My Financial Stack as a Millennial
Over the last month I've spent time optimizing the financial services, apps, and tools that I use on a regular basis. I arrived at what I call my financial stack based on conversations with friends, colleagues, experts, as well as my own research. Lots of folks have been asking me what I ultimately landed on, so I wanted to share my financial stack as well as the rationale for my choices. Thought it might also be helpful for those who are interested in better understanding Millennial mentality through a case study of one such Millennial and how I went about making my financial choices.
Checking / Savings Accounts: Capital One 360
I started using ING Direct for my checking and savings account back in 2006. While I was nervous about their acquisition by Capital One in 2012, they've largely held true to the same values as ING Direct and maintained most of the core offering despite the rebrand to Capital One 360.
Prior to Capital One 360, I had a traditional brick & mortar bank that I found tedious as I was moving every year or two to a new apartment and couldn't easily keep track of where my local branch was and I hated having to go to or call the branch office for many basic banking functions. What originally attracted me to an online-only bank and specifically Capital One 360 was a clean & robust web interface, full mobile banking capabilities, high savings interest rates, as well as very low fees (ie. no throwing away your money to account maintenance fees).
Capital One 360 was one of the first mobile apps to offer check deposits and continued to have one of the highest check deposit limits. They have all the features you'd expect, like Touch ID for login, transfers, pay bills, P2P payments, deposits, etc all in their mobile offering. What's also been helpful is the web interface for reviewing transactions, seeing pictures of specific checks to remind myself what they were for, and the ability to download an extensive history of my transactions going back years so I can slice & dice and categorize them how I like. I found other banks provided short 90-day transaction histories which were annoying to deal with.
I try to avoid using cash whenever possible, but I occasionally find that I do need a bit of cash on hand for those remaining annoying transactions that still don't accept credit. Capital One 360 provides free ATM withdrawals from any ATM within the Allpoint network, which tends to be quite a few (382 within 20 miles of where I live, for example) and tend to be pretty convenient at CVS, Walgreens, Safeway, etc. The one feature I wish Capital One had was reimbursement for ATM fees outside of the network for when you can't easily get to an Allpoint ATM, but unfortunately they do not.
After 2006 I spent a few years "chasing interest rates" for my savings account. Capital One 360 offered the best rates when I initially signed up, but then found that a few other online banks like Ally Bank and American Express Personal Savings were offering better rates in the subsequent years. I played the game of transferring my money between savings accounts that provided the best rates. But the days of decent interest rates are long gone and I've since closed all those accounts and simply stuck with Capital One 360 for savings as well, which provides a better rate than most brick & mortars but certainly not the highest.
While I was initially excited about Simple when it launched as an online bank built like a true Silicon Valley startup, I ultimately didn't find the features or experience all that compelling. I didn't have a need for their budgeting & savings tools, their Mint-style functionality was just not as good as Mint, and so I ended up sticking with Capital One 360 as it was far more rich in terms of capabilities.
Learn more: Capital One 360
Credit Card: Chase Sapphire Preferred
As someone who always pays off my credit card balance in full, my primary focus of choosing a credit card was optimizing for rewards. I started using Chase Sapphire Preferred in 2012 and it was the first fee credit card that I've had. While I found travel mile reward cards that had higher dollar-equivalent value of rewards, I found travel miles way too tedious to manage and maintain, especially with expiry dates on the earned miles. So I was looking to maximize dollar value for a card who paid out benefits in cash or cash equivalents. I leveraged Mint to understand my spending patterns across categories like gas, groceries, restaurants, travel, etc. and found that for my annual spending habits, Chase Sapphire Preferred offered by far the best rewards, with 1% cash back on all purchases, but 2% cash back on dining and travel, my two highest expense categories. In addition, you could leverage points for air travel and get a 20% discount on fares. When I modeled out the expect rewards return (which was easy given the categorized Mint data I had), it far exceeded that of other cards, even inclusive of the $95 annual fee after the first introductory year.
Another nice perk has been no foreign transaction fees and an embedded chip for easy payments in many international countries, optimizing this card for international travelers.
It's also considered a premium Chase card, so it weighs heavier and feels far more substantial than a typical credit card. I won't lie that the compliments and conversations that I have with people when I hand them the hefty card are an additional added perk :)
Learn more: Chase Sapphire Preferred
Investments: Vanguard & Wealthfront
Ever since my investment management class at Wharton, I’ve believed that it’s very difficult to beat the market, either yourself or through active fund managers. While certain funds do occasionally outperform, it’s difficult to get access to the best ones and to ensure consistent performance over time. Given this, I’ve always invested in index funds that cheaply give me exposure to a certain asset class. And then I’ve diversified this exposure through investment in various asset classes.
I also enjoy spending time engrossed in my career, not managing my investments. So this passive strategy not only delivers decent returns, but allows me to deploy a fire-and-forget strategy to let me focus my precious time elsewhere.
I've also always hated paying what I call the "wine & dine" tax of private wealth managers that usually take 1% of your assets under management as an annual fee. Many of these private wealth managers employ great sales professionals that attempt to convince you of the quality and personalization of the service they provide, yet when you see their recommended asset allocations, they look fairly similar. So I instead use providers that enable me to automatically execute my passive investment strategy with low fees & no hassle.
