Better consumer banking and investing

Almost everyone I know has too much of their assets in cash sitting in bank accounts relative to their risk profile. It’s generally hard to figure out how to get started as an investor and most people just don’t know how to go about it. Financial advisors are typically fairly expensive (2% management fees) and it’s fairly complex for people without proper finance training to buy a range of assets (stock, bonds, currency, commodities, natural resources etc). Banks benefit greatly from this, as they take savings from your bank account and invest them making 5-10% returns on your money and pay you a fraction of this in interest (0.5%).

I really like what Wealthfront has done to simplify the process of investing – they make it very easy for you to assess your risk tolerance and then automatically allocate your funds into different assets. They’ve built technology to automatically reallocate when it makes sense and built other tools for investors to optimise their tax burden (tax loss harvesting being the main one). I think this is a great start, but it still requires you to decide how much you are comfortable investing in public markets.

What if we had a new kind of online bank that took in your cash and got you to set your risk profile, and then allocated your investments based on this profile and your liquidity preference? It’s basically a combination of Wealthfront and an online bank like Simple. You could then manage all your finances from one account, figure out how much you want to keep as a cash buffer, how much to invest in fully liquid investments, and how much to invest in illiquid investments.

A system like this gets rid of a lot of middlemen and unnecessary costs like bank branches, financial advisor middlemen, and gives me better overall return on my assets with much less hassle. I hope banking evolves into something like this soon.

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