Who should use a financial planner?

While WealthStep is a powerful tool to help you achieve financial independence through Aim>Save>Invest planning, it may be appropriate for some people to hire a Certified Financial Planner for a one-time project or on-going advice. For example, a human financial planner can be helpful if you’re situation is more complex than an on-line tool can address, or if you need help discussing and thinking through your goals, or other special circumstances.

To help understand what financial planning is, what questions to ask a financial planner, and how to identify a planner without conflicts of interests, WealthStep compiled a downloadable guide called “How to find the right financial advice fit“.

Do you need a human financial planner, or is WealthStep enough?

WealthStep is a powerful Aim>Save>Invest planning tool. However, all online tools have their limitations, and some people may be best served by also working with a qualified, conflict-free professional financial planner. For example, it may not be best to use only WealthStep if you have a complex financial situation. Or, some people like to use WealthStep for basic planning and scenario testing, but only feel comfortable making big and/or complex decisions with the help of a human expert.

For those that may want to explore professional financial advice, WealthStep created a guide called “How to find the right financial advice fit.” This guide will help you understand what financial planning is, what type of provider might be best for you, what questions to ask, and how to find a qualified financial planner. Click here to get the guide.

Or, see if you qualify for WealthStep Direct or full Wealth Management services.

General information and disclosures

WealthStep is designed to be a general helpful guide and aid users/clients in improving their planning relative to their goals and needs. Depending on your circumstances, you may benefit from advice from a financial planner that considers information specific to your situation, if applicable, that WealthStep’s analysis cannot address. If you need such financial planning help with additional customization, read WealthStep’s document “How to Select a Financial Advisor,” or if you are a qualified WealthStep Direct Plus user, contact WealthStep to explore optional Financial Planning project engagements through a WealthStep advisor.

Given the unpredictable nature of investment markets, inflation and other factors, users/clients should understand that advice is designed to improve outcomes, but does not intend to and cannot predict specific outcomes, despite what might appear to be precise numbers or recommendations resulting from estimated future projections and user inputs. Depending on your circumstances, you may benefit from advice from an objective, fee-only financial planner that considers factors specific to your situation and/or if your circumstances that are not adequately addressed by WealthStep’s advice process. In certain cases, WealthStep is available to provide such financial planning services on a project basis for an additional fee, or may suggest the use of an outside financial planner.

WealthStep calculations and expected/projected investment return estimates (see FAQ on projected returns) assume that you use an appropriate WealthStep portfolio for each life stage, i.e. an appropriate asset allocation for each life stage (and if spouse data is included, assume that spouse assets also utilize WealthStep life stage-based investing patterns), to promote sufficient growth, with the commensurate volatility risks, to combat other potentially more harmful risks in the long-run such as longevity risk and inflation, if historical patterns of the capital markets and inflation generally hold true in the future. Actual future inflation, investment returns, dollar values, and other variables may differ from WealthStep’s estimated projections.

WealthStep calculations cannot predict specifics about your future income, contributions, match, etc., and WealthStep defaults (if applicable) or your inputs, may be estimates for general planning purposes. WealthStep calculations do not account for increases in future earnings/salary other than inflation-based adjustments, however, you may adjust your expected retirement spending inputs in the Planning/Saving Advice module to account for any increase in future income/lifestyle that you expect to experience. As your income changes, it is important to revisit your WealthStep calculations, to determine whether you should increase your savings rate accordingly, consistent with your retirement planning needs.

“Other Income” in the Planning/Saving Advice module assumes growth at the inflation rate shown or selected.

If you include partner/spouse data, calculations assume retirement begins on the retirement date indicated by the WealthStep account holder.

If this savings sheet indicates a savings need that exceeds your ability to save, you may need to work more years and/or spend less.

Calculations assume pre-tax dollars, and tax rates will vary.

Longevity: It is not possible to reliably calculate your life expectancy. Be sure to consider a wide number of factors such as current health, lifestyle, and family history that could increase or decrease life expectancy when choosing between the default life expectancy calculation and choosing your own longevity estimate.  While  younger people generally have longer life expectancies than older people when those older people were at the same age as a person who is currently younger, the younger you are, the lower your statistical life expectancy. Said differently, the longer you live, the more likely it is that you’ll live to an older age. WealthStep’s default longevity calculation adds 5 years to the Social Security mortality statistics table for your age, to be generally conservative (i.e. leads to an increase in recommended savings rate, which reduces the risk of running out of money), but 5 years may over or under-state your actual longevity, which cannot be perfectly predicted. By saving more now, it could affect your current lifestyle (less to spend now). By under-saving now, it could affect your future/retirement lifestyle (less to spend in future) and possibly lead you to run out of money during retirement.  While mortality is impossible to calculate accurately in advance, it is highly advisable to utilize a longevity calculator or objective financial planner that adjusts for health, lifestyle, family history and other factors, to come up with what might be a more accurate life expectancy prediction for your particular circumstances, to input into the Planning/Saving Advice custom inputs. It is also highly advisable to update your WealthStep Planning/Saving Advice yearly, so that the advice better reflects your potential increase in age/life expectancy, and also to reflect any increase in income/retirement spending goals, all of which will have the effect of requiring a greater savings rate to meet your retirement/financial independence spending goals. When a spouse is included in the calculation, life expectancy assumptions are based on longevity estimates regarding the spouse that has a later date at the end of life expectancy.

Social Security benefits are estimates, and Social Security is not guaranteed. Also, if you retire before (or after) normal Social Security retirement age, your Social Security benefits will be different, and there can be advantages to taking early, regular or late Social Security benefits, depending on your personal situation and preferences. For more information, see the IRS website, including: https://www.ssa.gov/oact/quickcalc/early_late.html. If you have significant income outside of social security during retirement, a portion of your Social Security income may be taxed.  Consult a tax accountant or financial planner for additional details (WealthStep does not provide tax advice and investing may involve certain tax consequences). WealthStep’s Social Security default calculations utilize assumptions. The Social Security factor should be higher if your income is lower than example shown, lower if income is higher than example shown.  See the Social Security website for more specific details, to enter into the Planning/Saving Advice module as custom inputs. At the death of a spouse, the Social Security Administration may adjust benefits downward accordingly.  See a tax advisor, financial planner or Social Security website for more information.

Consult a qualified, objective personal financial advisor to consider factors that may be specific to your situation… WealthStep is a valuable tool, but some people have special or complex needs to consider that require a live expert advisor and your needs may require more complex analysis tools.

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Other things you always wanted to know?

If there is other information you’d like us to include in this FAQ, please let us know through the contact page, and we’ll do our best to add the information.

Is WealthStep secure?

WealthStep is equipped with data security technology to protect your information. WealthStep’s advice tools gather limited and basic information from you to be able to provide calculations and/or advice, but intentionally requests minimal personally identifiable information from you that could be used by identify thieves to cause harm. Additionally, WealthStep’s advice tools do not gather or store your personal financial account information, and does not allow for any sort of direct money access or asset transfers (those procedures are processed by the retirement plan recordkeeper for WealthStep 401k users or independent custodian bank for WealthStep Direct accounts, the latter of which currently use Charles Schwab for WealthStep Direct accounts, and all of which also have advanced security measures in place). For WealthStep Direct clients, WealthStep separately provides an optional account view app and website, for account/investment details viewing, as well as account aggregation options, and data security information is detailed within those sites separately.

Additional information about WealthStep’s security infrastructure is available here:

Security Environment

Firewall, Malware Scan, and Login Security

Can I be a WealthStep Direct client if I live outside the US?

WealthStep currently only has operations in the United States, and cannot accept customers residing outside the country, due to regulatory limitations. WealthStep direct clients must have a permanent U.S. address, a U.S. Social Security Number, and a checking account from a bank in the U.S..

What is a 529 Plan?

529 plans are tax-advantaged accounts designed for educational savings, such as college. WealthStep does not offer 529 plans, given that 529 plans are state-sponsored. You are not, however, limited to using the 529 plan in your own state.

While this could change, 9 states currently have a state income tax, but do not offer a deduction for contributions: California, Delaware, Hawaii, Kentucky, Maine, Massachusetts, Minnesota, New Jersey, and North Carolina. 5 states offer taxpayers a deduction for contributions to any state’s 529 plan: Arizona, Kansas, Missouri, Montana and Pennsylvania. This means that residents of all of the states above do not have a tax incentive to use their own state’s plan, and so can/should consider the 529 plans of other states as well. WealthStep generally currently recommends the Nevada and Utah 529 plans, because they are low cost (managed by Vanguard), and have pre-built portfolio options, in some cases somewhat like certain WealthStep portfolios, so you don’t have to be an investment expert. There are 27 other states that have tax incentives available (for state-specific information, see http://www.savingforcollege.com/compare_529_plans/?plan_question_ids%5B%5D=437&page=compare_plan_questions), but depending on the quality of the 529 plan in each state (i.e. some are hard to use, don’t offer pre-built diversified options and/or are expensive), it may still make sense to consider the two recommendations above.

I see/hear “experts” on TV/web/radio who say I should do ___[you fill in the blank]___.

If the “expert” or news is encouraging you to be a long-term planner, save enough, use low-cost and highly diversified portfolios appropriate for your life stage, and not to be an emotional investor, then great, keep listening/watching! However, if they are telling you something different, watch out, especially if they are saying it with extreme confidence. Studies show that people who are overly confident… are often wrong. They may also have a conflict of interest… if they have the incentive to get you excited or scared in order to improve their ratings (which is used to determine which shows stay on the air and what the advertising rates should be), or to sell you investment or insurance products, from which they earn a commission.

Supporting research: Sources: Don Moore, behavioral scientist at UC Berkeley/Haas, Terry O’Dean, investor behavior specialist at UC Berkeley/Haas, Phil Tetlock, U. Penn/Wharton.

More information is better, right?

To a point, yes. Beyond that point, no. Studies show that information overload can harm decision-making, especially if it is not in your area of expertise. Excessive information levels increases anxiety and frustration, which causes the brain to shift activity from the prefrontal cortex (rational segment of the brain) to the brain stem (fight or flight segment of the brain). To combat that problem, pause and filter the information you receive… controlling your information flow can improve decisions. WealthStep is designed to be your source to help filter unnecessary information and focus on the most important information and decisions, thereby reducing pitfalls and mistakes.

Supporting research: Research includes that by Angelika Dimoka ot Temple University, and Sheena Iyengar of Columbia University.

What is the cycle of market emotions?

Many investors, especially new and less experienced investors without training (i.e. most people), feel excited and a sense of confidence about the future when the market rises and their account balances go up. People who’ve had mixed experiences with investing in the past often wait until the market has risen to invest again. When the market’s natural cycle (the timing or length of which can’t be determined in advance) shifts to a downturn, many investors get nervous and some panic, selling their stock investments. This emotional cycle can be very damaging to people’s financial independence or retirement goals. If one waits for the market to go up before investing… they missed the rise. If they panic when the market goes down, and get out of the market, they miss the recovery. The most successful investors are aware that the market has cycles and that they should simply stay in an asset allocation consistent with and appropriate for their life stage, without investing emotionally. Successful investors feel discomfort too, but they react to it differently. They are disciplined, stick with their strategy and almost always end up with better results in the long-run. View WealthStep’s Financial Independence video to help you convert from a new or inexperienced investor to a disciplined, sophisticated investor.

