement she realized she was actually 70% in cash and 30% in bonds the entire time!

So is there an easy way to give your investment portfolio an investment checkup? I’m pleased to say there is.

One of the neat things about working at Personal Capital is getting firsthand updates of all the newest features by the people who create them. Jim Del Favero, Chief Product Officer showed me what he and his team have been up to this year with the rollout of the latest free Investment Checkup features. Here’s a quick tutorial to help you manage your investments better.

The new Investment Checkup features do the following:

1) Analyzes stock concentration: You can now easily see what your largest holdings are and if you have too much of any one position which might threaten your portfolio’s risk profile. Sometimes your winners can really grow in size quickly if you aren’t constantly paying attention. Conversely, many people start ignoring their portfolios when some of their picks do horribly.

2) Analyzes domestic equity sector exposure: You can see whether you are overweight or underweight in any one sector and see how well you are diversified. You can compare your portfolio to the S&P 500 as well as Personal Capital’s Tactical Weighting recommendation, which is based off equal weightings across sectors instead of market cap weightings. Tactical Weighting is also known as “Smart Indexing” according to PC.

3) Analyzes US equity style: See how your portfolio stacks up among large, mid and small cap stocks vs Personal Capital’s Smart Indexing recommendation and the S&P 500. The S&P 500 is market cap weighted while Smart Indexing is equal weighted across sectors. You might have too much or too little small cap or large cap exposure vs. the indices.

Below is a screen shot of what you should see when you log on to your Dashboard to help you access their newest features. Go to the top right and click “Investing” and then click “Investment Checkup”.

Personal Capital Investment Checkup

How To Build Passive Income For Financial Independence

Yellow Leaf MacroCreating genuine passive income is the holy grail of personal finance. Not all passive income is created equal mind you. Some streams take much more initial effort to start, such as saving enough to buy your first rental property. But once you start it’s very difficult not to gain momentum.

Everything passive first takes active energy. The time to put in the effort is when we are young and not ravaged by disease or burdened by family obligations. I remember being able to snowboard from 9am until 4pm every day for a year. Now, I’m lucky to last from 11am until 2pm without wanting to go to the hot tub and drink a bucket full of beer! If we can appreciate how lucky we are when we are young, we’ll be able to maximize our vitality and live financially freer when we are older.

With sustainable passive income you can do the following:

* Retire early and travel the world.

* Start a business in a field you are passionate about.

* Find a job that pays less, but is more interesting.

* Stay at home to take care of your family without having to worry about money.

* Volunteer for causes you truly care about.

* Be a big brother or big sister.

* Spend more time with your parents.

* Sit in a coffee shop on a 80 degree day in Paris for hours on a Wednesday afternoon.

* Write the next great novel on the balcony of a cruise in the Mediterranean.

* Eat tapas and drink sangria until 1am on a Monday evening.

* Potentially live longer due to much less stress.

* Experience perfect endless summers over and over again.

There is so much you can do once you generate enough passive income to pay for all your living expenses. I highly encourage everyone to at least try. This post will provide you the framework for passive income success. I’ll also provide an update on my estimated 2013-2014 passive income streams which have grown since retiring in 2012.

In Search For A Good Travel Rewards Credit Card: Barclaycard Arrival Review

Barclaycard Arrival World Mastercard Sea TurtlesWith my new goal of traveling at least 10 weeks a year, I’ve come to the realization it’s wise to get a credit card whose primary design is to rack up maximum travel rewards points so I can travel even more. I’ve found the card in the Barclaycard Arrival World MasterCard.

Before publishing this post, I had a grand total of one personal credit card – the Citi ThankYou card. I’m not a believer in getting multiple credit cards because I’m all about simplifying my finances. I also pay my credit card bill off in full every single month, so there’s no need to take advantage of those 0% introductory rates. But with my new mission to travel post retirement, it’s only prudent to take advantage of great benefits.

If I got the Barclaycard Arrival before my four week trip to Europe this summer, I would have been able to accumulate over 18,000 awards points! Better late than never because I’m going on another two week trip to attend the US Open tomorrow in NYC. The last time I went to the US Open was twelve years ago and I can’t wait to return!

The Proper Asset Allocation Of Stocks And Bonds By Age

Endless Variety Of Gouda CheeseTo start, there is no “correct” asset allocation by age. Your asset allocation between stocks and bonds depends on your risk tolerance. Are you risk averse, moderate, or risk loving? I’m personally risk loving or risk averse, and nothing in between. When I see “Neutral” ratings by research analysts, I want to slap them upside the head for having no conviction. Then the optimist in me thinks what a great world to have occupations that pay well for providing no opinion!

Your asset allocation also depends on the importance of your specific market portfolio. For example, most would probably treat their 401K or IRA as a vital part of their retirement strategy because it is or will become their largest portfolio. Meanwhile, you can have another portfolio in an after-tax brokerage account like E*Trade that is much smaller where you punt stocks. If you blow up your E*Trade account, you’ll survive. If you demolish your 401K, you might need to delay retirement for years.

I ran my current 401K through Personal Capital to see what they thought about my aggressive asset allocation. To no surprise, the below chart is what they came back with. I essentially have too much concentration risk in stocks and am underinvested in bonds based on the “conventional” asset allocation model for someone my age. To run the same analysis on Personal Capital, simply click the “Investment Checkup” link under the “Investing” tab.

portfolio-analysis

I am going to provide you with five recommended asset allocation models to fit everyone’s investment risk profile: Conventional, New Life, Survival, Nothing To Lose, and Financial Samurai. We will talk through each model to see whether it fits your present financial situation. Your asset allocation will switch over time of course.

