A Guide to Hands-off Investing

Jose Hernandez
Head of Education

Investing: you hear about it everywhere. You probably feel you should be doing it, even if you don’t have a lot to contribute.

But, maybe you didn’t go to school for finance or you’re an extremely busy person. Maybe you don’t think you have a high enough financial IQ to make important trades in your portfolio. Maybe you just aren’t interested in the subject.

You are not alone in this regard!

In fact, there are a lot of people out there that know investing is important but would like to be more hands-off with it.

Luckily, you don’t have to be Ray Dalio to be successful with the incredible amount of options available to you in today’s world. This article will dive into deeper detail regarding what your options are when it comes to hands-off investing if you aren’t exactly bullish about the subject.

Before we continue, Financial Professional wants to remind you that this article is educational in nature. Any securities or firms named are for illustrative purposes only and do not constitute financial advice. Always do your due diligence and consider your situation – and the help of a licensed financial professional – when making investment decisions.

If you don’t yet have industry professionals handling your portfolio, we can help! Check out Financial Professional’s investment marketplace, where we partner with some of the best in the business to help find the right investment for you.

What You SHOULD Be in Charge of as an Investor

If you don’t have to be Warren Buffett to be a successful investor, what SHOULD you be in charge of?

Your personal finances are the lifeblood of your financial picture and financial goals. This also includes your investing, whether it be hands-on or hands-off.

After all, if your personal finances aren’t in order, it does not matter what the S&P 500 is or isn’t doing.

Where Should You Start with Hands-Off Investing?

A natural place to start is your debt to income-ratio. High-interest debt kills any financial plan – but the beautiful thing about paying down debt is it frees up precious cash flow.

And do you know what you can do with that freed-up cash flow?

Invest it!

If you don’t have an emergency savings fund, it would be wise to make it an immediate goal to start building one. Depending on who you ask, a real emergency savings fund can cover a bare minimum of 3-6 months’ worth of expenses.

Why build an emergency fund?

Life happens!

You never know when that expensive car repair, medical bill, or other unsolicited emergencies will crop up. By having some cash stashed away, you can handle the emergency without having to take on excess debt.

If you already have an emergency savings fund established, you can explore other options, like investing in stocks or building a side-hustle with the extra cash.

Make a Budget – and Stick to It

Another area to focus on is budgeting.

Fundamentals go a long way when it comes to your money. In fact, most people that are in a solid place financially are there because they’ve consistently done the small things right over, and over, and over again. If you don’t have a budget already established, put investing completely to the side for a moment.

The great news about today’s world is technology makes these tedious tasks much easier than they used to be.

There are plenty of user-friendly and “all-in-one” applications out there that can help you organize your finances.

For instance, Mint is a popular option that helps you track your income, spending, and budgeting. You have unlimited flexibility with how you budget on their platform. You can categorize your spending so you can customize certain transactions.

After all, if you don’t know where your money is going, nothing else really matters.

While there may be some legitimate reasons as to why you prefer to be hands-off with your investing, there are zero reasons why you can’t stay on top of your personal finances.

Indexing: A Simple But Powerful Approach for Hands-Off Investing

You may have heard that many professional investors (such as mutual funds or ETFs) have a hard time consistently beating the market.

Does it mean that they’re incompetent? Not necessarily.

The truth is, investing can be tough, even for sophisticated investors with all of the tools and resources in the world.

Modern Portfolio Theory

What does that mean for the retail (average) investor? It means that trying to beat the market may not be the most prudent strategy when it comes to building a portfolio that will help you meet your future financial goals.

Modern Portfolio Theory is a theory that has been widely accepted after a great deal of market research.

The main premise is this: keeping your costs low, along with having diversification in your portfolio and keeping the long-term view, tends to outperform the “beat the market” approach. That body of research has led to the rise of “indexing,” or passive investing.

What is Passive Investing?

Passive investing is a style of investing in which you own investments (typically index funds or ETFs) that track or mirror the performance of a certain benchmark, asset class, or index.

A classic example would be $SPY, an ETF that tracks the performance of the S&P 500, or the top 500 largest publicly traded companies in the United States.

Passive investors believe in owning the market instead of trying to beat the market. This style of investing is popular because it is very hands-off.

For instance, it does not require a ton of fundamental analysis, like investing in individual stocks. This approach has been held in high regard by investment professionals like Warren Buffett.

Keep in mind, however, that passive investing is not free from risk.

Let’s use $SPY as an example.

If the S&P 500 is up 7% in one year, if you hold $SPY for the same period of time, you can expect your position in $SPY to be up 7%.

But what if the S&P 500 is down 10% in the same period that you hold $SPY?

That’s right. Your position will also be down 10%.

Because the turnover in passive portfolios tends to be lower, it may be a more tax-efficient strategy in some cases as well.

Whether you’re actively monitoring and adjusting the positions you hold in your portfolio, or you are a passive investor, it still is very wise to know what you own. You should always understand the risks involved with anything you’re dedicated your hard-earned money to.

The Rise of the Robo-Advisor in Hands-Off Investing

In the past, you had to work with a full-service financial advisor to get access to a professionally managed portfolio. Historically, you’ve also had to have a large chunk of investable assets to even have a conversation with a financial advisor.

Technology is quickly changing that.

Depending on which service you go with, you can have access to a diversified, professionally managed, automatically rebalancing portfolio from 0.0%-0.75%. Furthermore, many platforms don’t have account minimums to get started.

What is a Robo-Advisor?

What exactly is a robo-advisor?