What should my mantra be when the market has a big drop?

Brain science explains that people often react to financial fear as if it were physical fear, the fear of mortal harm. If you see a snake, you might fear harm (even if most snakes are not dangerous). Cars, however, statistically, harm many more people than do snakes, yet few people are afraid of cars. Cars, if used wisely, are very helpful vehicles to get from point A to point B faster and safer. Investing is similar. Investing wisely, like a car, can hit bumps in the road or have a flat tire that gets repaired, metaphorically speaking. However, that doesn’t mean you abandon your car. Effective drivers remain patient, maintain their car and arrive to their destination, just like smart investors. So, the next time the market drops and you feel nervous, say to yourself… “it’s a car, not a snake, it’s a car, not a snake” as you breathe deeply and take a walk around the block, to allow your brain’s “fight or flight” sector to calm down, so that your brain has opportunity to shift activity back to the “frontal lobe” or “prefrontal cortex”, the part of the brain that is responsible for rational, long-term decisions. Also, when you continue to add money to your retirement account, especially in market downturns, you are buying at lower prices, which magnifies your account balance during the recovery and increases your retirement readiness. To learn more about the “car vs. snake”, and the benefits of consistent saving, view WealthStep’s Financial Independence video.

I have questions about my 401k’s details, who do I ask?

Since each retirement plan is different and is designed by your company, first contact your plan’s recordkeeper firm by clicking the “WealthStep 401k” button in the “Implement the advice” section of the Member Center if you utilize a WealthStep 401k/retirement plan (or otherwise get the recordkeeper company’s phone number from your 401k materials or your HR department). If you have a conceptual question about planning, saving or investing, review the FAQ’s, and if you can’t find your answer, contact WealthStep through the Contact Us page, and WealthStep will respond and potentially add it to the FAQ.

What is a 401k match vesting schedule?

Many companies that offer a matching contribution do so with a vesting schedule, which can be seen as a retention incentive. The money you put into your retirement plan account is always yours and can’t be taken away, but the company match is gradually yours, based on how long you stay with the company.

One example of a vesting schedule is 20% after 1 year, 40% after 2 years, 60% after 3 years, 80% after 4 years, and 100% after 5 years. Contact your HR department to ask for your plan document, for all the details about your particular vesting schedule, if your company receives a match, as well as other plan eligibility details.

What is a 401k match?

A 401k (or other retirement plan type) match is when your employer makes a contribution to your account, as a retirement savings gift or bonus, when you make contributions to your own account.

A match is a great way to boost your retirement savings. In order to capture the full match, however, you need to save enough to capture the match. In many retirement plans with matches, people capture a portion of the match but don’t save enough to obtain the full match, and are therefore throwing money away that they can’t go back and get later.

Note: Not all retirement plans offer a match, match formulas vary, and some matches are subject to a vesting schedule. Contact your HR department for details specific to your plan.

Price matters. Cost matters more. What does that mean?

Price is the sticker-price you pay. Cost can be higher or lower than the price over time.  For example, if two cars and one has a lower price but ends up being higher-maintenance and doesn’t last as long, the higher-priced car can be lower cost.

With investment services (and there are many!), the same phenomenon occurs, although unfortunately it can be harder for non-experts to measure. Here are a few examples of how this can affect you:

  • Some have high prices and high costs: Traditional “full service” investment product or brokerage firms are sometimes a good example of this. These firms often don’t provide more than investment services, which means you may invest without objective advice towards achieving your goals. That means you could be “climbing the wrong ladder,” which can be very costly to your life plans. To complicate it further, the services may appear to be “free” but often have non-transparent and hidden fees that are higher than most other services, and the brokers often do not or cannot agree to act in your best interests. To be fair, some of these firms have good people who do their best to act in the best interests of clients, but it isn’t easy for the untrained eye to know which is which.
  • Some have very low prices and medium or high costs: If all you care about is low costs and you aren’t concerned about results relative to your goals, or you are an investment expert, there are plenty of options, including going directly to index mutual funds or ETF’s. If you are not an expert, low price can be high cost. For example, if you put all of your money into a low cost global stock ETF and forget to or don’t know when to start adding bonds or rebalance to reduce your risk as your life stages progress, you could end up with excessive risk and experience a major setback when the market crashes. This is especially likely to be harmful if you don’t have time to wait out the recovery or you become an emotional investor and lock-in the losses by going to cash, and miss the recovery. That downturn could be much more costly than paying slightly more to get some basic help and guidance and reminders over time. Some on-line services help partially solve this problem by helping you build a portfolio, however many do not help you determine an appropriate portfolio consistent with your goals or help you calculate your goals.
  • Some have low prices and low or negative costs: If you find the right balance (i.e. the “Goldilocks” scenario), you may have the best of both worlds. Costs should be fair and never excessive, and there should be value. If you are young with a low-complexity financial situation, you may do well by having a service that helps you set your nest-egg goal, helps you determine how much to save, wisely invests in a low-cost portfolio and provides reminders and education to help you get on and stay on track, then you may significantly increase your chances of success. If you have larger wealth and a more complex financial situation, having the option of paying an additional reasonable fee to have expert human help you navigate opportunities and minefields can be invaluable. Welcome to WealthStep!

What do I get for my WealthStep Direct fee?

WealthStep Direct (WSD) provides options that free “Basic” public version does not, and is particularly helpful for people who can’t access WealthStep through their retirement plans (in those cases, the company pays the WealthStep fee), or have investment accounts outside of their retirement plan.

WealthStep Direct (WSD) has 3 fee-for-service options:

  1. WSD Digital Only – For people who can’t access WealthStep through their company’s retirement plan, and don’t need management of investment accounts outside of their company retirement plan, but want access to WealthStep’s Advanced advice module, in addition to the Basic module. ______
  2. WSD Portfolio Management – For people who have investment accounts outside of their retirement plans, and want professional investment portfolio management for taxable or tax-deferred accounts, in addition to accessing the Basic and Advanced online advice tools. Tax loss harvesting is provided for  taxable accounts, which can reduce your income tax. Certain minimums apply. _____
  3. WSD Plus – Is WSD Portfolio Management “plus” the option to access human financial planners for planning projects for a project fee. Additionally, WSD+ clients benefit from “asset location,” which arranges assets in taxable and tax-deferred accounts in a tax-optimized manner. ______

Fees and minimums for the above service levels are being updated. Please use the Contact Form to inquire.

Should you invest on your own instead?

Some people with an IRA or taxable investment account consider managing their account themselves. If you have sufficient resources, time, knowledge, discipline and desire, that can be effective. However, most people lack at least one of those critical components. If you do want to do it on your own, WealthStep generally recommends utilizing low-cost, passively managed, pre-built portfolio mutual funds (e.g. Vanguard Target Date Funds or Target Allocation funds, or for more flexibility but more work maintaining the target allocation… a simple portfolio combining a global stock fund and a global or broad US bond fund). However, such funds often lack full diversification and pose complications from a tax viewpoint if you need to make an adjustment in the future (in the case of TDF’s and TAF’s), or if your risk profile and planning needs does not match the risk profile of the Target Date Fund or TAF. Additionally, doing it alone might leave you without some important advice resources, which can have a big impact on whether or not you achieve your goal. As an analogy, you can buy a cheap car that may reduce the speed to your destination, or build and maintain your own car, but it might not get you to your destination. Be sure to consider the full picture, including opportunity costs (i.e. the cost of mistakes) rather than just the sticker price or cost on the surface. By the way, if you have the resources, time, knowledge, discipline and desire… we encourage you to consider a career in objective financial advice, helping other people get to their financial destination!

If my 401k has a Roth option, should I do that or Traditional 401k contributions?

The short answer is… a Roth account can help you effectively save more if you already saving at the IRS limits using a “traditional” retirement account.

As background, regular or “traditional” 401k contributions go into your account pre-tax, i.e. you are not taxed at the time of the contribution to your account, but you are taxed later in retirement when you use the money as income. Roth contributions are taxed before they go into your account and are not taxed in retirement, assuming tax laws don’t change (however there is a rule that your first Roth balance must exist for at least 5 years before you can access the money without paying taxes again). In other words, they both have beneficial tax treatment.

There are several interesting nuances regarding Roth vs. traditional contributions, but for most people, the key factors to consider are:

  • If tax rates stay the same, there is no tax benefit difference. However, given that tax rates could change, using a combination of Roth and regular contributions (which can be contributed to and held simultaneously, they are not mutually exclusive) can be a tax-hedge, and you can choose which “bucket” you’d like to pull from first in retirement, based on your view of taxes or other factors.
  • Because Roth and regular contributions are subject to the same contribution limits, making a Roth contribution is effectively a way to save more, and is therefore especially helpful for people who are already at the IRS savings limits using “traditional” contributions but would like to increase savings. For example, if you save $1,000 into Roth, you will have $1000 (plus any earnings) to use in retirement, since the tax happens at the time of the contribution, not in retirement. That same $1,000 in a “traditional” retirement account was not taxed when you contributed it into your account, for example, if your tax rate is 30% in retirement, you would have $700 to spend (i.e. $1000 less 30%), instead of the $1,000 that you would have in the case of a Roth contribution (plus any market growth in both cases). So, Roth effectively allows you to save 30% more (or whatever % your effective income tax rate is).

If your budget is very tight currently, using regular/traditional contributions can be helpful option since it has a smaller impact on your paycheck (since contributions aren’t taxed now, it costs you less than $1 to save $1). When or if you have budget flexibility, or are maxing out traditional contributions but would like or need to save more, Roth might be the better vehicle (somewhat depending on future tax rates).

Also, note that if you have both Roth and regular accounts in retirement, it generally makes sense to withdraw Roth money first, so the regular tax-deferred money grows longer while tax-deferred. Consult your tax attorney or financial planner for exceptions for your situation… for example, doing the reverse may be advantageous for those with higher-wealth, given/depending on inheritance tax laws/exemptions.

Also, it is possible to convert some or all of your traditional balances to Roth balances (within an IRA, or within a 401k, if your 401k offers Roth), but you must pay the tax to conduct the conversion, since the IRS treats the conversion amount as income. If you choose to do a conversion, remember these tips: You may benefit from staging the conversion over multiple years, if doing the conversion in 1 year causes you to shift into a different income tax bracket (i.e. to avoid paying extra taxes).  It is impossible to know when investment markets will be up or down, but if you’ve been planning to do a Roth conversion and the market happens to drop significantly, that can be an advantageous time for a Roth conversion because your balance is temporarily lower, which means that your tax would be calculated on a smaller conversion balance. Also, it is difficult to know when tax rates will change, but doing the conversion when tax rates are lower will also decrease the tax impact.

Where is the money held, and what happens if that bank goes out of business?

WealthStep utilizes third-party custodian banks to hold client assets, to increase the security and safety of client assets. WealthStep researches and periodically reviews custodian banks to assess their financial stability, technology, safeguards, cost-effectiveness and other factors, to ensure that client assets are properly safeguarded.

WealthStep 401k: The custodian bank varies by 401k plan, based on the needs of the 401k plan.

WealthStep Direct: Charles Schwab is currently the custodian bank WealthStep utilizes for WealthStep Direct accounts, after WealthStep’s evaluation of an array of custodian banks. WealthStep has no financial connection with Schwab, nor any incentives or rewards for using Schwab.

