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If you’re anything like most Americans, you likely hold a significant percentage of your wealth in a 401(k), 403(b), or another employer-sponsored retirement account.
The problem is that most employer-sponsored plans offer a random menu of investment options that can be difficult to understand, leaving many employees confused about the investment process. To make matters worse, existing robo-advisors will not manage these employer-provided plans.
Blooom was created to bridge this gap, offering a completely automated investing solution for employer-sponsored plans. First, Blooom provides a free analysis of your retirement account(s) to help you better understand your existing investment portfolio.
If you are pleased with the free analysis, you can hire Blooom to optimize and maintain your retirement accounts for as low as $10/month (Blooom offers the Cash Cow Community their first year of service for $99 instead of $120, which is two months free).
Blooom is a registered investment advisory (RIA), which means the company is legally required to act as a fiduciary on your behalf. Blooom’s only source of revenue is the minimum of a $10 monthly fee and the company earns nothing from their investment recommendations.
This simple pricing structure eliminates many of the conflicts of interest that are common within the financial services industry and allows Blooom to remain unbiased when making investment recommendations.
How Does Blooom Work?
It’s completely free to receive a retirement account analysis from Blooom. You simply create a free Blooom account, connect your eligible retirement accounts and the service uses a proprietary algorithm to analyze and optimize your investment portfolio.
Here is a nice overview of the process:
I recently went through the Blooom onboarding process, and my experience is detailed below.
Step 1) Create a free account
After answering a few questions about demographics, investment preferences, and your target retirement age, Blooom uses this information to recommend a personalized blend of investments (called asset allocation) inside of your retirement account(s). If you don’t like the initial recommendation, Blooom allows you to modify the asset allocation at any time.
If you are young, risk tolerant, and have many years until retirement, Blooom will recommend a significant allocation to stocks. As you approach your desired retirement date, Blooom automatically shifts the asset allocation in your retirement account toward bonds (which are less risky than stocks, with less growth potential).
Step 2) Connect your retirement account(s)
The next step is connecting your retirement account(s). When you search for your plan provider, you will be asked to input your online credentials so that Blooom can securely connect to your account and analyze your existing investments.
Step 3) Review Blooom’s free analysis
After you connect your retirement account, Blooom reviews your existing investment portfolio and suggests ways to improve. This review is free for everyone, and payment is not required to view Blooom’s portfolio recommendations.
You will first be presented with Blooom’s analysis of your existing portfolio (mine is shown below).
The three areas of concern for Blooom are asset allocation, diversification, and fees. In my example, Blooom doesn’t care for my allocation to U.S. large-cap stocks and recommends that I further diversify my holdings.
When you click next, Blooom will then recommended a diversified portfolio that utilizes the investments available in your specific retirement plan. If you are unhappy with the recommended allocation, you can change the target asset allocation at any time.
It’s clear that Blooom’s algorithm heavily favors stocks if you have an investment time horizon of 20 years or more. This decision is understandable because stocks have provided superior investment returns over long periods of time, but investors who cannot stomach the volatility that accompanies a 100% stock portfolio can adjust the recommendation to include bonds.
Step 4) Hire or Fire Blooom
After reviewing Blooom’s portfolio recommendations, you can hire Blooom to manage your retirement account(s) and provide ongoing financial advice for as low as $10/month (or pay annually and receive two months free).
If you decide to pay for service, Blooom will begin implementing the recommended changes in your retirement account immediately. If you ever decide to leave, you can cancel the
Continued Blooom Support
Once the recommended investment portfolio is established, Blooom provides ongoing support at no additional cost.
Blooom maintains your target asset allocation and automatically rebalances your portfolio every 90 days. If you want to change your target asset allocation, simply update your online account and Blooom will implement the changes during the next rebalancing period.
Blooom provides automatic glide path adjustments as well. As you age, Blooom will systematically decrease your stock exposure and increase your allocation to bonds to reduce the overall risk of
In addition to maintaining your portfolio, Blooom offers a wide range of personalized support. Blooom has licensed and certified financial advisors on staff to answer any money-related questions that you may have via email or chat.
Our contact at Blooom has emphasized that this support is not limited to 401(k) plan questions. You can ask about anything related to your finances and their team will make every attempt to provide an accurate, easy-to-understand response. Because Blooom is registered with the SEC as a fiduciary (must legally put your interest first), this advice should be accurate.
The ongoing investment management and personalized financial advice are included in the minimum of $10/month fee.
Blooom’s Investment Process
This section is written for investors who would like a more detailed look at the recommendations made by Blooom’s investment algorithm. If you don’t care about the details, feel free to skip this section.