Before we look into each asset allocation model, we must first look at the historical returns for stocks and bonds. The goal of the charts is to give you basis for how to think about returns from both asset classes. Stocks have outperformed bonds in the long run as you will see. However, stocks are also much more volatile. Armed with historical knowledge, we can then make logical assumptions about the future.

How To Reduce 401K Fees Through Portfolio Analysis

Do you know how much in mutual fund fees you are paying a year? I didn’t, so I ran my 401K portfolio through Personal Capital’s 401k fee analyzer and I’m absolutely shocked by the results! I always figured that from a percentage point of view, my mutual fund fees were small. But, when you take a small percentage multiplied by a big enough number, the absolute dollar amount starts adding up.

401K Fees Add Up!

As you can see in the picture above, I’m paying $1,748.34 a year in fees across four mutual funds. In 20 years, I will have paid roughly $84,000 in fees based on only this amount. In the second chart, you’ll see how much I will pay in fees if my funds actually grow.

I’ve got another fund worth about $22,000 as part of my 401K which does not show a fee, because it is a hedge fund whose fees are baked into the performance. Typical hedge fund fees are 2% of assets under management and 20% of upside. This is called 2 and 20, which is egregiously high, but it’s the only way I can get short exposure to hedge my bets.

I’ve been wanting to do a 401k/mutual fund fee analysis for the longest time, but was too lazy to do the analysis until I realized I didn’t have to do the calculations myself. Every year I want my portfolio to be as optimized as possible.

The Average Net Worth For The Above Average Person

Average Net WorthEverything is relative when it comes to money.  If we all earn $1 million dollars a year and have $5 million in the bank at the age of 40, none of us are very wealthy given all our costs (housing, food, transportation, vacations) will be priced at levels that squeeze us to the very end.  As such, we must first get an idea of what the real average net worth is in our respective countries, and then figure out the average net worth of the above average person!

According to CNN Money 2014, the average net worth for the following ages are: $9,000 for ages 25-34,  $52,000 for ages 35-44, $100,000 for ages 45-54, $180,000 for ages 55-64, and $232,000+ for 65+. Seems very low, but that’s because we use averages and a large age range.

The Above Average Person is loosely defined as:

1) A person who went to college and believes that grades do matter.

2) Does not spend more than they make because that would be irrational.

3) Saves for the future because they realize at some point they no longer are willing or able to work.

4) Largely depends on themselves, as opposed to mom and dad or the government.

5) Takes responsibility for their own actions when things go wrong and learns from the situation to make things better.

6) Has an open mind and is willing to look at the merits of both sides of an argument.

7) Welcomes constructive criticism and is not overly sensitive from friends, loved ones, and strangers in order to keep improving.

8) Has a healthy amount of self-esteem to be able to lead change and believe in themselves.

9) Understands the mental to physical connection in everything we do so that that a healthy mind corresponds with a healthy body.

10) Enjoys empowering themselves through learning, whether it be through books, personal finance blogs, magazines, seminars, continuing education and so forth.

11) Has little-to-no student loan debt due to scholarships and part-time work.

Now that we have a rough definition of what “above average” means, we can take a look at the tables I’ve constructed based on the tens of thousands of past comments by you and posts I’ve written to highlight the average net worth of the above average person.

How Much Should People Have Saved In Their 401Ks At Different Ages

The 401k is one of the most woefully light retirement instruments ever invented. The worst is the IRA which limits you to contributing only $5,500 only for individuals making under $60,000 a year and married couples making under $116,000 a year. Meanwhile, you have to make less than $114,000 a year as a single or $181,000 as a married couple for the privilege of contributing after tax dollars to a Roth IRA, which I do not recommend before maxing out your 401k.

Give me a pension that pays 70% of my last year’s salary for the rest of my life over a 401(k) any time! With the government only allowing individuals to contribute $17,500 a year in pre-tax income into their 401ks in 2014, once again, our politicians fail us with their regulations.

The average 401k balance as of January 2014 is around $99,000 thanks to an incredible 30% rise in the S&P 500 in 2013. Even so, $99,000 is incredibly low given the median age of an American is 36.5. As an educated reader who is logical and believes saving for retirement is a must, I’ve proposed a table that shows how much each person should have saved in their 401ks at age 25, 30, 35, 40, 45, 50, 55, 60, and 65.

We stop at 65 because you are allowed to start withdrawing penalty free from your 401k at age 59 1/2. Meanwhile, I pray to goodness you don’t have to work much past 65 because you’ve had 40 years to save and investment already!

Who Are The Top 1% Income Earners?

Triangle Showing Top EarnersIt’s trendy to rage against the top 1% nowadays. We’ve discussed how the world will go through further employment pain thanks to the decline in the stock markets, EuroZone debt crisis, US state-level budget problems, and political impotence. Things are not pretty to say the least.

From my rental property article, you discover that the top 1% are a couple who met in law school at 25 and are now 28 year old 2nd year associates making $380,000 combined. The top 1% is also the 28 year old Google software engineer from Caltech who brings in $450,000 a year and has $400,000 in savings. The top 1% is the 35 year old cardiologist who is finally making over $300,000 a year after 11 years of post high school education and 3 years of residency work at $60,000 a year. By the time he’s 45, he will probably make over $1 million dollars.

Where else can we find the top 1%? Oh yeah, MBA grads who join Wall Street firms such as JP Morgan and Goldman Sachs at the standard $150,000 base salary and $30,000 sign-on bonus at age 29-30.  But, you knew this already since that’s who so many people are demonstrating against. If they can last through the treacherous ups and downs of the markets, the multiple rounds of layoffs every year, the intense pressure of 60-80 hour work weeks, not to mention all the internal political landmines, they too will make over $380,000 a year by the time they are 35 year old second year Vice Presidents.

THE TOP 1%: COME OUT, COME OUT, WHEREVER YOU ARE