In the highly unlikely event that a major bank goes out of business, the assets will be transferred to another bank. The assets belong to you, not the bank, and WealthStep will help coordinate that process accordingly.

Education seminars for schools and companies

WealthStep has a commitment to improving people’s lives around the world through increasing financial literacy. In addition to providing WealthStep online advice and education free globally (Basic version) and donating money to financial literacy non-profits, we make direct efforts to improve financial literacy related to planning, saving and investing decisions for the general public via education seminars. We provide a certain number of such seminars free to school communities (teachers, parents, and students), free. Additionally, we provide such education to companies for a small fee that goes towards our philanthropic education efforts. Contact us to get on the school presentation waitlist, or to have a presentation done at your company.

Diversification – what is it?

Diversification is the process of holding combinations of securities in a portfolio that have different risk, return and correlation characteristics, that has the effect of reducing (not eliminating) volatility risk relative to a less diversified portfolio or single-security with the same stock/bond mix. As a simplified example, if an investor holds only one airline stock in a portfolio, the investor is subject entirely to the risks of that company and industry. The largest cost of doing business for airlines is fuel. When fuel prices spike or drop, that can have a significant impact on the stock market price of the airline. If that same investor were to add an oil company to his/her portfolio, the stock price of an oil company generally rises as oil prices rise, and that stock price pattern can offset the typically weaker periods of the airline stock price. By combining the two, the investor might receive a similar average return over time, but should experience less overall volatility, due to the diversification effect. And, mathematically, for the same rate of return, lower volatility increases the compounding rate of return of a portfolio. That said, holding only two stocks is not considered a “diversified portfolio”. A well-diversified portfolio may hold hundreds or thousands of stocks and bonds, across an array of sectors, industries, market capitalizations (i.e. company sizes) and countries. WealthStep builds portfolios with very high diversification to help control risk, consistent with the markets.

Stocks, bonds and mutual funds – what are they?

Stocks and bonds are two of the most common types of “individual securities” investments. Mutual funds and  ETF’s (Exchange Traded Funds) are vehicles for purchasing groups of stocks or bonds (or other securities). Investors buy shares, or partial/shared ownership, of such vehicles.

Stocks: Also referred to as “Equities” (i.e. ownership), stock owners own shares in publicly traded companies. Companies may be large to small, foreign or domestic, and share price values can fluctuate significantly depending on the company’s business decisions and economic cycles. Stocks are generally considered to have a higher volatility/price fluctuation risk, higher return profile.

Bonds: Also referred to as “Fixed Income,” bond owners own shares in the debt instruments issued by governments and/or private entities, such as companies. While bond prices and risk is also subject to economic and other factors, bond issuers (e.g. the US government) generally or always pay back the principal and interest of these loans, and therefore are generally a lower-risk investment, and as a result, bond issuers are not willing to pay high rates of interest (unless it is a high risk or “junk”/”high-yield” bond), and as a result are generally considered to have a lower volatility risk and return profile.

Mutual Funds and ETF’s: Mutual funds and ETF’s are investment companies or vehicles that purchase multiple stocks and/or bonds or other securities inside an account, and sell shares of that account to investors. This allows smaller investors to access greater diversification at lower cost than they would be able to access on their own. Volatility risk and return can very greatly between mutual funds (or ETF’s) because the risk profile is dependent upon the mix of stocks and/or bonds selected by the investment company that manages a given fund. However, generally speaking, a stock mutual fund will have lower risk than most individual stocks, because of the diversification effect.

In summary, stocks vs. bonds can be simplified as owning vs. loaning, and mutual funds (or ETF’s) are buckets or packages of different combinations of stocks and bonds.

Should you rollover 401k or IRA assets to WealthStep Direct?

From 401k’s: WealthStep does not recommend rolling out of your current 401k plan into WealthStep Direct if your current 401k already uses WealthStep, because WealthStep Direct involves certain costs, even if they are relatively low, that your 401k plan may not (e.g. transaction costs that are covered/included in your 401k plan).  If your employer’s 401k does not use WealthStep, it could still make sense to leave your money in that plan, if it is a low-cost plan, and if you that plan offers Target Date Funds or other pre-built life-stage portfolio options that are high-quality, low-cost, highly diversified, conflict-free and require minimal maintenance. However, many 401k plans do not offer Aim-Save-Invest advice like WealthStep.

However, it can make sense to roll over to WealthStep Direct if you have needs that are not met by your 401k plan that can be addressed by WealthStep Direct. For example, if your 401k plan only allows lump-sum distributions (which requires that you must take your entire balance out of the 401k when you need to take even $1 out), WealtStep Direct can be an effective solution to maintain a similar approach to your 401k.

If you have a non-WealthStep 401k that does not have high-quality, low-cost, highly-diversified portfolios with no conflicts-of-interest, a WealthStep IRA can be an excellent solution.

From IRA’s: If your current non-WealthStep IRA account has low-cost Target Date Funds or other pre-built life-stage portfolio options that are highly diversified, low-cost, conflict-free and require minimal maintenance, it may make sense to leave the assets where they are. However, if planning/saving/investing/spending advice/education/reminders are not provided through your current non-WealthStep IRA, it can be worth the slightly higher cost (or in some cases lower cost) of WealthStep to have advice and portfolio management integrated. An integrated approach can improve results through improved investor behavior, and through tax-efficiency improvements by coordinating your IRA account wisely with non-taxable accounts (if applicable for certain sized WealthStep accounts).

Many WealthStep clients use WealthStep Direct IRA accounts as a “home base” where they roll over balances from their 401k and/or IRA accounts as they change jobs over time, to centralize and simplify their retirement assets.

How do I do a rollover?

From non-WealthStep 401k to current WealthStep 401k: 1) Contact your new/current employer to determine the appropriate check payee and address to send the check.  2) Contact your prior plan recordkeeper to request a distribution from your prior plan* (may be online, by phone or forms, depending on plan).  Have the check be made payable to the rollover account but mailed to your home address.  3) Upon receipt of the check, mail it to the rollover account (send it to the address referenced in #1 above) with any other required paperwork (contact your new/current plan’s recordkeeper to see what paperwork is required).

From non-WealthStep 401k to WealthStep Direct IRA: Contact the recordkeeper/plan provider and request a distribution/rollover to an IRA.  Have the check made payable to Charles Schwab& Co. Account #___ [i.e. your IRA account number, once established/provided to you by WealthStep] and have the check mailed to your home address.  Upon receipt of the check*, retain any tax-related documentation enclosed with the check, and forward the check to WealthStep.

From non-WealthStep Direct IRA to WealthStep 401k: If your employer allows rollovers into your plan, contact your plan recordkeeper for instructions (see recordkeeper link on Member Center main page).

From non-WealthStep IRA to WealthStep Direct IRA: Complete a Schwab “Transfer of Account” form and provide it to WealthStep along with a copy of the most recent brokerage statement of the account to be transferred.

From WealthStep 401k to WealthStep Direct IRA: This is generally not advisable, given that your 401k plan may have economies of scale that provide special diversification or cost reductions that may not be possible to the same extent in WealthStep Direct IRA’s.

*Whatever you do, remember that it is critical to rollover directly from one retirement plan or IRA account to the other. Do not first transfer or deposit your retirement plan or IRA assets to a checking, savings or other personal taxable non-retirement account, because it will trigger taxes and penalties (penalty does not apply if you are over age 59.5, per IRS rules).

How can I make better financial decisions?

Through WealthStep: Use the advice tools, education videos, and stay current with WealthStep’s blog and social media, where you can find tips, information, articles and ideas about how to get on track and stay on track with your financial goals.

Are millennials too risk averse?

Each generation has their own unique advantages and challenges. Millennials may feel comfortable with the risk of working in a start-up business or the gig economy, but often have a different attitude towards investing. For many millennials, their first knowledge of and/or experience with investment markets was the global financial crisis market of 2007-2009 (plus additional years of economy weakness). Millennials who weren’t invested often saw their parents, relatives or friends in distress about the market crash, especially if they lost their jobs or houses. This was a formative financial moment, as a result, causing many millennials to be particularly sensitive to volatility risk. As a result, it is not uncommon for millennials to choose investments that are low-volatility (i.e. less in stocks, more in bonds or cash), or to prefer renting over buying a home. The problem is that this behavior represents a misunderstanding of risk… there are other risks that are worse than volatility, such as inflation, insufficient saving, longevity risk and emotional investing. The four of which all significantly increase risk of not being able to retire or become financially independent. It is important for millennials to be aware of this pattern, and to educate themselves, to re-wire their brains through training, to have a more effective definition of risk. The WealthStep Financial Independence video is designed to help.

What are the risks?

Many people, due to the media’s focus on market volatility, believe that stock (or bond) price fluctuation is the only or primary risk. In reality, there are other risks that are often worse in the long-run than market volatility… including inflation (purchasing power risk), emotional investing (investor behavior risk) and outliving your money (longevity risk).  See the WealthStep Financial Independence education video for more on all 4 primary financial independence risks, and learn why market volatility is the only one of those risks that has a reward over time. See other FAQ’s on related subjects for additional information.

Can I lose all my money if I invest it?

No and yes. If you were to invest all of your money in one stock/company outside of WealthStep/on your own, and that company went out of business, you would have had all your eggs in one basket, and you could essentially lose all your money. However, WealthStep portfolios avoid that risk by investing in diversified portfolios, with thousands of stocks and/or bonds (based on life-stage selection). Even if 1, 5, 10 or 100 companies within your portfolio go out of business, for example, there would still be thousands left in your diversified portfolio, thereby virtually eliminating the risk of losing all of your money. This is one of the valuable risk-reduction effects of diversification. Note: Not investing and therefore subjecting yourself to the risk of inflation is a much greater risk over time (see FAQs regarding different types of risk).

How much can returns vary?

The primary determinant of investment returns in the long-run (and often short-run) is asset allocation, i.e. the mix of stocks and bonds. Below is an example, which can change over time, of different stock bond mixes, their “expected return”, and “high” and “low” ranges:

Stock/bond mix:               100/0     75/25     50/50     25/75
Expected return:              7.0%      6.3%      5.5%      4.2%
Higher-range:                    44.1%    33.6%    23.1%    13.8%
Lower-range:                     -21.3%  -16.0%  -10.2%  -4.7%

The “expected return” is the yearly midpoint of a statistical/probabilistic projected range of geometric average returns, in this case, based on 2018 Callan 10-year Capital Market Projections, as an example. In other words, the “expected return” is not a specific prediction for any given year but rather can be thought of as the expected average return over time. There is a 5% chance that returns will fall above the “higher-range,” and a 5% chance that returns will fall below the “lower-range.” In other words, there is a 90% chance that returns will fall between the “higher” and “lower” range numbers. You will notice that the range of returns increases as the amount of stocks increases. This reflects the additional variability and price fluctuations of stocks. Stocks have higher highs and lower lows, and a higher average over long time periods.  The projected inflation over the 10-year period above is 2.3%. Note that the projections WealthStep uses for advice calculations rely on longer-term projections that may more closely approximate historical returns and 30+ year projections and will vary from the 10-year projections above. Return projections used in the advice module assume a gradual shift in stock bond mix over and within age ranges. See details about return projections specific to age groups inside return projections info-bubbles within Planning/Saving Advice module. As general reference, for users with access to 4 target allocation portfolios (the following will vary for different investment option arrays), typical/generally recommended age/average allocation ranges are as follows: “<age 40: 90-100% stocks/0%-10% bonds, age 40-60: 75% stocks/25% bonds, age 60-75: 50% Stocks, 50% bonds, age 75+: 25% stocks/75% bonds. All numbers above are estimates for general planning purposes and the most appropriate stock/bond mix may vary based on your specific circumstances, and return and inflation numbers will vary. See “General information and disclosures” FAQ for information about limitations of advice.

