If you’re anything like most Americans, you likely hold a large percentage of your wealth in a 401(k), 403(b), or another employer-sponsored retirement plan.
The problem is that most employer-sponsored plans offer a random menu of investment options that can be difficult to understand, leaving many investors confused in the investment process. To make matter 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. Blooom is a registered investment advisory (RIA) which acts as a fiduciary on your behalf, optimizing and maintaining your retirement accounts for $10/month.
When you sign up from Blooom, you 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:
You still own and maintain control of all 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.
In essence, the Blooom approach to investing can be boiled down to five steps:
1) Using your age and expected retirement date, Blooom recommends a target asset allocation (you can manually adjust the allocation).
2) Blooom reviews the individual investment options in your retirement account and classifies each investment into one of 14 asset classes.
3) Blooom then determines which of these 14 asset classes should be included in your portfolio to achieve the target asset allocation.
4) After determining the appropriate mix of asset categories, Blooom chooses the best investment option within each asset class. Blooom heavily favors low-cost index funds, but if your retirement plan doesn’t offer any index options, Blooom will recommend actively managed funds according to management experience.
5) Your Blooom advisor reviews and approves the recommended portfolio, which is then implemented by Blooom on your behalf.
Steps 1-4 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).
It’s important to note that you maintain control of your retirement plan, and you can request plan changes directly through your plan administrator. Blooom will advise you any time changes are made in your account, whether those changes were initiated by you or Blooom.
Continued Blooom Support
Once the 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, you 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.
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 investment 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 acts as a fiduciary (must legally put your interest first), this advice should be sound.
The ongoing investment management and personalized financial advice are included in the $10/month fee.
Blooom’s Investment Process
I recently went through the Blooom onboarding process, and my experience is detailed below.
Input your basic information and your desired retirement age. Blooom uses this information to recommend the target asset allocation inside of your retirement accounts.
The wider the gap between your current age and target retirement age, the larger the recommended allocation to stocks. As you approach your desired retirement date, Blooom automatically shifts the asset allocation in your retirement account toward bonds.
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 connect to your account.
Step 3) Review portfolio recommendations
After you connect your retirement account, Blooom reviews your existing investment portfolio. This review is free for everyone, and payment is not required to view the Blooom portfolio recommendations.
You will first be presented with Blooom’s analysis of your existing portfolio.
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.
When you click next, Blooom will then recommended a diversified portfolio that utilizes the investments available in your specific retirement plan.
Here you can see that Blooom recommends a diversified blend of stocks, with no allocation to bonds. Given my age, Blooom is obviously favoring the growth potential of stocks in the portfolio, although such an aggressive asset allocation will make some investors uncomfortable.
If you are unhappy with the recommended allocation, clicking next will allow you to change your desired asset allocation using a simple slider.
In my example, the most conservation allocation shown by Blooom is 80% stocks, 20% bonds, but Blooom won’t allow me to select this allocation. The most conservative allocation supported by Blooom is 84% stocks, 16% bonds.
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 many investors simply cannot stomach the volatility that accompanies a 100% stock portfolio.
Step 4) Begin service
After reviewing Blooom’s portfolio recommendations, you will be asked to provide your credit/debit card information to complete the process.
If you decide to complete the onboarding, Blooom will immediately begin implementing the recommended changes in your retirement account.
Blooom charges a flat $10/month, regardless of account size. The monthly fee can be paid by debit or credit card.
Cash Cow Couple readers will receive their first month free through our link.
There are no contracts or additional fees, and you can cancel at any time without penalty.
Blooom Account Options
Blooom supports the following types of 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 online, Blooom should be compatible.
Limited Scope – Blooom manages every linked retirement account separately using the 5-step process previously described. The algorithm is not designed to consider any outside investment accounts or your overall investment portfolio, which can be problematic in certain situations.
Consider my experience in the onboarding process, 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 S&P 500 stock market index fund (which heavily weights large-cap stocks).
There are other stock and bond funds available, but the average expense ratio (roughly 1% annually) is ridiculous when compared to the S&P 500 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 my IRA accounts to maintain my overall desired asset allocation.
Blooom’s algorithm sees a diversification problem because it cannot consider my IRA or other 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 to calculate your overall asset allocation and fees.
Limited Risk Profiling – In each investment account, the target asset allocation is determined by your current age and desired retirement age. This makes partial sense because Blooom focuses exclusively on retirement accounts, where the assumed investment objective is …retirement.
However, age has very little to do with risk tolerance. An investor can be risk-averse or risk-tolerant, whether young or old, but this information is not captured by Blooom in their asset allocation recommendation. Instead, Blooom allows investors to adjust the recommended asset allocation manually.
Blooom Review Summary
If you need help managing your employer-sponsored retirement plan, Blooom is a great hands-off solution. After connecting your account(s), Blooom manages and maintains your investment portfolio for a flat $10/month. There are no hidden fees or surprise charges.
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 have Blooom analyze or manage your retirement account, they are offering our readers one month of free service.
Thank you for reading my Blooom review. If you have used the service, please share your experience with a comment below.
Blooom Review 2017
Blooom will manage all of your employer-sponsored retirement plans for $10/month. Although there are some important limitations, you will have a hard time finding a better solution elsewhere.