New site brings investing to the masses, sort of
While Tuchman admits that his investment software isn't a barrel of fun, it will help the common investor avoid mutual fund fees and other fees that financial advisers charge, and get a higher return on their investment.
"It's not very exciting. It's kind of like watching paint dry," he said of the MarketRiders site, which sells a service called E.Adviser for $9.95 a month that allows users to build and manage a portfolio of Exchange Traded Funds, or ETFs.
The service uses ETFs, asset allocation strategies and rebalancing portfolios as markets ebb and flow. Simple sliders are used so investors can define their investment goals, risk tolerances, objectives and experience. The program then recommends ETFs to buy from an online broker.
It's the way that many wealthy people and institutions grow their money, Tuchman told me in a telephone interview from his office in Danville, CA. They avoid huge brokerage fees and buy these funds that have many different stocks in them.
Of the top 100 mutual fund managers, only 7% are able to repeat their performance from year to year, Tuchman said. And paying 2.5% in fees can drop a historic 7.6% return to 5.1%, he said.
A $200,000 portfolio paying 2.5% to manage it, along with trading commissions, would add up to $5,000 per year, and wind up at $335,000 after 15 years on an average annual return of 6%.
The E.Adviser program would reduce those fees by 80% to $800 per year, or .4%, which includes the monthly subscription, ETF fund fees and trading commissions. That same $200,000 would grow 35% more to $453,000 with the lower fees. The MarketRiders site has a calculator to show how fees affect returns over time.
The site is meant for the common investor, but to make it worthwhile, someone should have $50,000 to invest because the fees decrease as more money is invested. So a 0.9% fee makes sense for someone with at least $50,000 to invest, Tuchman said.
"We're really trying to bring this to the masses," he said.
But the masses, he said, amount to about 15% to 20% of American households who have that kind of money to invest.
And since rebalancing is key, such as by selling funds when they're gaining and buying lagging funds, it does take some time, although Tuchman estimates it's only about 30 minutes per quarter.
But if you've got two things that always seem to be in short supply -- money and time -- then taking a shot at trading stock funds like the wealthy might be worth it.
Aaron Crowe is an unemployed journalist in the San Francisco Bay Area. Read about his job search at www.AaronCrowe.net