Projected investment returns

Within the WealthStep Planning/Saving advice engine, future investment return expectations are utilized as part of the calculations, including to estimate your retirement “nest egg” (amount needed to start retirement/stop working). WealthStep utilizes a combination of econometric forecasting and historical averages in formulating these return and inflation numbers. Geometric returns with risk (standard deviation) factors are utilized to ensure that the impact of volatility is embedded in the projections, rather than straight-lining projections without factoring volatility (the latter of which has the effect of overstating returns). The projected returns are statistical mid-points of a probabilistic distribution, are not specific predictions for what will happen in any given year in the future (in fact, it is expected that any given year’s return will vary significantly from the projection in the short-run, but that over time, returns should roughly approximate the projections, adjusted for inflation). The projected returns assume that WealthStep users follow the WealthStep life-stage investment patterns, and the projections utilize asset allocation (stock/bond mix) patterns that decrease volatility risk and return over time, and therefore the returns vary by age group. The following are projected annualized return examples (actual projections may vary over time): currently age 38 (returns through age 64): 7.2%, currently age 38-50 (returns through age 64): 6.9%, currently age 51-64: 6.7%, age 65+: 5.2%. If your life plans and/or portfolio asset allocations will be significantly different than the WealthStep life-stage investing/asset-allocation recommendations, you may wish to consult a qualified, objective, fee-only financial planner for additional assistance.

How should I invest outside of my company’s retirement plan(s)?

If you have maxed-out the savings limits of your company retirement plan(s), and still need to save more towards retirement, it is generally advisable to save and invest additional money outside of your retirement plan, and to do so similarly to how you you invest within your retirement plan, if you are using a wise life stage approach (see the Financial Independence video, the WealthStep Investment Advice module and other FAQ’s). One option to consider is WealthStep’s “WealthStep Direct” service, designed to make that process easy for you. If you don’t currently meet WealthStep Direct’s minimums (see FAQ), or you applied for the WealthStep Direct minimum waiver and WealthStep is unable to approve your waiver application currently, WealthStep encourages you to utilize a low-cost, highly-diversified, pre-built portfolio, such as Target Date Funds (TDF’s) or Target Allocation funds (TAF’s) by Vanguard (directly through Vanguard.com, or through the low-cost brokerage firm of your choosing, if those funds are available). For taxable accounts, TDF’s and TAF’s can have flexibility drawbacks, for example when it is time to adjust your overall asset allocation, you might need to sell the entire fund, which could lead to capital gains taxes). A simple alternative could be to use a Vanguard (or other) low-cost global stock fund, combined with a global or US broad market bond fund, and hold them in proportions that match your asset allocation strategy’s needs, and then allocation adjustments would only require partial, rather than complete, sales, thereby reducing potential capital gains costs. However, such an approach requires that you monitor and rebalance yourself, whereas TDF’s and TAF’s are rebalanced automatically (as are WealthStep portfolios). In all cases, consider using WealthStep.com advice to help you determine an appropriate investment allocation for your life stage, and savings goals. WealthStep has no financial relationship with and does not receive any incentives or compensation from Vanguard or any other financial institution.

IRS contribution limits

2018 IRS retirement account contributions are as follows:

  • $18,500 – The 402(g) limit (currently $18,000) applies to employee elective deferrals into 401(k) plans, 403(b) plans and governmental 457(b) plans. Note: You can increase/change your contribution levels at any time during the year.
  • $6,000 – The catch-up contributions permitted in 401(k) plans, 403(b) plans, and governmental 457(b) plans, for people who turn age 50 during that year. Some plans allow participants to front-load your catch-up contribution, i.e. earlier in the year.
  • $3,000 – There is another type of catchup contributions that can be written into a 403(b) plan, for people with at least 15 years of service, which allow this additional contribution on top of the regular catchup contribution (this is subject to a lifetime limit rather than an annual limit).
  • $55,000 (plus up any catch-up contribution, above) – This is the combined employee and employer contribution maximum. A 401(k) plan is a subset of a 401(a) plan.  All defined contribution plans are 401(a) plans and are subject to this overall Section 415(c)(1)(A) limit (excluding catch-up contributions).
  • $5,500 – IRA contribution limit (plus $1,000 catch-up contribution if applicable, for those who turn age 50 or older during the year).

For additional information, including other plan types, see the IRS website: https://www.irs.gov/pub/irs-drop/n-16-62.pdf

How does WealthStep choose the mutual funds or ETF’s?

WealthStep utilizes an established qualitative and quantitative process to assess investment managers within each asset class utilized in WealthStep portfolios. WealthStep begins with the broadest starting “universe” available, to maximize the consideration set, and then screens out investment vehicles that do not meet the high qualitative and quantitative standards established for each asset class. Advanced criteria are applied to leading databased and screening tools, leading to a set of “finalists” for each asset class”. The WealthStep Investment Committee assesses the finalists, both individually and in the context of the portfolio structure, to determine the most appropriate selection.

How often and why do you change mutual funds/ETF’s in WealthStep accounts?

Because WealthStep utilizes a thorough and careful research and due diligence process to identify investments for client portfolios, investment vehicle changes occur with very little frequency. When changes do occur, they are usually due to significant organizational changes at a given fund company, such as an acquisition by another company if investment process autonomy is lost and/or the investment process will be changed, or if a portfolio manager or team leaves an actively managed fund, without sufficiently qualified personnel remaining at the fund.

How often does WealthStep monitor my investments?

WealthStep monitors investments regularly as part of a formal investment due diligence process. Certain monitoring activities are conducted yearly (asset allocation study reviews), quarterly (regular investment manager/mutual fund due diligence) or more frequently (as research needs arise, for example, if there were significant long-term performance concerns relative to the market, or organizational problems at a given mutual fund or ETF that might be cause for researching an alternative investment vehicle as a replacement).

How do I set up automatic contributions/deposits into my account?

WealthStep 401k: Login to or call your plan’s recordkeeper website. Contact your HR group for that website or phone information. WealthStep is not directly involved with the transferring of money from your paycheck to your 401k account.

WealthStep Direct: Contact your bank or other financial institution to establish automatic transfers to your WealthStep account at Charles Schwab, once you have a Schwab account number.
Schwab is currently the custodian bank WealthStep utilizes for WealthStep Direct accounts, after WealthStep’s evaluation of an array of custodian banks. WealthStep has no financial connection with Schwab, nor any incentives or rewards for using Schwab.

How does WealthStep make investment decisions?

WealthStep utilizes a formal and unbiased process for determining asset allocation and investment vehicle selection, for the benefit of clients. WealthStep utilizes leading quantitative and qualitative research, including an Investment Committee of experienced professionals, to determine optimal designs.

What are common pitfalls regarding Aim>Save>Invest>Spend?

Aim: Few people spend the time to determine how much they will need to retire and when, and how much to save now to achieve that goal, often times because it is difficult to find good tools to calculate those answers. WealthStep was created to address that problem.

Save: Mostly people simply don’t save enough (often because of the Aim issue above/not knowing how much to save), and most people don’t start saving enough at a young age. Some think that saving a small amount won’t matter, but if you’re getting started at a young age, even a small amount can make a big difference over time with the tax benefits and power of compounding. Then increase when you can.

Invest: Too many people invest emotionally, or chase “the hot dot” (recent strong performers), rather than investing on a disciplined, strategic basis. Investing with an asset allocation (ideally a pre-built asset allocation option) appropriate for each life stage and doing so consistently, often has the best outcomes over time, when considering both risk and return.

Spend: Few people know how much they can spend without running out of money before the end of their retirement. WealthStep’s savings recommendations are based on your projected yearly in-retirement spending needs, so consider that as a reasonable spending rule. For additional reference, the “4% rule” or something similar can be a rough tool to help determine a reasonable spending level, and special circumstances may require the assistance of a professional.

Remember to update your WealthStep advice yearly to make sure you adjust your saving and investing wisely over time, given that your life stage, earnings, savings, retirement goals and other factors will evolve.

What reporting/statements will WealthStep send you?

WealthStep 401k: You will receive a quarterly report that includes general commentary plus your plan’s investment results, from WealthStep, either directly (electronically) or through your plan’s recordkeeper. You may also receive quarterly reports directly from your recordkeeper.

WealthStep Direct: You will receive quarterly reports directly from WealthStep regarding your account balance and investment returns, and you will receive monthly statement from the independent custodian bank (Charles Schwab, selected by WealthStep as a third party for custody services, with no financial relationship with WealthStep).

What is a hardship withdrawal from a 401k?

Not all 401k plans allow hardship withdrawals. Those that do often only allow hardship withdrawals for certain purposes specified in the “plan document” (ask your HR department for a copy), and normally can only be utilized after loans have already been maximized, if loans are allowed. When hardship withdrawals are taken, they cannot be paid back to a 401k account, and the plan participant is charged a 10% penalty by the IRA, and then the withdrawal is taxed as income.

The truth you need to know – Retirement readiness statistics

The WealthStep homepage statistics come from the following sources:

  • 70% – When health costs are factored in, 70% of people are not on track to retire, per Center for Retirement Research at Boston College:
  • 40% – The % of people are unaware that they aren’t on track to financial independence, per Center for Retirement Research at Boston College:
  • 4% – Emotional investing causes underperformance of 4% per year, per Dalbar, Inc. studies.
  • $1,360 – The 2017 average pre-tax monthly Social Security payment

Can I take money out of my 401k gradually during retirement?

Yes, if your employer’s 401k plan allows “partial distributions” in retirement. Many 401k plans however, allow only “lump sum” distributions, which means that you must remove your entire balance when you want to remove any money. Remember also that when you take money out of your account that you should roll any money you don’t need immediately, into an IRA account… otherwise if you deposit to your checking account, you may have a large tax bill that year, if it was a traditional (i.e. not Roth) balance, since whatever amount is put into a non-IRA account is treated by the IRS as income in that year.

Can I leave my money in my 401k plan if I leave my employer?

In many cases yes. Depending on the 401k plan, if you have over $1,000 or $5,000 in your 401k plan, your employer must, by law, allow you to keep your balance in that 401k plan even if you are no longer employed by the company. You can continue to control your account and your investment selections, but you may not add money to your account. However, some non-WealthStep 401k plans have expensive mutual funds and do not have pre-built portfolio options, so it may be to your advantage to roll the money out of the 401k plan in that case, into an IRA account where you can obtain low-cost, pre-built portfolios. WealthStep is one potential alternative for such cases. If you are changing jobs and your new employer offers a 401k plan and allows rollovers, that is another alternative, but review the new 401k plan carefully to see that it is well-built, with low-cost, pre-built diversified portfolios.

Should you take a loan from your 401k?