In essence, the Blooom approach to investing can be boiled down into four steps:
1) Using your demographics, risk tolerance, and target retirement date, Blooom’s algorithm recommends a personalized blend of investments (target asset allocation).
2) Blooom’s algorithm reviews the specific investment options available in your retirement account and classifies each investment into 1 of 14 asset classes, then determines which of these asset classes should be included in your portfolio to achieve the target asset allocation.
3) Blooom’s algorithm selects the best investment option(s) available within each asset class (given your specific retirement plan). Blooom heavily favors low-cost index funds, but if your retirement plan doesn’t offer any index investments, Blooom will recommend actively managed funds according to expenses, past performance, and management experience.
4) Your personal Blooom advisor reviews and approves the recommended portfolio, which is then implemented by Blooom on your behalf.
Steps 1-3 are automated by the Blooom algorithm, while the last step can require manual effort. This entire process usually takes less than 10 days to implement (but never longer than 30 days, according to Blooom).
When you hire Blooom to manage your retirement accounts, you still own and maintain control of all said accounts, but you are giving Blooom legal power of attorney to manage things on your behalf. By law, Blooom is not allowed to take any money out of your retirement accounts, but they are allowed to manage your investments.
It’s important to note that you alone maintain ownership control of your retirement plan, and you can bypass Blooom to request plan changes directly through your retirement plan administrator. Blooom will advise you any time changes are made to your account, whether those changes were initiated by you or Blooom.
Blooom charges a minimum of $10/month, regardless of account size. The monthly fee can be paid by bank account, debit, or credit card. There are no contracts or account closure fees, and you can cancel at any time without penalty.
Blooom offers the Cash Cow Community their first year of service for $99 instead of $120, which is two months free.
Using several years of internal data, Blooom’s research team recently found that the average Blooom client saves more than $41,000 in investment fees over their lifetime, with pre-Blooom investment expenses totaling 0.56% annually, and post-Blooom investment expenses totaling 0.22% annually. The observed reduction in investment expenses easily covers the monthly fee.
Blooom Account Options
Blooom is able to connect with these retirement accounts:
- Thrift Savings Plan (TSP)
It doesn’t matter where you work, or where the account is held. If you can access your retirement account through an online interface, Blooom should be compatible.
Note, Blooom doesn’t yet connect with every retirement plan
Limited Account Options – Blooom is designed to work exclusively with employer-sponsored retirement plans. If you hold any Individual Retirement Accounts (IRA) or taxable brokerage accounts, Blooom cannot manage those funds. However, Betterment or Wealthfront have you covered (and neither can manage employer-sponsored plans like Blooom, which means there is no overlap of services or pricing).
Cost of Service – Although a $10/month minimum is more than reasonable for the services provided, the fee remains the same regardless of account balance. Individuals with smaller accounts will pay a larger percentage in fees, which is unavoidable at Blooom.
Limited Scope – Blooom manages each of your linked retirement account(s) separately using the investment process described earlier. The algorithm is not designed to consider outside investment accounts, which can be problematic in certain situations.
Consider my experience, where Blooom’s algorithm didn’t care for my allocation to large-cap U.S. stocks. I purposefully designed my retirement plan this way, because the optimal investment option within my retirement account is the U.S. total stock market index fund (which heavily weights large-cap U.S. stocks).
There are other stock and bond funds available, but the average expense ratio (roughly 1% annually) is ridiculous when compared to the U.S. total stock market index fund (0.02% annually). Instead of allocating a portion of my retirement plan to these overpriced asset classes, I invest in similar funds (with lower expenses) within other investment accounts to maintain my desired asset allocation.
Blooom’s algorithm sees a diversification problem because it cannot consider my IRA and outside investment accounts, but no such problem exists. If you have accounts that are not managed by Blooom, you can partially remedy this problem by using a free Personal Capital account (see my detailed review) to monitor your overall asset allocation and fees across all accounts.
The Cash Cow Conclusion
If you need help managing your employer-sponsored retirement plan, Blooom is the best hands-off solution available in 2020.
Beyond offering a free retirement account analysis, Blooom will optimize your employer-sponsored retirement account(s) for as low as $10/month. There are no hidden fees or surprise charges, and you can cancel any time without penalty.
For the most part, Blooom’s approach is spot on. The Blooom algorithm emphasizes diversification and low-cost index investing, both of which are supported by years of investment research. The only potential downside is oversimplification, as the service fails to consider outside investment accounts.
If you’d like to hire Blooom to manage your account(s), they are offering the Cash Cow Community their first year of service for $99 instead of $120, which is two months free.
Thank you for reading my Blooom review. If you have used the service, please share your experience with a comment below.