As the name suggests, it is a service intended to provide you with many of the benefits that a traditional financial advisor can provide you while remaining hands-off – but the services are provided digitally.

Most platforms provide you with a number of portfolios that you can choose from, ranging from very conservative to very aggressive asset allocations.

If you do go with a robo-advisor, make sure that you are educated on the costs involved with the platform, even if they tend to be lower than working with a traditional, full-service financial advisor.

What is a Robo-Advisor?

If you do go with a robo-advisor, make sure that you are educated on the costs involved with the platform, even if they tend to be lower than working with a traditional, full-service financial advisor.

Let’s quickly dive into a few platforms that offer robo-advisor services. Titan makes having a hedge fund in your pocket possible. Wall Street makes it seem like only the rich can invest, whereas Titan makes it so everyone can. With over $500 million AUM for 30,000 customers, they make something that seemed impossible, possible. M1 Finance is a robo-advisor that allows customers to customize their experience which allows for them to create a portfolio that is tailored to their needs. Their process makes it better for long-term investors with fewer fees, smarter tools, and powerful strategies. Some other companies you could also look at include:– BettermentWealthSimpleUnifimoney

It is also wise to have an idea of the process that the platform or algorithm uses for its investment selection. Does it primarily use ETFs? Mutual Funds? What are the underlying expense ratios of those investments?

If you are a stickler for customer service, it may be wise to do some research of your own and compare platforms. What some platforms lack in some areas, they may make up for in others.

Remember, it’s your money. You should be informed of where you are putting it.

Who is the “ideal candidate” for a robo-advisor? It may depend. But, if you don’t mind not having a single point of contact, are comfortable with the process of how the robo-advisor selects the investments, and you like keeping costs low while having access to a professionally managed portfolio, the robo-advisor route may make sense for you.

Pros of Robo-Investors:

  • Low cost (usually cheaper than a traditional FA)
  • Automatic portfolio rebalancing
  • Planning tools and calculators
  • Platforms can be user-friendly
  • Some come with planning tools that help you stay on track with your goals
  • Most allow you to link your bank account for funds transfers

Cons of Robo-Advisors:

  • You will not have a single (or human) point of contact
  • You have very little to no control over the selection of the investments
  • Customer service may vary by platform
  • The service is only focused on investments (not any other areas of your financial picture)

The Traditional Financial Advisor or Planner

Maybe your financial situation requires a little more attention, or you’re not comfortable handing your money over to an algorithm.

That’s okay!

There can be great value in working with a traditional financial advisor or planner as a hands-off investor. Depending on your circumstances and preferences, there are plenty of options at your disposal.

Even if you don’t have a ton of investable assets to your name, you can still get assistance from a professional. However, it’s important to know how said professional charges for their time in order to make the best decision for your situation.

Fee-Only Advisors

For instance, fee-only financial planners charge a flat fee (usually monthly) to assist you with your investing, planning, risk management, and more. Fee-only advisors can range in cost. Make sure you do your due diligence and ask questions when shopping around for an advisor.

AUM Advisors

If you have a large enough base of investable assets, you can also consider using an advisor that assesses their fee by assets under management (AUM).

Typically, the larger the amount of money being managed, the lower the percentage of the fee is assessed. The fee is usually deducted from the value of the accounts being managed, automatically.

Important Questions for Your Advisor

Whichever service model you go with, it’s still important to ask a couple of questions regarding the professional you are trusting with your hard-earned investable dollars. Here are a few:

  • How long have they been an advisor?
  • Which licenses/accreditations do they hold?
  • What is the process they use for investing your money?
  • What can they do for you besides putting together an investment portfolio?
  • Do they have any disciplinary items on their record?
  • Do they specialize in working with a specific type of individual or family?

Again, there is no right or wrong answer here. Do your due diligence and go with the advisor who is right for you. Most importantly, make sure you feel comfortable – investing with an advisor should feel like a partnership.

A Final Word on Hands-Off Investing

If you aren’t terribly comfortable with being at the helm of your investment portfolio, there has never been a greater time in history for you. You can absolutely be a successful hands-off investor in today’s world.

However, you should still make sure that you take care of business in the other areas related to your finances. No robo (or real) advisor will be able to save you from poor financial habits.

If you want some control, but don’t want to bother with making active trades, the passive style of investing may make a lot of sense for you. A lot of research indicates it may be one of the best ways to build wealth through investing long-term.

If you want to be completely hands-off, you can decide between working with a robo advisor, or a traditional (aka “real) financial advisor.

There are pros and cons to both models, which means that there is no right or wrong answer. Go with what suits your needs and preferences best.

The moral of the story is that the hard part of investing does not have to be the investment selection. The “hard” part should be putting in the work and making the sacrifices necessary to fund your investment accounts aggressively over time while controlling the variables in your financial life.

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Jose Hernandez
Jose Rafael Hernandez is known as "@thejoserafaelhernandez" on Instagram. He and his family are immigrants to the United States from Venezuela. The unique challenges that he faced at a young age taught him the real value of money and its importance in life. Jose studied finance at Mercer University, where he also competed in Division 1 Baseball. After his athletic career, Jose began his professional career in the finance industry. He started his career as a wealth management advisor for one of the top Investment Advisory firms in the US, where he was responsible for just north of $20mm in AUM. Jose currently holds the Series 7 and 66 licenses. Jose decided to leave the firm so he could have the freedom to create his brand on social media, geared towards educating millennials in the areas of personal finance and investing. His mission is to leave a positive impact on others while building his own legacy and providing for his family.