Not all 401k plans allow you to take loans from your account, and those that do often only allow only for certain purposes specified in the “plan document” (ask your HR department for a copy). Loans are a double-edged sword. They can be helpful if you have a critical need to borrow money, but temporarily removing money from your account slows down your progress towards retirement readiness.  Generally it is advisable not to take loans, but there may be exceptions if taking a loan helps improve your retirement readiness. One example that can make sense is to borrow for a down payment on a primary home, if there is absolutely no other way for you to save the money for that purpose outside of your 401k. For example, if you are only able to save for a down payment on a home by reducing your 401k contributions, and especially if that causes you to lose-out on a company match, then it can be better to maximize 401k savings and then borrow from it for that purpose.

However, be aware of the following: You pay the loan back to yourself, plus interest to yourself, with after-tax money. Technically the principal portion of the loan is not double taxed, but the interest portion is double-taxed… you pay with after-tax dollars to pay the interest portion, and then you are taxed again in retirement when you take that money out as retirement income. This means the interest portion is double-taxed, i.e. has a tax penalty. This would be the case if the load came from a “traditional”/pre-tax portion of your 401k, whereas if you also have a Roth source, there is no double-tax on interest, but there are other potentially unappealing complications to taking loans from a Roth (ask your 401k recordkeeper for details).

If my company has a 401k, should I use it, or use an IRA instead? What about HSA’s?

In most cases it makes sense to use your 401k, if you have one, especially if your company offers a match (free money from your employer contributed to your account). 401k accounts also have higher savings limits than IRA accounts, allowing you to save more each year. In WealthStep 401k plans, WealthStep builds custom portfolios that benefit from the larger size of the 401k compared to individual IRA’s, which can allow for additional diversification that might not be possible in smaller IRA’s. 401k plans also generally do not have transaction costs, whereas WealthStep IRA accounts (and taxable/non-tax-qualified investment accounts) have some level of transaction costs when portfolio adjustments are necessary. Note also that generally you can’t add money to both a 401k and an IRA in the same year, due to the IRS contribution limits.

If you have a high-deductible health insurance plan that allows for an HSA account, such accounts also have favorable tax treatment. Ask your employer if your HSA provider has an account type that allows investments.

What is the difference between a 401(k) and an IRA?

A 401(k) or other retirement plan is a retirement plan set up and maintained by an employer for employees. IRA (whether “traditional” or Roth) accounts are “Individual Retirement Accounts” that individual people can create at different investment organizations. Both 401k’s (and other retirement plans) and IRA’s have tax advantages that improve your ability to prepare for retirement, while “taxable” accounts do not. Taxable accounts, however are helpful for investing money that cannot be put into a tax-advantaged retirement account.

What is a fiduciary?

A fiduciary is someone that has the legal obligation and responsibility to make certain financial decisions for another person or entity, with only the best interests of that person or entity in mind. For example, certain people involved with 401k plan decisions on behalf of their companies and plan participants (e.g. setting up the plan, choosing the design, etc.) are fiduciaries.

What is rebalancing?

Rebalancing is the process of getting your asset allocation back to its intended weighting or percentages in the different asset classes held in the portfolio. For example, If you’re “target mix” is 75% Stocks and 25% bonds, and the stock market grows faster than the bond market, your stock/bond proportion changes, for example to 80% stocks and 20% bonds. If a portfolio is not periodically rebalanced back to its “strategic target” and is allowed to stray significantly, the portfolio’s volatility risk increases. As a result, rebalancing is an important risk-control mechanism. WealthStep monitors client portfolios and conducts rebalancing periodically (annually, on average).

What is tax loss harvesting?

Tax loss harvesting is the process of selling securities in a taxable investment account when there is a temporary loss in investment value due to market volatility, when the price of the securities drops below its “tax cost basis,” in order to “bank” the losses so that they can be used to offset future gains, which can reduce or defer your tax bill in the future. When tax-loss harvesting is conducted, a similar fund or funds are used to temporarily or permanently replace the funds sold to capture the tax benefit.

What is asset allocation?

Asset allocation is the process of choosing or allocating money to different types of investments, with the goal of creating a diversified and “efficient” portfolio. A diversified and efficient portfolio seeks to minimize volatility risk for a given level of return, or maximize return for a given level of volatility risk. Diversification and asset allocation doesn’t eliminate risk, but it can reduce risk relative to less diversified portfolios for a given stock/bond mix.

How can my company get help setting up a WealthStep 401k or just access to WealthStep participant advice?

Contact WealthStep to see how WealthStep’s 5-Step Fiduciary Process might help improve your 401k plan and increase retirement readiness for your employees. In many cases, using a WealthStep 401k program also reduces a company’s cost and/or the “total cost” of the plan, simplifies the job of fiduciaries, and also reduces fiduciary liability.
WealthStep advice tools are included with complete WealthStep 401k fiduciary support engagements.
WealthStep advice tools can also be provided to plan participants in plans that don’t use WealthStep 401k fiduciary support engagements, for a fee to the plan sponsor. However, WealthStep does not customize the investment advice or return projections for such cases.

How do I make a single (non-recurring) deposit to my WealthStep account:

WealthStep 401k: Contact your HR department to see if your plan allows non-recurring contributions from your paycheck. This is more commonly possible for catch-up contributions. Or, change the deferral percentage online (or on form) and then change it back after the one contribution.
WealthStep Direct: Deposit the cash directly to your WealthStep account at Charles Schwab or log in to SchwabAlliance.com and set up a “moneylink” to “pull”/transfer the intended amount from the appropriate account. WealthStep will monitor your account and invest it accordingly, and timing may depend on the size of the deposit (e.g. small deposits may be scheduled for implementation later to minimize transaction costs). For large deposits (e.g. over $50,000), contact WealthStep for processing assistance. Schwab is currently the custodian bank WealthStep utilizes for WealthStep Direct accounts, after WealthStep’s evaluation of an array of custodian banks. WealthStep has no financial connection with Schwab, nor any incentives or rewards for using Schwab.

How do I change my savings rate?

WealthStep 401k: Log-in to WealthStep and click on the link on the Member Center main page that takes you to your 401k recordkeeper to make that change (however some plans require that a form be filled out through the plan’s HR department). WealthStep is the advice engine, but 401k plans have separate “recordkeeper” providers that process your savings rate and investment changes. Or, contact your HR department for your recordkeeper’s contact information.

WealthStep Direct: Log in to SchwabAlliance.com and set up or modify a “moneylink” to “pull” the money from your bank account. Schwab is currently the custodian bank WealthStep utilizes for WealthStep Direct accounts, after WealthStep’s evaluation of an array of custodian banks. WealthStep has no financial connection with Schwab, nor any incentives or rewards for using Schwab.

How do I change my portfolio selection?

WealthStep 401k: Log-in to WealthStep and click on the link on the Member Center main page that takes you to your 401k recordkeeper. WealthStep is the advice engine, but 401k plans have separate “recordkeeper” providers that process your savings rate and investment changes. Or, contact your HR department for your recordkeeper’s contact information.

WealthStep Direct: Click here to request a portfolio change, for example when your life stage changes. WealthStep may contact your for additional information, if necessary to complete your request.

Note: WealthStep Direct is for personal accounts outside of retirement plans (e.g. IRA or taxable accounts).

Does market timing work?

Only if you’re lucky. For your retirement money, it is better not to rely on luck. An array of studies suggest that market timing is not consistently effective, and that disciplined long-term investors tend to have better results.

Should I pay off credit card debt or contribute to my 401k?

Credit card interest rates are generally higher than the returns you will earn in your 401k account, so it generally makes sense to pay down credit cards first. However, if your company offers a match, that match might be equivalent to a rate that is higher than the interest on your credit card debt. If so, a smart approach might be: 1) Save enough in your 401k to capture the full match; 2) Then pay down your credit card debts as fast as possible; 3) As soon as you’ve paid down your credit card debts, increase your 401k savings to the amount that achieves your long-term goals (use the WealthStep advice engine to help you learn how much to save each month).

How much should I keep in cash? Should I maintain an emergency fund?

There is no magic answer to this question, but there are two categories where it makes sense to hold money in cash or some other short-term/low volatility vehicle. General rules of thumb: 1) When in retirement, consider holding 1 year’s worth or more of spending money in cash, so that it isn’t subject to market volatility (and maintain the rest invested consistent with your life stage, to keep growing it to meet your goals and minimize the impacts of inflation), and; 2) Consider maintaining an emergency fund equivalent to 6 months of spending money, should you lose your job or have another surprise need (note the use of the word “need”, not “want”).

What is the “4% rule”? It helps me know roughly how much I can spend yearly in retirement?

The “4% rule” is a simplified “spending rule” methodology for roughly approximating how much one can spend each year during retirement without running out of money. For example, if you start retirement with $1 million, the 4% rule says you should be able to spend $40,000 (4% x $1,000,000) per year (or $3,333 per month, pre-tax) with a low chance of running out of money during retirement (Note: the 4% rule does not include Social Security income, if applicable). The traditional “4% rule” assumes that a person is in retirement for 30 years and utilizes a portfolio with a “balanced” mix of stocks and bonds (e.g. 60% stocks, 40% bonds). While you can decide when you retire, and the 4% rule can be helpful as a quick rule of thumb, it isn’t possible to know how long you will live or exactly what return investment markets will provide. As a result, and because some economists project that investment returns in the next 50 years may be somewhat lower than in the last 50 years, it may be appropriate and more conservative to utilize a rate lower than 4%, for example 3.5%. For projections that better fit your expected circumstances, it is advisable to consult a qualified, conflict-free, fee-only financial planner. There’s a chance that could lead you to spend less now and end up with extra money at the end of your life, but that may be a better alternative than spending more now and running out of money before you run out of years. The 4% rule can also be used to back-into an approximate “nest egg” amount that one would need in order to start retirement. For example, if you need to be able to spend $3,333 per month in retirement (on top of any Social Security payments, if applicable), the 4% rule says you would need $1 million on day 1 of retirement ($40,000 [i.e. $3,333 x 12], divided by 4%). See the WealthStep homepage for a basic 4% rule calculator, and use the WealthStep advice engine for somewhat more refined spending calculations. For additional information on the 4% rule, see this independent publication: http://www.vanguard.com/pdf/s325.pdf

How can I learn from other people’s mistakes? What do retirees wish they had done differently?

A survey showed the following:

53% of retirees say that ‘Start saving at an early age’ is the best financial advice they have ever received.
Younger workers expect to retire earlier than older workers: on average, those aged 25 to 34 think they will stop working at age 58, while those aged 45 to 54 see themselves retiring at age 63. It is only when people pass the age of 55 that their expected retirement age jumps to 65 [because they are not prepared].
64% of semi-retirees wish they had worked full-time for longer.
For the next generation of retirees, retirement savings are expected to last 10 years, indicating a belief among today’s workers that they are less well prepared.
63% of retirees worry that they do not have enough money to live on in retirement, and 70% of those people regret not saving more.
Only26% of retirees have used a professional financial adviser.
Retirees say the following is the best advice received, in order of importance:
Start saving at an early age
Start saving a small amount, regularly
Don’t spend what you don’t have
Buy your own home as soon as you can afford to
Buy only what you need
Develop a financial plan for the future
Source: HSBC study: The Future of Retirement – Life after work?

If I can only save a small amount, should I bother?

Yes! The power of compounding and the tax benefits (if is a tax-qualified/deferred account), combined with market growth over time, despite periodic volatility, cause retirement accounts to grow faster than most people think. Start with what you can now, and plan to increase each year until you reach your necessary savings rate. Increasing after receiving a raise and/or a bonus is a particularly good time to do so, because you won’t miss it relative to your prior income level. And congrats on that past or future raise!

