Most people are stunned at the impact investment fees have on their desired retirement age.
I like to tell this story as an example:
Three 30-year-old friends — Emily, Mary and Natalie — all make $40,000 per year at different employers.
- Emily’s 401(k) has an above-average fee of 2.25%
- Mary’s 401(k) has an average fee of 1.5%
- Natalie’s 401(k) has a below-average fee of 0.5%
Emily, Mary and Natalie each invest 10% of their salary until age 65. They each get a 3% raise every year, and all three earn 7% per year on their investments.
What impact do fees have?
- Paying 2.25% in fees, Emily’s 401(k) balance is $529,911
- Paying 1.5% in fees, Mary’s 401(k) balance is $609,486
- Paying 0.5% in fees, Natalie’s 401(k) balance is $739,002
With the same returns, Natalie has over $209,000 more in her retirement account than Emily! That could be the difference between running out of money and leaving money behind.
Learning the fees you’re paying, as well as whether you’re properly invested with your retirement accounts, is difficult.
Many providers don’t make it easy for you to find the fees they charge.
Fortunately, there’s a free tool that tells you the health of your retirement portfolio based on your retirement goals and the exact fees you’re paying.
Blooom offers a very affordable solution, for a very important and often neglected financial planning task, choosing the optimal funds for your retirement portfolio.
- A true set-and-forget 401(k) and IRA solution for hands-off investors.
- Allowable accounts include 401(k)s, IRAs, 403(b)s, 457s and TSPs.
- Free analysis offers valuable insights regarding the health of your retirement portfolio.
- Maintains a fiduciary standard with the SEC.
- Blooom doesn’t factor in outside assets when choosing your asset allocation in an individual account.
- Only manages IRAs with Fidelity, Charles Schwab and Vanguard.
- While great for those with a larger balance in their 401(k), their one-size-fits-all annual fee eats into the returns of smaller investors.
Blooom is an SEC-registered investment advisory firm that offers a free retirement portfolio check-up service.
To get the free check-up, I linked my current 401(k) and IRA, entered my first name (RJ), my birthday (I’m 35), and the age I want to retire (55). Plus, I took a short risk tolerance quiz.
Here’s how it looks (and what I found):
Blooom Risk Tolerance Quiz
In order to provide customized portfolio recommendations, Blooom started me off with a short risk tolerance quiz.
And here are my results:
Blooom Investment Fees
The fees associated with your investment accounts are hard to find and harder to add up. But Blooom’s tool does the digging for you. Here’s what that looks like:
Blooom Free Analysis Summary
Here’s the final summary of my free analysis:
An IRA and 401(k) Robo-Advisor for Hands-Off Investors
While I recommend you take advantage of Blooom’s free investment check-up, Blooom has more to offer.
Blooom’s core service is 401(k) and IRA management.
When you sign up for their management service, Blooom optimizes your fund choices, rebalances your investments, and minimizes fees.
As you saw in the example above, these small tweaks add up over the course of your working life.
What’s important to understand is that this management aspect is done inside of your current investment accounts. In other words, you don’t move your investments to Blooom — the funds stay right where they are.
Instead of charging you a fee based on the amount of money you invest, Blooom charges a yearly fee.
Using an online platform is a lot cheaper than some alternatives. For example, hiring financial advisors could cost you $150 an hour or more. In contrast, Blooom offers three different pricing tiers, the cheapest being $45 a year:
If this hands-off approach sounds interesting, you can learn more below. If not, use their free check-up to uncover how fees are impacting your retirement plan.
One of the first things to understand about Blooom is that they are a fiduciary, which means they’re required by law to act in your best interests.
The company itself is headquartered in Leawood, Kansas. It was founded in 2013 by Randy AufDerHeide, Kevin Conard and Chris Costello.
In that short time, Blooom has grown fast. They now manage over $3 billion in total assets.
Blooom’s Investment Process and Philosophy
In their FAQ section, Blooom says the following:
Q: What is the rationale behind the allocation you chose for me?”
A: We focus on three main things…
Here is the order of importance within our methodology:
- Get the stock:bond ratio appropriate for your timeframe to retirement.
- Get you exposed to every appropriate asset class possible within your 401k fund lineup.
- Select the lowest cost funds for each asset class.
What exactly does that mean?
Risk tolerance. Blooom starts you off with a risk-tolerance questionnaire. Your answers here determine the level of risk you’re willing to take.
Knowing your risk tolerance is vital because having a portfolio that’s too aggressive could cause you to sell at the wrong time. A portfolio that’s too conservative might mean you’re missing out on potential returns.
