I’m a millennial, and I fully fit in “I like experiences, not stuff” form. I love to travel, and eat, and learn new things. But it’s tough to really travel. I don’t do it nearly enough. I have kids. I have a mortgage. I have to save my money for things, like paying off my mortgage, saving for my kids to go to college, retirement.
If I were independently wealthy, I would certainly be writing this from Lohan Beach House. Nevermind. More likely the south of France or a Shoreditch cafe. Or I’d love to be like Dev in Master of None, to move to a small town in Italy to learn to make pasta by hand.
But I’m not independently wealthy. And I have a family. And a job that I worked for years to get.
Oh, and I have to save money. A lot of money. And one of the best ways to do that is through robo-advisors.
I also don’t ever want to seem woefully out of touch. I value my relative youth. I appreciate and fully support the shift from experiencing things rather than owning things. But Wealthfront, the robo-advisor, is pushing my limits.
Welcome, financial robot overlords
So I don’t personally use a robo-advisor. Considering my time horizon (~35-40 years), risk tolerance (pretty high), and overall portfolio (heavily weighted in real estate), my financial asset portfolio is 100% stocks. And I can do that easily and cheaply with an extremely low-fee, broad based index fund. I don’t want to pay a robo-advisor any more in fees when I don’t necessarily need adjustments on a regular basis.
That said, I think robo-advisors are the right choice for 95% of people who need some sort of advisory service. Wealthfront and Betterment are design marvels. They are easy to use, clear in their benefits, and are far cheaper than the alternative. It’s really a technological marvel, compared to what long-term savers a generation ago had.
I’m also a sample of one – what works for me isn’t universal advice. I’m sure I’ll jump on the robo-advisor bandwagon as soon as I need to add bonds to my portfolio, or want to tax loss harvest.
I’m also not in the business of money shaming, telling people to stop buying lattes or avocado toast because it’s going to cost them in retirement. Those are incredibly minor expenses in the grand scheme of things. It’s the cost of housing and education that are pinching people, especially younger people, not caffeine habits.
But the personal finance hill I will die on is that saving for the big expenses – education and housing and retirement – is absolutely necessary. Buying a few flat whites a week won’t do much to impede your progress there. However, quitting your job and travelling the world will.
Ok! Great! Wait… Oh gtfo.
So let’s just say I was a little surprised at a Bloomberg piece this week, with the clickbait gold headline “Why It’s Time to Quit Your Job, Travel the World”. It described a, shall we say, curious new product from robo-advisor Wealthfront.
The sabbatical—a chance to recharge midcareer—is hardly a new idea, and it’s still common in academia. But until recently most wouldn’t dream of quitting their jobs just to have fun for a year or two. And, as Gratton acknowledges, doing so is still a financial impossibility for the vast majority of workers.
For well-paid workers in high-demand fields such as technology, however, the idea may be catching on.
Wealthfront Inc., the online money manager based in Silicon Valley, launched a tool on Wednesday that allows clients to estimate whether they can afford to take time off for travel. They can set a months- or yearslong trip as a priority alongside other goals like retirement or buying a home.
Just for reference, academics are paid when taking sabbatical. And nearly all American workers aren’t highly-paid tech workers (and that leaves aside the question how long companies will offer programs like that – see: Twitter and Facebook’s share prices this week).
Oh, and then this:
When the robo-adviser surveyed its clients, more than half listed “take time off to travel” as a top priority, listing it ahead of all other goals except “financial independence” and “early retirement.”
That’s almost certainly a conflicting goal to one’s other priorities. And it’s just as deserving of ridicule as that research that said we shouldn’t start working full-time until age 40.
How many nights free can I get for my 200+ Instagram followers?
It would be great to be an Instagram sensation, logging your global travels in your feed and Stories. You might even get hotels comped (heck, you might be able to get free hotel stays by just pretending to be an Instagram influencer).
But that bit of advice from Wealthfront – that you can quit your job, travel the world, find yourself, all within your long-term financial plan! – ignores a few small details. Like, it’s really hard to save money when you have no income, or the free money you forego from your company’s retirement savings matching program. Oh, and the time value of money – that money you save now is going to be worth a lot more in 20, 30, or 40 years. I once wrote that just a 1% additional fee on retirement products could cost millennials $590,000 in sacrificed returns. What do you think it’s costing you by not saving at all?
Look, young people are having a hard enough time savings as is. What you don’t need to be doing is encouraging wanderlust over saving for those massive future – and past, if we’re including student loans – liabilities hanging over your head.
Burton Malkiel, Princeton economist and probably the expert in retirement savings, offered an easy, succinct rule of thumb in his book A Random Walk Down Wall Street:
What if you did not save when you were younger and find yourself in your fifties with no savings, no retirement plan, and burdensome credit card debt? It’s going to be a lot harder to plan for a comfortable retirement. But it’s never too late to make a plan. There is no other way to make up for lost time than to downsize your lifestyle and start a rigorous program of savings now. You may also have no other choice but to remain in the workforce and push back retirement a few years. Fortunately, it is easier to play catch-up with tax-advantaged retirement plans.
So put time on your side. Start saving early and save regularly. Live modestly and don’t touch the money that’s been set aside.
And-oh-by-the-way, Malkiel is the Chief Investment Officer of Wealthfront.