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How we invest at Rize

Justin Howell headshot

Justin Howell

Founder & CEO @ Rize

How we invest at Rize

Not investing is almost as big a problem in this country as not saving. Investing is absolutely key to making sure your money works as hard as you do. For longer term goals like retirement, saving isn’t enough. You need the extra returns that come from investing your money wisely. And yet, nearly half of Americans have no money invested in the stock market. That’s a disaster.

We built Rize Invest to make it simple for anyone to invest correctly for the financial goals that matter to them. But what do we mean when we say “invest correctly”?

Here are the investing principles that form the foundation for Rize Invest:

Don’t pick stocks, own the whole market

At Rize, we don’t pick individual stocks. Instead, we use a set of exchange traded index funds (ETFs) to get you exposure to the entire stock or bond market (also known as passive management). Why?

Put simply, all the evidence shows that stock-picking (also known as active management) doesn’t work in the long run. In fact, even Warren Buffett, the Oracle of Omaha, has bet against active management. Back in 2007, he bet hedge fund manager Protégé Partners $1 million that a passive index fund tracking the S&P 500 would outperform a basket of hedge funds over the next decade. Fast forward ten years and, at the end of 2017, he won that bet handily.

When you need the money determines how much risk you can take

Historically, stocks have outperformed bonds over the long run, but stocks have also been more volatile. As we saw with the stock market crashes in 2000 and 2008, sometimes those downturns can be brutal. Therefore, more exposure to stocks in your investment portfolio likely increases your potential returns over the long term, but it also increases your risk, particularly over shorter periods of time.

So, how much risk can you take? In our view, it all comes down to your time horizon, or when you need the money. For example, imagine you’re saving to buy a house in five years. If you invest those savings mostly in stocks, you might get lucky and have higher returns in five years. But what would happen if we had another market crash in the next five years? Your invested savings could decrease dramatically, and then you wouldn’t be able to buy that house. Five years is a very short time period when it comes to investing and you can’t afford to take much risk, which means you should have less exposure to stocks and more exposure to cash and bonds for money you need in the short term.

However, when it comes to a longer-term goal like retirement, which could be forty or more years away if you’re still in your twenties, then you can handle the bigger ups and downs of stocks, and you can and should take more risk in the name of getting higher returns. Ultimately, whether you think you’re a more aggressive investor or a more conservative investor doesn’t really matter. What matters is when you need the money!
Rize is built around goals, and one of the main reasons is that goals allow you divvy up your savings by different time horizons. That is impossible to do if all your savings and investments are just lumped together in one big pool. Rize will recommend a separate asset allocation across cash, bonds, and stocks for each your goals depending on the time horizon for that goal. For shorter-term goals, we recommend a higher allocation to cash and bonds. For longer-term goals of more than ten years, we recommend a higher percentage allocated to stocks. Which leads us to our next core principle:

Keep it simple

Wall Street has built this myth that investing needs to be complicated. It’s just that: a myth. One that was designed to convince consumers to pay them lots of money. The reality is, like so many things in personal finance, that investing smartly is about getting the basics right. The basics are being thoughtful about your goals–what you’re trying to achieve with your money and when–and then having a simple investment allocation across cash, bonds, and stocks that correctly matches how much risk you can afford to take. That’s what Rize does for you. An allocation of 50% bonds and 50% stocks for a goal with a ten-year time horizon may seem so simple, but if you’ve been thoughtful about that goal, then you’ve got the basics right, and that’s what should give you confidence in your investments.

Minimize fees

Fees are a killer for your investments, eating away at your hard-earned money. Here are the primary sources of investing fees and how Rize seeks to minimize them:

Investment-Level Fees: If you invest your money in a mutual fund, for example, the fund manager will pass along his or her expenses from running the fund to you, the investor (known as the expense ratio). Sometimes these fees can be as much as 2% or higher of your invested dollars per year! The expense ratios for index funds tend to be far lower. For example, the expense ratio for the Vanguard Total Bond Market ETF that we use to give you exposure to bonds was a miniscule 0.05% in 2017.

Trading Fees: If you want to buy a stock or a bond, most brokerages will charge you a fee on a per-trade basis, ranging from a couple dollars for an individual stock to more than $20 for certain mutual funds. That adds up fast, particularly if you’re only investing a little at a time! At Rize, we are able to negotiate much better rates with our brokerage partner because we trade at such large scale on behalf of all our customers, so those trading fees are already included in the low monthly fee you pay us.
Advisor Fees: Finally, you may pay fees to your investment advisor (in this case, us). Traditional financial advisors charged 1% or more annually of the money you invested with them. At Rize, you only pay a low monthly minimum fee plus 0.25% annually on the assets in your investment goals. To put that in perspective, if you invested invested $10,000 with a traditional advisor charging 1%, that would cost $100 per year. With Rize, that same $10,000 investment would cost you $26.50. Sweet.

Between investment-level fees, trading fees, and advisor fees, you could easily wrack up fees representing an extra 3% of your investment dollars each year. To put that in perspective, a $10,000 investment that earns 7% per year would be worth almost $39,000 after 20 years. That same $10,000 earning only 4% because of the extra fees would be worth a littler under $22,000. That’s 43% less! As we said, fees are a killer.

Learn more

We believe that the principles we have outlined above and that form the foundation of the Rize Invest platform are the right way to invest for pretty much everyone. But don’t just take our word for it. If you want to do your own research, here are our three favorite books about investing out of all the many that we have read over the years, listed in order of complexity:

41WkSPHIowL. SX329 BO1,204,203,200 The Investment Answer “When Wall Street veteran Gordon Murray told his good friend and financial advisor, Dan Goldie, that he had only six months to live, Dan responded, “Do you want to write that book you’ve always wanted to do?” The result is this eminently valuable primer which can be read and understood in one sitting, …”

51fos-KoS1L The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns Written by John Bogle, the founder of Vanguard, who basically invented the entire index fund industry. This guy is a legend.

109375. UY475 SS475 The Only Guide to a Winning Investment Strategy You'll Ever Need: The Way Smart Money Invests Today Don’t let the clickbaity title fool you. Written by long-time investment professional Larry E. Swedroe, this is the book that financial advisors dedicated to passive management use to convince their more hard-headed clients that passive management is the way to go.