Asset allocation. Knowing your risk, Blooom determines an appropriate balance of stocks and bonds (i.e., an asset allocation based on your desired retirement age).
Fund selection. Next, Blooom’s algorithm selects the best funds you have available in your 401(k) and IRA accounts. Once the optimal mix of funds is determined, Blooom buys and sells the funds inside of your portfolio to get the right balance.
Rebalancing. Blooom will rebalance your portfolio when it’s in your best interests. Regular rebalancing has been shown to increase returns and decrease risk over time.
Again, Blooom does all of this for you. You’ll then see a summary of the changes made inside of your Blooom account:
Most investment institutions charge a fee for the percent of assets you carry. For example, Betterment’s fees start at .25%. So, for every $100,000 in your portfolio, you’re charged $250 a year.
Blooom does things a bit differently. Since they’re not managing your assets, they charge you a fee outside of your investment account. You can pay this as a monthly fee via a credit card while having the option to cancel at any time.
Blooom has three different account tiers, and the current prices and benefits are shown in the screenshot below.
Blooom Account Options
Right now, Blooom manages 401(k), IRAs, 401(a), 403(b), 457 and TSP plans.
The only institutions Blooom offers IRA management for are Fidelity, Charles Schwab and Vanguard.
Blooom doesn’t manage taxable accounts, nor do they adjust your asset allocation based on your investments in these accounts. For example, a common strategy is to put tax-inefficient investments inside a 401(k). Then, put tax-efficient investments in a taxable account.
As Blooom doesn’t use outside investments to determine your asset allocation inside of your 401(k), this could skew your overall asset allocation.
Blooom Pros and Cons
Investing with Blooom can help many people increase the value of their retirement account. But 401(k) and IRA management is not for everyone.
To help you decide if Blooom is right for you, here’s a complete list of pros and cons.
- Blooom is a fiduciary. Simply put, they’re required by law to act in your best interest.
- It’s affordable. Blooom’s management fee is a simple, low annual fee. There are no hidden fees.
- No balance requirements. You can start with Blooom with $1 in your account (or $1 million, or more). There’s no account minimum.
- No long-term contracts. You can cancel at any time.
- Customized for retirement age and risk tolerance. Your asset allocation is customized based on your desired retirement age and answers to a risk tolerance questionnaire.
- Multiple accounts. If you have more than one retirement account, Blooom can manage them all for the same annual fee.
- Employer-sponsored plans only. Blooom doesn’t factor in non-retirement assets when choosing your asset allocation.
Who Is Blooom Best For?
By reading this Blooom review, you should now know the ins-and-outs of how Blooom works.
If you’re considering the automated management service, here are a few scenarios where it makes sense, along with some circumstances where it doesn’t.
Blooom is ideal for the hands-off 401(k) investor. Someone who hasn’t read a book on investing or whose eyes glaze over when they hear the term “rebalancing.”
As someone who has seen their share of 401(k) plans and talked to people about their investment strategy — this is the vast majority of people.
As far as the IRA aspect of Blooom (which was introduced in early 2020), each of the three supported firms — Fidelity, Charles Schwab and Vanguard — offer great low-cost investment options. As such, in my opinion, this isn’t a huge source of added value. Investors can simply choose one of the low-cost target-date funds provided by these institutions.
Blooom isn’t ideal for higher net worth investors who have a tax-efficient asset allocation plan in place. As Blooom only optimizes your 401(k) and not other investments, it’s this situation where tax-efficiency may trump the value Blooom can bring.
Another scenario I wouldn’t generally recommend Bloom for is when an account balance is under $500 and someone isn’t adding a significant amount to their investment portfolio. Since the account balance is small, I’d recommend picking the lowest-cost stock index fund and revisiting it once you’re ready to ramp up your savings rate.
Is Blooom Legit?
As a CFP®, I’ve seen my share of 401(k) horror stories and mistakes.
With regard to horror stories, 401(k) fees can be outrageous. This is especially true for those working at small to medium-sized companies, where fees above 2% are common.
With regard to mistakes, the fact is that asset allocation is difficult. Some plans have a target retirement fund, which may simplify things, but fees on target retirement funds can be quite high. As such, someone might be better off picking low-cost index funds instead.
But this person must then allocate their assets based on their risk tolerance. Then, they have to rebalance when it’s in their favor. That’s not easy.
That’s where a tool like Blooom helps.
If you plan on having a significant portion of your assets in a 401(k), it’s important that you get it right — especially if you want to hit your target retirement date.
And for a very reasonable fee, you can use Blooom to do just that.
I’d start with the free-check up. If there’s at least one red flag, chances are you’ll benefit from the subscription plan.