Trying to select which investment options to choose for your 401(k) can feel a lot like learning to speak a foreign language. Depending on the company you work for, you will likely have a menu of investment options to choose from: Target-Date funds, Stock Market Index Funds, Small, Mid and Large-cap funds and more. Already confused? You’re not alone.
As a CERTIFIED FINANCIAL PLANNER™ professional, I can say with confidence that more than 80% of the questions I receive sound something like, “I’ve been given a list of mutual funds to choose from, and I’m completely lost. Please help.” For most of us, our 401(k) is our first experience with investing, and it may be tough to figure out how the options given to you will line up with your financial goals for the future.
Some robo-advisors, like Betterment and Wealthfront, help you dial in your investment options based on your risk tolerance for your IRA or ROTH IRA. And startups like Acorns entered to help with budgeting and incremental savings. However, there aren’t many companies out there to help you select investments and manage your 401(k) portfolio — until Blooom entered the scene a few years ago. Using algorithms and a robo advising strategy, Blooom creates a customized portfolio for your employer-provided 401(k).
What is Blooom?
Blooom (yes, that’s three O’s) was founded by three friends, Chris Costello, Kevin Conrad, and Randy AufDerHeide in 2013. Based in Kansas City, this fintech startup was created to demystify saving for retirement by solely offering guidance and management of 401(k) investment options. They can manage the investments within your 401(k) account no matter who the employer is or where it’s held.
How does Blooom work?
In the past, your options for selecting the “best” investment mix for your 401(k) were limited.
- You could pretend to know what you’re selecting, but just pick whatever your coworker thought sounded good.
- You could hire a financial planner to help you pick your options, which could cost upwards of $250+ or a rather large management annual fee.
- You could do some solid research online and take your best guess to create a portfolio.
What Blooom has done is create a low-cost monthly service to help you take the guesswork out of which investments to choose within your 401(k) given your risk tolerance, along with your retirement goals, including when you hope to comfortably be able to retire. Blooom uses a three-pronged approach to create an investment portfolio for your 401(k) account that’s unique to your risk profile and goals.
- They do an analysis of your employer-provided investment options to find the funds that are lower in cost to help meet your retirement goals.
- Then comes the number crunching. Blooom analyzes those choices that are selected to ensure they match with your target allocation, financial goals, and risk factor.
- From there, Blooom monitors your account for any fine-tuning that needs to be made and regularly rebalances your account to keep it in line with your investment objectives. You also have access to a financial advisor should you have any questions along the way.
An initial 401(k) analysis is free with Blooom. For access to the product’s services, pricing is $10 a month. Additional accounts are $7.50 each.
Who does Blooom appeal to?
You may want to consider a robo-advisor like Blooom if you have access to a 401(k) at work and you’re looking for a low-cost solution to manage your 401(k) investments. It might also appeal to those who are just getting started with their 401(k). Blooom can be used with a 401(a), 403(b), or a 457 account through your workplace. You can always check with your HR department if you aren’t sure what type of retirement account you have.
It may not be in your best interest to “set and forget” your 401(k), but it can be tough to find the time to continually assess the performance of your portfolio. Not only does Blooom initially research all your fund options based on your risk profile, it continuously monitors your portfolio, looking to reduce high-cost funds you may be invested in and replace them with lower-cost options to help meet your financial objectives. The service also ensures your portfolio remains diversified.
The pros and cons of Bloom
While the product can be a great way to familiarize yourself with your 401(k), it isn’t designed to be a fit for everyone. Here are some things to consider:
- Cost. The low-cost management and maintenance of your 401(k) is simple and straightforward, with no hidden fees on top of the monthly fee.
- Access to a financial advisor. Although the account is managed by technology, with funds picked via algorithms, the product allows you to access a (human!) financial advisor if you have any questions.
- Control of your account. Blooom is simply a platform for account management, which is accessed via an online login you provide to them. Your account isn’t moved anywhere, and the product will never withdraw money from your 401(k)
- The product is a fiduciary. A fiduciary means the advisor, in this case, the robo-advisor, is required to do what’s in your best interest.
- Blooom is limited to 401(k) management. The limited scope can be a plus for people who want straightforward and easily accessible information regarding their 401(k), but the product doesn’t support Health Savings Accounts, 529 college savings plans, or other investment accounts, meaning you may have to juggle multiple accounts.
- A robo-advisor isn’t intended to take the place of the nuanced advice and insight of having a personal financial planner. A robo-advisor offers a service, not financial planning.
- When working with any advisor, robo or in real life, it can be tempting to just “set it and forget it.”It’s up to you to also take an active part in your investment strategy by continually assessing and updating your retirement goals and risk profile.
Is there a difference between other robo advisors and Blooom?
You might still be wondering what the difference is between a robo advisor service (like your options with Betterment, Wealthfront, Wealthsimple, and Stash) and Blooom. They are similar in the fact that they utilize automated, algorithmic driven financial platforms with little to no human supervision. Blooom, however, is one of the few robo-advisors that manages employer-provided retirement accounts. For example, it wouldn’t be a bad idea to consider utilizing both a service like Betterment and Blooom if you wanted assistance in managing both your retirement account and your individual investment portfolios
Is Blooom the right choice for helping your retirement strategy?
The numbers don’t lie. Over 75% of Americans worry that they won’t have enough money to get through their retirement and 45% haven’t saved a cent yet for retirement. However, you no longer have to suffer a panic attack when you’re looking at the menu of investments in your 401(k).
The surge in financial technology has allowed companies like Blooom to create a product that serves a need for so many people at a low-cost to help them reach their financial goals. Their tagline — Affordable online 401(k) management for the 99% — speaks to the very real need for inexpensive management options to support 401(k) investment strategies. Blooom can be a valuable tool in helping you create a competitive 401(k) portfolio that may help you reach your future financial goals.
With its affordable monthly fee and the fact that you can cancel at any time, it might be worth considering a robo-advisor like Blooom to help manage your retirement account performance.
Shannah Compton Game is a CERTIFIED FINANCIAL PLANNER® professional with an MBA and is the host of the award-winning podcast, Millennial Money, where she shares totally relatable and easy to understand financial advice that will actually make you want to talk about money. Opinions expressed by the author are their own.
Haven Life doesn’t provide tax, legal or investment advice. This discussion is intended as general education only. We encourage you to work with your own personal tax or legal professionals and your financial advisor. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel.