Got kids and a job? If you’re like most parents, you’d rather spend time with the kids, or even sit in traffic, than spend time rebalancing and monitoring your 401(k).
While saving for retirement in an employer-sponsored retirement plan is a great way to build wealth, most people just let the money sit there, doing nothing.
Sound familiar?
Even if you do try to manage your 401(k), a lot of plans have terrible investment options. We even had this problem for several years until a recent change with plan managers finally happened.
So what can you do?
Blooom aims to simplify the process and make the smart decisions for you.
What is Blooom?
Blooom is an automated investment service (aka robo-advisor) that focuses on one segment: workplace retirement plans like 401(k)s.
Note: While I will refer to 401(k) plans, Blooom will also work with 401(a), 403(b), 457, and Thrift Savings Plans (TSP).
Unlike most robo-advisors, Blooom can actually manage your 401(k) by analyzing and rebalancing your account for you. Most robo-advisors don’t offer that service for workplace retirement accounts. Strange, but true.
How does Blooom work?
There are a few mistakes people make with their 401(k) accounts. Mistakes that are easily avoided.
- Wrong allocation of stocks and bonds
- Paying high fees
- Forgetting to rebalance their portfolio
- Not investing all the money in their account
Blooom aims to make managing your 401(k) easy while helping fix those common mistakes.
Here is a short video that explains how Blooom works:
Investment selection
While your employer or retirement plan provider gives you access to a few investments, it is completely up to you to choose which investments your money will go towards. They won’t choose for you.
If you aren’t comfortable making investment choices, then that is where Blooom can help.
It looks at your age, risk tolerance, and anticipated retirement timeline and will choose an asset allocation according to your circumstances.
The data in these screenshots is for demonstration purposes only. It’s not my real information, but uses a current age of 30 and retirement target age of 60.
Young and just starting out? You have time to weather the storms of market fluctuations and can have most of your portfolio invested in equities.
Older and closer to retirement? Then Blooom will manage the risk in the portfolio by reducing the amount held in stocks and start moving money towards less volatile options, such as bonds.
Reduce hidden fees
Have you ever looked at your 401(k) statement and wondered what those various fees are?
Blooom helps by looking at those hidden fees and moves your money towards investments in your plan that have the lowest cost while still fitting your asset allocation.
I’ve talked about hidden fees in mutual funds before. Nobody wants to pay hefty load fees, redemption fees, advisory fees, or the fee fees. (That last one is made up. I hope.)
Reducing those hidden fees can save you tens of thousands of dollars over your working life.
Rebalance
Rebalancing your portfolio is important. When you sign up with Blooom, the first rebalance could be a whopper as the program gets your investments back on track, so don’t panic.
After the initial changes, rebalancing will occur regularly or when the investments available in your plan change. The investments will also be rebalanced if your retirement goals change.
Market guidance and philosophy
Worried about what to do when the market drops or goes a bit nuts? The advisors there understand and can help you weather the storms in the market by giving guidance and someone to talk to if you need it.
They understand that investing is a long-term endeavor and the best way to handle a market downturn is to avoid panic.
Financial advisors
Here you won’t find a website with a few algorithms running on a computer in a closet.
Blooom is an SEC Registered Investment Advisory firm, which means it has a fiduciary duty to put your financial interests first.
Yes, there are algorithms that help figure out the best allocation for your situation, but advisors are there to double-check the work and answer any questions you may have.
How much does Blooom cost?
Blooom makes it simple. If you just want an analysis done on your account, the analysis is totally free.
If you would like to take it a step further and let Blooom manage your account, then there is a flat fee of $10/month. That’s it. You can even save 10% by paying annually rather than monthly and cancel at any time.
Plus, there is no minimum balance requirement. You can start at $0.
What does a $10/month fee translate to when comparing services?
Using the $10/month fee, this is what the pricing means at different account levels:
| Account Balance | Fee as a Percentage of Assets |
| $1,000 | 12% |
| $5,000 | 2.4% |
| $10,000 | 1.2% |
| $20,000 | 0.6% |
| $30,000 | 0.4% |
| $50,000 | 0.24% |
| $100,000 | 0.12% |
For comparison, a human advisor may charge 1-2% of assets under management and other robo-advisors charge around 0.25% to 0.35%. Looking at the table, you can see that as you surpass $30,000, the charge is quite reasonable.
If you have a balance below $30,000, you need to decide if you would rather manage the account on your own. You may decide it is worthwhile to pay for the service and have access to financial advisors.
What are the downsides of using Blooom?
Nothing in life is perfect, so of course, there are some drawbacks to using Blooom to manage your 401(k).
Rebalancing schedule
Their site doesn’t make it clear when rebalancing normally occurs. Yes, it will happen if you change your risk tolerance or funds in your plan change. But otherwise, does rebalancing happen quarterly, yearly, or just when the allocations deviate from the target by a certain amount?
It’s hard to know for certain. If you want more control over rebalancing, then you may just want to do the free analysis.
A non-holistic look at multiple accounts
You can add more than one employer-sponsored retirement account to Blooom, but there isn’t a family option nor is there a way to include other retirement accounts such as an IRA.
Even if you do add multiple accounts, each has its allocation done separately. This means each account will have a similar asset allocation no matter the quality of the investments available in each. If you would rather take a holistic approach to your allocation, then you may be better of trying another robo-advisor.
For example, we have multiple retirement accounts. Until this past year, my husband’s 401(k) only had options that came with high fees. So, for that account, we put everything into an S&P 500 index fund. Then we invested other funds in our other accounts in a way that gives us the overall asset allocation we want.
Where Blooom sees a diversification problem, a service like Personal Capital can calculate overall asset allocation and fees over several accounts, but won’t manage the funds in the 401(k).
Allocations are aggressive
This is subjective, but when trying out the service with a sample account and providing answers that lead to “moderate risk tolerance”, I was still presented a stock allocation that most would consider aggressive. It was actually very close to what I would choose in an aggressive portfolio.
The given stock/bond ratio wasn’t drastically off from what I expected and I could still adjust the stock/bond allocation with the slider, but them leaning towards presenting an aggressive allocation is something to keep in mind.
Is Blooom right for you?
There are very few robo-advisors that can manage an employer-sponsored retirement plan, but Blooom is one of them.
If you are just starting out with your 401(k) and need a little help, especially if you are busy and have no idea how to evaluate your 401(k) plan, then Blooom is worth checking out. With more than $30,000 in your 401(k), then having Blooom manage the investments can save you money in fees and time futzing with the details.
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