Why does it cost me less than $1 to save $1?

If you save money in a traditional 401k plan or IRA account, the money goes into your account without paying tax. So, for example, if you save $1,000, and your tax rate is 30%, $700 would go into your checking account if you take it as taxable pay and $300 would go to tax. However, if you instead contribute $1,000 to your retirement account, the full $1000 goes to your account, and your paycheck is only reduced by $700, since you don’t pay the tax. That’s how it costs you less than $1 to save $1. Later, in retirement, you pay tax on that money when you spend it, but until then, it grows tax-free, which helps you grow your savings faster. If you use a Roth 401k or Roth IRA, it’s the reverse… the tax is paid up front and not during retirement (see below for more on Traditional vs. Roth).

What are long term investment return averages? What should I expect?

Long-term US averages over many decades (1/1/27 through 12/31/15) are as follows:

10%: Stock Market

6%: Long-Term Gov’t Bonds

3%: Inflation

Some economists, however, believe that the next 50 years will have somewhat lower returns than the long-term averages, but potentially with approximately commensurate lower inflation, which means that after-inflation returns may remain similar. WealthStep uses a combination of econometric forecasting and historical averages to incorporate reasonable return and risk projections into the investment advice module. The returns above are not a prediction of future returns, and are provided for approximate historical and education purposes. If your portfolio was not built by WealthStep, please go directly to the fund company’s website for specific investment information. Similarly, to the extent that non-WealthStep portfolio asset allocations vary from WealthStep portfolios, the expected returns may also vary.

What asset classes are in my WealthStep portfolio?

WealthStep 401k and WealthStep Direct utilize the asset classes below. WealthStep Direct utilizes mostly passive/index funds (in limited cases where asset classes aren’t available, cost-effective, appropriate or sufficiently diversified in an index fund vehicle/format, active and/or quantitative managers may be utilized) and most often a combination of passive, quantitative and active are utilized in WealthStep 401k. WealthStep 401k portfolio asset classes are often further divided into sub-asset class categories, and often has additional categories.

Large Company US Stocks

Mid Cap US Stocks

Small Cap US Stocks

Real Estate (REITs)

International Stocks

Emerging Markets Stocks

Core US Bonds (Municipal bonds are utilized in taxable accounts)

Short-Term US Bonds (Municipal bonds are utilized in taxable accounts)

High Yield Bonds (Municipal bonds are utilized in taxable accounts)

International Bonds

Global Bonds

Note: For WealthStep Direct portfolios over $500,000 or those utilizing the WealthStep Direct Plus service, additional services are available, and portfolios may utilize additional strategies and diversification, as well as “asset location” across accounts, to improve tax-efficiency. Contact us or learn more here. Note: For WealthStep Direct accounts under $200,0000, a slightly reduced set of asset classes may be utilized in order to reduce investor costs, with minimal diversification trade-off. Asset class and fund selection is subject to adjustment by WealthStep over time. If your portfolio was not built by WealthStep, please go directly to the fund company’s website for specific investment information. Similarly, to the extent that non-WealthStep portfolio asset allocations vary from WealthStep portfolios, the expected returns may also vary.

Does WealthStep use mutual funds or ETF’s inside portfolios?

WealthStep 401k may utilize mutual funds, commingled trust funds, unitized separate accounts or ETF’s, depending on the size of the plan, and the capabilities of the plan’s recordkeeper. WealthStep Direct currently primarily utilizes mutual funds, but also ETF’s in certain circumstances. ETF’s can be low or lower cost than comparable mutual funds, but in some cases the results are worse than a similar mutual fund, if the ETF has low trading volume and therefore sometimes a higher “bid-ask spread”. Many ETF investors pay a bid-ask spread cost without knowing it, because investment services that use ETF’s don’t quantify that cost or show it as a cost. Additionally, some index mutual funds outperform comparable ETF index funds because of careful and skilled trading. So, cost is an important factor, but net-results is a more important factor to consider.

What’s the difference between Target Date and Target Allocation Funds funds? And should I ever use a Target Date fund with a different year?

TDF’s and TAF’s are pre-built, diversified portfolios (including an array of asset classes/investment types) that do much of the investment work for you. TDF’s automatically adjust the stock/bond mix as you get older, whereas TAF’s stock/bond mix only changes when you decide to (e.g. at different life stages). TDF’s and TAF’s can come in the form of custom-built portfolios, or off-the-shelf mutual funds. Individual asset class mutual funds focus on a single type of investment (e.g. just US Large Company Stocks, US Bonds, or International Stocks) and are therefore much less diversified than TDF’s and TAF’s. Mutual funds are investment vehicles/companies that hold multiple securities (e.g. stocks and/or bonds) and sell shares of those mutual funds so that investors don’t have to figure out how to buy individual stocks and/or bonds, etc.

WealthStep 401k programs utilize custom TDF’s or TAF’s and WealthStep Direct utilizes create custom TAF’s. Custom portfolios allow for best-of-breed investment selection, greater diversification and often lower cost. If you like the idea of TDF’s in WealthStep Direct, let us know and we’ll explore adding that as an option.

If you use TDF’s but feel that the stock/bond mix for the fund that corresponds with your planned retirement date does not have a high (or low) enough % in stocks, you always have the option to use a later-dated (or earlier-dated) fund. However, be careful not to over- or under- estimate your risk tolerance, especially as you approach and/or enter your retirement years, when people’s ability to handle market fluctuations often decreases, and there is less time or no time for your money to recover from market declines.

How often should I review my account statements or online?

Often can be worse. Generally, once a year is sufficient, on a regular schedule (not when you are worried about market bumps) with the motive of getting your current balance to plug back into the WealthStep advice engine, to see if any adjustments are necessary in your savings rate or portfolio selection, to get or stay on track. More often than not, the advice engine might not suggest changes, but that confirmation will help you know you are doing the right thing, so that when the market gets bumpy, you are more likely to stick with your strategy. People who make random or emotional investment selections are more likely to panic in difficult markets. Also, studies show that the more often people look at their statements or online, the worse their results are (Thaler, et al, The Quarterly Journal of Economics, 1997)… basically because frequent viewing increases concern and emotional investing.

Why don’t most people know how much to save and how invest?

Most people don’t have the knowledge or tools, and haven’t been trained in school or elsewhere about how to be wise saver and investor. Some people learn the basics from their parents, but in many cases, their parents have no more knowledge than they do in these matters. This is a dilemma, because many people are now part of what WealthStep calls “the first 401k generation”. Previously, if a company had any retirement plan at all (approximately only 1/3 of companies in the US offer a retirement plan to their employees), it was what was called a “Defined Benefit Plan” or traditional “Pension Plan” where employees didn’t have to make any saving or investment decisions. Now, with the rapid increase in the use of 401k plans, people are required to make their own saving and investing decisions, but without any training in our outside of school. 401k providers that conduct education meetings can help fill that education gap, but may not sufficiently focus on helping people focus on what matters most in decision-making, and what pitfalls to avoid. WealthStep is designed to address those problems, by providing saving and investing advice, and education with a behavioral finance focus, to help people get on and stay on track.

Why don’t people save enough?

The younger you are, the less likely it is that you feel compelled to save. Brain science helps explain this phenomenon. The lobe of the brain responsible for rational and long-term decisions doesn’t fully develop until approximately age 30. As a result, the younger a person is, the less their brain automatically plans for the future. Research (Stanford University, 2011) indicates, however, that aging image apps can help solve this problem. In the study, people who saw computer simulated images of themselves in old age began to save more, because it created a connection between their current selves and a sense of a future self that needs the current self’s help. Try it, and let WealthStep know if you save more after using such an app as well!

Should I start saving early?

Yes! The sooner you start and the more you save, the faster your wealth will rise. Starting young allows more time for the magic of compounding interest. Use the WealthStep advice engine to see how much to save.

Why is it so important to stay invested rather than get out when I’m nervous?

If you’re nervous because the market has dropped… remember that it has already dropped (however no one can predict when it will rise or if it will drop further). Until you sell, temporary price drops are only a “paper loss”, not a realized loss. It isn’t until you sell/get out that you lock in your losses, and increase the real risk… that you will miss the recovery. For example, between 1/1/96-12/31/15 (which includes the 2nd and 3’d worst market crashes in US history), a person who stayed invested in the stock market achieved an 8.2% annualized return. If that person got out of the market and missed just the 10 best days during that time period, his/her return would have been reduced to just 2.1%, annualized. You have to stay in it to win it, and no one can predict when the market will go up or down. History shows, however, that over long enough time periods, the market goes up more than it does down. That is the reward for taking on volatility risk. See the “What’s worse, market volatility or inflation?” FAQ, and watch the Financial Independence video for a discussion about other risks that are worse than volatility. And, note that the amount a person should have in stock market exposure should vary depending on life stage and specific circumstances/needs.

Markets make me nervous, why do they drop so fast sometimes?

Markets are simply auctions, real people buying and selling securities. When fear rises (see emotional investing FAQ and Financial Independence video), people in a panic are willing to sell shares at any cost. If there is a “buyer’s strike,” meaning that buyers are simply not interested in buying, a panic-seller must keep dropping his or her price until he/she attracts a buyer. At some point, prices go so low that the whole world (of stocks) is essentially “on sale” and non-buyers on the sidelines start to become buyers in order to purchase shares at bargain prices. That demand in the “auction” causes prices to go up, often times rising sharply after the market hits bottom. Just like any other auction. The question is… do you want to be in the panic group that pushes prices down for others to buy cheap? Or do you want to be in the profit group that benefits from sticking with your strategy and adding money too it, and benefiting from the eventual market recovery? WealthStep doesn’t recommend attempting market timing (studies indicate that is generally unsuccessful), however if you are regularly contributing to your 401k or personal retirement account, you will periodically be purchasing at bargain prices when the market cools, consistent with the stock/bond mix of your portfolio.

What’s worse, market volatility or inflation?

Inflation means rising prices, which erodes purchasing power over time. What a dollar could buy in 1971 could only buy 21 cents of goods in 2002. That 79% drop in purchasing power is almost as bad as the 84% drop in stock prices in the worst market crash in US history, in the Great Depression. Or maybe inflation is worse? Since inflation doesn’t have a reward, but the stock market had a full recovery over a number of years, that means that inflation is often a worse risk in the long-run vs. market fluctuations. Market volatility, however, gets much more attention in the media, while inflation is a “silent enemy.” When you are younger and have a longer time frame before you need to spend your retirement money, there is more time to reap the benefits of investing, despite some volatility along the way. As you get closer to and into retirement, it generally makes sense to decrease your stock holding and increase your bond holdings. Be smart when choosing your risks. WealthStep’s advice engine will help you determine appropriate investing for each life stage.

What is emotional investing and why does it do so much harm?

Emotional investing is when investors make decisions out of fear or greed, rather than developing and sticking with a long-term plan.  When the stock market drops, fear investing leads people to sell at low prices and miss the recovery. Greed investing causes people to increase risk when markets are strong, and the higher risk then later magnifies the fear investing when markets fall. Brain science helps explain fear investing. When feeling fear, the brain relies more heavily on the smallest and oldest evolutionary part of the brain, which is responsible for fight or flight.  Fight or flight is a valuable survival response that may save your life regularly from physical danger (e.g. when a car crosses a red light and you are a pedestrian jumping out of the way), but is not effective for making long-term decisions, such as financial decisions.  Studies indicate that investors who make emotional decisions end up with lower returns, to the tune of 4% per year over 20 years (Dalbar Inc., and other similar studies). Someone who started with $100,000 and was not an emotional investor could end up with $360,000 more than the emotional investor over 20 years. Watch the WealthStep Financial Independence video to improve your financial literacy and learn how to reduce or avoid emotional investing, and why market volatility is a risk you should at least partly embrace because it has a long-term reward, whereas inflation, longevity and emotional investing are worse risks that don’t have rewards. Choose your risks wisely.

Why are some online advice services are higher- or lower-cost than WealthStep?

There is no fee for a public Basic WealthStep advice account. Advanced advice and investment management are either free (for 401k participants, since the plan sponsor/company pays) or paid through WealthSTep Direct. In such cases, WealthStep attempts to charge a fee that is reasonable and that is lower than the value added over time. As a consumer, it is important to seek value, since cheaper isn’t always better. Some alternative services are higher-cost and some are lower. Some of the higher-fee services may be over-charging. Some of the lower-cost services may be solid in terms of quality, but what they provide varies greatly. Some charge less and do less. Some are simply investment services and don’t provide the basic planning, on-going education, social media smart-saver/investor reminders, ability to get human financial planning for a project fee, and don’t have the ability to hire a human planner for a project or upgrade to a full-service human advisory team relationship when your assets grow and your needs are more complex. If you only need very basic investment management and know what the right stock/bond mix is for you for each life stage, in the context of also saving the right amount, and you are a disciplined investor that doesn’t need on-going education or reminders to help you stay on track, and you will never need to speak with a human if you encounter complex financial planning needs in the future, then a very basic and lower-cost on-line investment-only service might serve you well. Additionally, most on-line services are start-ups that offer low prices partly to grow their number of customers faster, without being profitable, and if they don’t grow their business sufficiently fast, they may go out of business or get acquired by another organization with conflicts-of-interest (this has happened to several firms in recent years). WealthStep is a stable organization and is not a venture-capital-funded start-up company, and therefore is not subject to those same risks. WealthStep applauds the efforts of all unbiased, conflict-free online advisory firms, who are helping to re-shape the investment services landscape by making investment advice more transparent and more affordable for smaller investors with low-complexity needs. This industry shift may be most disruptive to traditional “full-service” brokerage firms, few of which actually provide full-service, especially to smaller clients, and all of which have conflicts of interest and are often higher-cost and have hidden costs.

Price matters. Cost matters more. What does that mean?

Price is the sticker-price you pay. Cost can be higher or lower than the price over time.  For example, if two cars and one has a lower price but ends up being higher-maintenance and doesn’t last as long, the higher-priced car can be lower cost.

With investment services (and there are many!), the same phenomenon occurs, although unfortunately it can be harder for non-experts to measure. Here are a few examples of how this can affect you:

  • Some have high prices and high costs: Traditional “full service” investment product or brokerage firms are sometimes a good example of this. These firms often don’t provide more than investment services, which means you may invest without objective advice towards achieving your goals. That means you could be “climbing the wrong ladder,” which can be very costly to your life plans. To complicate it further, the services may appear to be “free” but often have non-transparent and hidden fees that are higher than most other services, and the brokers often do not or cannot agree to act in your best interests. To be fair, some of these firms have good people who do their best to act in the best interests of clients, but it isn’t easy for the untrained eye to know which is which.
  • Some have very low prices and medium or high costs: If all you care about is low costs and you aren’t concerned about results relative to your goals, or you are an investment expert, there are plenty of options, including going directly to index mutual funds or ETF’s. If you are not an expert, low price can be high cost. For example, if you put all of your money into a low cost global stock ETF and forget to or don’t know when to start adding bonds or rebalance to reduce your risk as your life stages progress, you could end up with excessive risk and experience a major setback when the market crashes. This is especially likely to be harmful if you don’t have time to wait out the recovery or you become an emotional investor and lock-in the losses by going to cash, and miss the recovery. That downturn could be much more costly than paying slightly more to get some basic help and guidance and reminders over time. Some on-line services help partially solve this problem by helping you build a portfolio, however many do not help you determine an appropriate portfolio consistent with your goals or help you calculate your goals.
  • Some have low prices and low or negative costs: If you find the right balance (i.e. the “Goldilocks” scenario), you may have the best of both worlds. Costs should be fair and never excessive, and there should be value. If you are young with a low-complexity financial situation, you may do well by having a service that helps you set your nest-egg goal, helps you determine how much to save, wisely invests in a low-cost portfolio and provides reminders and education to help you get on and stay on track, then you may significantly increase your chances of success. If you have larger wealth and a more complex financial situation, having the option of paying an additional reasonable fee to have expert human help you navigate opportunities and minefields can be invaluable.

Welcome to WealthStep! …options for your different needs over time.

What is the cost/fee to use WealthStep vs. WealthStepDirect? What is free vs. paid?

WealthStep is 100% transparent about fees and costs, and works hard to keep costs down so that your account value increases faster. With some other services, it may be a challenge for you to determine what the different costs are.

There is no fee to create an online WealthStep advice account and use the Basic advice version. To access the Advanced advice option and more, see options below:

WealthStep 401k:

$0 for plan participants, because WealthStep’s fee is paid by your company as an employee benefit. Also, most 401k plans have no transaction costs. Most 401k plans using custom WealthStep portfolios have weighted average mutual fund expense ratios in the 0.48% range. See your WealthStep quarterly report for plan-specific weighted average mutual fund expenses for each portfolio in your plan, if the plan uses WealthStep custom portfolios.

WealthStep Direct:

WealthStep Direct is for for individuals who also invest outside of retirement plans. Fees apply when you have WealthStep manage your investment portfolio. The WealthStep Direct fee options are shown below (this annual fee is then divided by 4 and deducted from your account quarterly):

  • ____ standard fee, annually (TBD)
  • ____ smart investor discount fee, annually (TBD) (if you watch the Financial Independence video annually and successfully pass a quiz). This option is not yet available, but should be available soon.
  • ____ friend of WealthStep discount fee, annually (TBD) (for those that help WealthStep grow through successfully referring multiple same- or greater-sized clients to WealthStep. This option is not yet formally active, but may be available in the future. In the meantime, if you successfully refer a client to WealthStep, contact us to discuss.
  • 1% WealthStep Direct Plus, annually. This level provides higher service and access to financial planners for projects for those with complex financial situations (typically $4,000 – $8,000 per planning project). Asset location tax efficiency benefits are also included. Also, any Processing charges (see below) are waived (if not excessive).

Custodian bank: Transaction charges also apply to WealthStep Direct clients, and will depend primarily on the frequency that you add or remove money to/from your account. When you add to or withdraw money from your account, WealthStep will process those adjustments in a way that minimizes transaction costs and helps rebalance the asset allocation of your account. If no additions or withdrawals are made, rebalancing may be done as a risk control measure (typically annually), at WealthStep’s discretion. Transactions may also periodically occur in taxable accounts when/if tax-loss harvesting is conducted, to reduce your taxes, at WealthStep’s discretion. If small cash contributions are made, WealthStep may wait for cash to accumulate to a certain level, within limits, before implementing into the investments, in order to reduce transaction costs.

Investment costs: The mutual funds or ETF’s (the underlying mutual funds within a WealthStep portfolio) fees vary based on your stock bond mix and whether it is a taxable or tax-deferred account, but generally range between 0.18% and 0.27%. This cost is called an “Expense Ratio” or “Operating Expense Ratio” or “Mutual Fund Management Fee”, and all mutual funds and ETF’s change such a fee. Mutual fund industry average fees are approximately 1.3%, and WealthStep helps you access lower-cost funds, some of which are not otherwise available directly to individual investors.

Processing charges: Do not apply to WealthStep 401k users, and generally does not apply to WealthStep Direct, however WealthStep Direct clients that frequently change asset allocations (more than once a year) or frequently withdraw money (more than twice a year) may be assessed a $100-200 processing charge per transaction (a portion will go to cover processing costs and a portion will be donated or applied to philanthropic financial literacy education). WealthStep is designed for long-term investors and frequent asset allocation changes will generally harm your long-term plans. If you need frequent withdrawals for spending purposes, you may be best served by withdrawing a larger amount annually, and maintaining that cash in a separate checking or savings account of your choosing. If you plan to shift your asset allocation frequently to try to beat the market, see the FAQ about market timing, and WealthStep politely recommends you utilize a service other than WealthStep, and reserves the right to terminate client relationships that involve excessive account activity.

In total, most WealthStep Direct clients with have total fees in the 0.50%-1.00% range, combining the above. Compare that to the benefits of professional management, plus Aim>Save>Invest>Spend advice, plus ongoing education to help you achieve your goals and avoid pitfalls, plus the option to upgrade to a full-service relationship in the future, and the value is expected to materially exceed the total fees above.

What are WealthStep & WealthStep Direct minimum investment account sizes?

WealthStep 401k users: No minimum size.

WealthStep Direct users: $500,000 minimum, with the following exceptions:

If you have existing WealthStep Direct accounts, or have family member accounts that cause you to qualify for a “regular exception” under $100,000, please submit that information through the Contact us page.
If you don’t qualify for a “regular exception” but would like to be considered for a “special exception,” please submit answers to the following questions through the Contact us page:
a) Why you would like to be considered for a special exception;
b) The degree to which you are a long-term, non-emotional investor;
c) How often you typically make changes to your asset allocation;
d) The degree to which you plan to save money into your account;
e) How often you will withdraw money/require WealthStep transaction or transfer processing.

In both cases above, also submit a list of your account types (IRA, Roth IRA or taxable) and each account’s asset size.
WealthStep reserves the full right and discretion to accept or deny exception requests, based on an evolving set of criteria.

Should you be happy when the market drops?

Sometimes, yes! It’s counter-intuitive but if you are adding money to your account, for example through regular contributions via your paycheck, you are purchasing more shares for the same amount of dollars when the market is down, which magnifies your wealth when the market recovers. Once you are near or in retirement and are removing money (selling shares) rather than adding money (buying shares), market volatility doesn’t provide that benefit, which is why that life stage generally calls for less stocks and more bonds. See the “Life stage investing” FAQ for more information.

Should you change portfolios if you’re nervous?

If market fluctuations make you nervous, that is rarely the right reason to change portfolios, if you are in an portfolio that is appropriate for your life stage. See other FAQ’s related to emotional investing, and the different types of risk, as well as the WealthStep “Financial Independence” video.

Why WealthStep vs. other on-line or human advisors?

Online services, when done right, are a powerful method to help smaller investors make better decisions and avoid expensive and conflicted-of-interest-ridden industry providers, when smaller investors can’t yet afford a leading, conflict-free, cost-effective human advisory team.  As one’s assets in an automated program grow and that person/family/institution has more complex needs, algorithms are insufficient to handle certain complex decisions. This is particularly true in regards to the skilled listening and conversation that is required to truly identify and support a client’s goals, help the client “climb the right ladder”, coordinate a complex combination of goals, coordinate with tax/insurance and other advisors to promote the best outcomes, and sometimes most importantly, just “being there”… when concerns arise and “hand-holding” is needed to help clients avoid emotional investment or other financial mistakes that can otherwise do immense and irreparable financial damage. WealthStep provides a human advice and financial planning option for a separate project fee for those using the WealthStep Direct Plus service (learn more in the FAQ “What is the cost/fee to use WealthStep vs. WealthStepDirect?,” and WealthStep’s parent company has a full-service option for larger investors with more complex needs. Additionally, WealthStep’s educational videos and social media reminders and learning opportunities can help bridge knowledge and comfort gap relative to on-line advisors who do not provide that depth.

Life stage investing

Life stage investing means holding more in stocks (higher volatility, higher potential return) during your younger years, and more in bonds (lower volatility, lower potential returns) as you approach and pass through retirement. The younger you are, the more time you have to ride out volatility and benefit from the rewards of the potentially higher returns of a higher stock allocation, during that life phase. Once you are approaching or in retirement, you have less time to recover from significant volatility, so a lower-volatility portfolio is generally appropriate. Also, emotional investing may increase somewhat as you age, especially as you stop working and rely on your retirement portfolio for retirement income, so higher volatility risk may feel even higher later in life, which may decrease your ability to stick with a higher-volatility portfolio for full recovery. When you are spending from your retirement account during retirement, the money spent is no longer there to experience the eventual market recoverr, if withdrawn during a market downturn, so more moderate or conservative investing reduces “selling at the bottom” risk. Note, however, that a well-devised retirement strategy also relies on significant and consistent saving during your pre-retirement years (you can’t solve a savings problem by investing!), so that you don’t feel the need to take on more risk in an attempt to increase return right before retirement to make up for a lack of saving.  WealthStep’s advice engine will estimate your risk tolerance and tell you what a typically appropriate portfolio would be for your life stage. Your final portfolio selection should consider your life stage, your risk tolerance, as well as your ability to save the amount recommended (see the Planning/Saving Advice module). However, and for example, if you have a very low volatility risk tolerance, and invest more conservatively than your life stage warrants, be aware that you will need to save significantly more to achieve the same “nest egg” goal or retirement amount. Or, if you don’t save more, you subject yourself to greater inflation and longevity risk. The pattern of using generally recommended portfolios by life stage may not be perfect for everyone, but if used in conjunction with disciplined investing and sufficient saving, are likely to improve your long-term financial independence and retirement readiness. Also, if your in-retirement spending will be sufficiently low relative to your assets, and/or you will have a sufficiently large pool of assets relative to your spending needs, you may be able to take on less volatility risk earlier in life and still meet your spending goals (if you believe that’s the case, it may be necessary or helpful to consult a fee-only, conflict-of-interest-free financial planner to help you evaluate your special circumstances). Watch the Financial Independence video and other FAQ’s to develop a better understanding of the risks and trade-offs, to make sure you take the right risks in the right proportion, to successfully achieve your retirement goals.

What is WealthStep 401k vs. WealthStep Direct?

WealthStep 401k is for 401k plan participants in 401k plans that utilizes WealthStep. WealthStep Direct is for individuals who want advice and investment portfolio management outside of a retirement plan, for IRA and taxable accounts. See the “Why WealthStep, how does it help you?” FAQ for details.

WealthStep often refers to “WealthStep 401k” but my plan isn’t a 401k?

WealthStep refers to the retirement plan participant program as “WealthStep 401k” because most retirement plan users are in 401k plans, and for simplicity… the name would simply be too long if it included all of the different retirement plans that can use WealthStep. Any participant-directed retirement plan can potentially be a “WealthStep 401k” user, and benefit from the tools and advice for participants, and fiduciary advice to the plan sponsor.

Am I saving enough for retirement? How much will I need and how much should I save now?

A general rule of thumb is that people should save 15% of their each year, starting at an age in the mid-20’s, in order to be sufficiently prepared for retirement. If you start later, you may need to save more to catch-up. WealthStep’s advice engine gather’s information from you about your retirement goals and then recommends a savings level that should improve your retirement readiness.

Is it really possible to save enough to retire? Or is it an impossible dream?

If you wait too long and don’t save enough, it will be tough to catch up. However, it’s never too late to improve your saving and the sooner you start, the greater time and the power of compounded interest can work in your favor. WealthStep’s advice engine will do those calculations for you, to help you understand how much you might need in order to retire and how much to save monthly starting now. You can do it! …and WealthStep will provide the steps to get there.

How many years will I be in retirement? How long will I live?

Your number of years in retirement depends on when you retire and how long you live. A recent study by The Society of Actuaries indicates that a man who is currently 65 has a 50% chance of living beyond age 85 and a 25% chance of living beyond 92. For women, it is 88 and 94, respectively, and for couples, it is 92 and 97, respectively. Health, exercise, diet, smoking/non, family history and other factors can have a big impact on your longevity, so consider using a longevity estimation tool that considers those factors. The WealthStep advice engine includes general longevity assumptions, and also provides a link to a more detailed longevity calculation that includes many of the additional important factors. Take good care of yourself to increase your number of years and quality of life!

How much money will I need to retire?

The amount of money you will need depends primarily on the following factors: 1) The age at which you retire; 2) The amount of time you are in retirement; 3) The level of yearly spending you wish to have in retirement; 4) Health care and other costs. The WealthStep advice engine will gather your information and help you determine what might be an appropriate amount you’ll need to start retirement/be financially independent, often referred to as a “nest egg”.

Tell me everything I need to know in the fewest words possible

Aim > Save > Invest > Spend wisely. Start young. Be a consistent saver, pay yourself first. Be a disciplined as a long-term investor. Spend within your means. Be kind and courageous. Eat well, sleep enough, exercise, be productive, care for your relationships, do the right thing, laugh, work hard/smart and… have some fun! Let us know what YOU think is most important via Twitter or Facebook!

Who are your experts?

WealthStep draws from the expertise and process of a financial advisory team (The Advisory Group of San Francisco, LLC) with over 3 decades of experience and, through The Advisory Group’s relationship with Callan’s IAG division, the research resources of one of the largest investment consulting firms in the world, Callan Associates Inc. Combined, those two groups have over 150 people and include CFP’s, MBA’s, PhD’s, CFA’s and an array of other designations, focused on investment research, asset allocation, analytics technology and processing technology.

Why “Aim > Save > Invest > Spend”?

It isn’t an accident that we use the “>” symbol in “Aim>Save>Invest>Spend. As an arrow, it implies the order of the steps. And, as a greater-than sign, it implies the order of importance, in achieving your goals. A possible exception is Spend, in terms of order of importance, because if you spend more than your planned sustainable amount per year in retirement, you may run out of money before you run out of years.

Aim: Without a target, it’s less likely your arrow will land where you need it to.

Save: Once you know your goal, you can determine how much to save each month.

Invest: Wise investing by life stage helps put your savings to work, to achieve your goal.

Spend: Your plan is built around your spending goals, which becomes your target/sustainable spending level, if you Aim, Save and Invest according to plan.

What do “fee-only” and “conflict-free” mean and why does it matter?

Consumers of financial services should understand the business model of the firms they choose. “Fee-only” means a fully-transparent fee schedule, stated in advance, and paid only by the client to eliminate any potential conflicts-of-interest. “Fee-based” or “commission based” means that a provider receives payment from product companies for placing their clients into those financial products, which is a conflict of interest because that commission could (and often does) influence the decision of the financial provider. For people with accounts under $1,000,000 it has traditionally been a challenge to find fee-only and conflict-free advisors. Certain on-line advisory firms such as WealthStep are helping to solve that problem, by providing fee-only, conflict-free, un-biased advice.

Why try WealthStep?

Why not? It’s free to create an on-line advice account and get the Basic advice to help you Aim, Save, Invest and Spend wisely!

If you’re in a WealthStep 401k/retirement plan, the Advanced advice version is included.
If you sign up for WealthStep Direct as an individual user outside of a retirement plan (e.g. IRA accounts or taxable investment accounts), the Advanced version and investment portfolio management is included for a low fee compared to traditional advisors.

WealthStep. Helping you simplify the steps towards financial independence.

Why does WealthStep matter?

WealthStep matters because there is a significant social problem in the US and other countries… people are not sufficiently preparing themselves to be financially independent.

WealthStep provides the basic guidance regarding how to Aim (determine approximately how much money one needs to be able to stop working), Save & Invest towards that goal, while having a clear picture about how much to Spend without running out of money in retirement.

There is a free version of WealthStep, which provides access to the “Basic” level of advice, which is WealthStep’s way of giving back and helping the greater good.

There are also paid versions of WealthStep, as part of a retirement plan engagement, or as an individual outside of a retirement plan.

Together, let’s help improve people’s lives by improving financial literacy, and by helping people make better long-term financial decisions.

Money certainly isn’t everything… but there is less suffering and more dreams accomplished when at least basic financial goals are met. Or, you can do much more!

Why WealthStep, how does it help you?

Most people seek financial independence, but don’t know how to achieve it or where to start.  The wealthy can afford help from traditional advisory firms, but others find themselves stuck. WealthStep was created to solve that problem. Created by a longstanding traditional advisory firm, WealthStep’s advice process will help with the 4 keys to financial independence: AIM>SAVE>INVEST (and SPEND).

  • AIM: When do you plan to retire or be financially independent, and how much money will you need to be able to stop working?
  • SAVE: How much do you need to save each month now, to meet that goal?
  • INVEST: How should you invest during each life stage?
  • SPEND: How much can you spend each year in retirement without running out money?

WealthStep’s advice tools help you answer the questions above, and gives you clear, actionable advice to help accomplish your goals.  WealthStep helps you live a lower-stress, higher-fun, financially-fit life, so you can live life on your own terms, and spend more time on causes and doing things that are important to you. The world and your future-self thanks you.

WealthStep’s investment process includes a risk tolerance assessment, and for those using WealthStep’s investment designs, portfolios are built using institutional-quality research and resources used by many multi-billion-dollar investors, with highly diversified, low cost, tax-efficient portfolios.

It’s free to create a WealthStep on-line advice account, to access the Basic guidance tools and certain education videos, and get tips/reminders by email and social media (Facebook, Twitter, etc.). Investment services are either free or for a fee, depending on the WealthStep user type, see below.

There are two types of WealthStep users:

  • WealthStep 401k: For participants in 401k plans (or other retirement plan types) that offer WealthStep as an advice program. Planning advice and investment portfolio management is free to plan participants (one or both is paid for by the company sponsoring the 401k plan).
  • WealthStep Direct: For individuals/assets outside of 401k plans (e.g. IRA accounts or taxable investment accounts). Basic planning advice is free, and Advanced advice, investment portfolio management, and financial planning is optional, for a low fee compared to traditional advisors, see fee FAQ.

WealthStep. Helping you simplify the steps towards financial independence.

What is WealthStep’s mission?

WealthStep’s mission is to make lives better through simple, actionable financial advice and education.
WealthStep does this by providing:

  • Online advice and portfolio management for 401k plan participants at no cost to participants.
  • Online advice free, and portfolio management for individuals outside of retirement plans for a low fee.
  • Education videos and social media reminders, to improve decision-making and avoid pitfalls.
  • 401k design and management advice to 401k fiduciaries.
  • Live education seminars to school communities (free) and companies (for a fee that supports the free school education).

WealthStep is a double-bottom-line company, sustainable economically, with the parallel goal of giving back to the community through financial literacy education and advice.