Retirement Investments: Vanguard
For my retirement investments, I use Vanguard. I've rolled over all of my prior employer 401k plans to Rollover and Roth IRAs with Vanguard. I specifically invest all of my assets in these accounts in Vanguard's Target Retirement Date funds. You pick the fund based on your target retirement date. And after allocating your money in the fund, Vanguard takes care of all the rest. They invest your dollars across a diversified set of assets appropriately allocated, rebalance the funds over time, as well as slowly reduce the risk of your investments along a glide path that moves your investments to far less risky investments near your target retirement age.
The beauty of Vanguard's Target Retirement Date funds is that it 100% enables my desired fire-and-forget strategy, knowing full-well that my assets are appropriately diversified, that they are rebalanced automatically to ensure that ideal asset allocation as specific asset classes go up and down, and then automatically change my risk tolerance based on my age and time until retirement. I get this automated investment service for the very low annual fee of 0.18%. This is inclusive of the fees typically charged by the underlying index funds that you are invested across, as they are also Vanguard products, making the overall investment incredibly cheap.
Learn more: Vanguard Target Retirement Date Funds
Taxable Investments: Wealthfront
For my non-retirement investments, ie. taxable investment accounts, I use Wealthfront to invest and manage my assets. Wealthfront is similar to Vanguard's Target Retirement Date funds in that it automatically allocates your investments across a diversified portfolio of asset classes as well as automatically rebalances as your asset classes go up and down.
In addition, they provides the following additional value-add compared to Vanguard's Target Retirement Date funds:
1) Customized Risk Score: Unlike Vanguard's Target Date funds that determines your risk tolerance purely based on your age, Wealthfront gives you the ability to customize your risk score based on your individual situation. This enables you to customize it if your situation doesn't just follow that of a typical person in your age growth. For example, if you have additional disposable income, you may be willing to increase your risk tolerance higher than others.
2) Sophisticated Tax Loss Harvesting: Wealthfront excels at providing another source of returns beyond your investments through a technique known as tax loss harvesting. This technique had traditionally only been available to investors with significant assets under management and Wealthfront and other robo-advisors have started to bring this technique to a broader base of investors. Tax loss harvesting buys and sells your assets at certain times in an effort to generate losses that you can leverage to offset gains on your annual tax return. At the same time they attempt to maintain your desired investment allocation and risk tolerance despite these additional trades leveraging algorithms that are constantly tracking and determining when these loss harvesting opportunities exist. Wealthfront goes beyond many other robo-advisors by not only performing tax loss harvesting at the index ETF level, but by buying each and every share of the S&P500 on your behalf, which enables them to perform even more extensive tax loss harvesting at the individual stock level. These harvested losses offset any capital gains you have, which becomes a savings of taxes you would have otherwise had to pay, which can be invaluable if you have capital gains to offset. You can even carry over these losses to subsequent years in case you don't have the capital gains in each given year they are harvested. Here in Silicon Valley it's fairly common to be compensated with employee equity, which means you'll likely have capital gains to offset throughout your career.
3) Tax Optimized Withdrawals: Along the lines of tax loss harvesting, Wealthfront will also optimize any withdrawals you make from your account to be tax optimized. For example, if they can generate additional losses as part of the withdrawal, they will. Or at least minimize the tax burden. This can be helpful in the event you need to take out money for large purchases and not have to worry about detrimental tax implications. This enables you to keep more of your money invested in the market as opposed to earmarking large purchases and leaving those in cash.
For these benefits, you pay Wealthfront an advisory fee of 0.25%. The index ETFs they invest in have an average fee of 0.12%. This amounts to a 0.19% fee premium compared to Vanguard Target Retirement Date funds. I have found that for my taxable accounts, the benefits of tax loss harvesting alone make up for the fee difference when you have capital gains to offset, so believe it's the best approach for me for these accounts.
Learn more: Wealthfront
Spending Management: Mint
My primary use of Mint is to easily analyze my monthly discretionary spending. By integrating my primary spending accounts (credit cards, checking accounts, and savings accounts) I can see a total of my monthly spending as well the breakdown by expense category. No longer do I have to tediously categorize transactions in my own spreadsheet or more realistically, rely on my faulty memory for knowing how I’m spending my money.
Mint does a decent job of categorizing my transactions across high level categories like food & dining, bills & utilities, shopping, entertainment, and more. Though it does miscategorized transactions every so often, the directional values are helpful to know where my money is going.
If you’re particular about correctly classifying each and every transaction, you may find Mint’s occasional inaccuracies frustrating and are likely better off sticking with your own spreadsheet. However, if you’d like a nice weekly summary of your spending with almost no work, Mint is the perfect tool for you.
I also use Mint’s Ways to Save feature to help me optimize my other financial accounts. For example, my above-mentioned switch to the Chase Sapphire Preferred credit card was originally suggested by Mint since it maximizes cash rewards, especially for someone like me with high dining & travel expenditures. Similarly, I originally opened an American Express Personal Savings account, as recommended by Mint, for their high yield savings account.
Learn more: Mint
Net Worth Management: Personal Capital
I also used to use Mint for tracking my overall net worth, but after the Intuit acquisition I experienced significant issues with their third-party integrations to many of the investment and saving financial institutions I use.
So I switched to Personal Capital, an alternative financial aggregation tool that provides the same comprehensive aggregation of all your financial accounts. It has had great support for almost all of my credit card, checking, saving, 401k, IRA, investment, brokerage, and online banking accounts that I have. One of the challenges in working in technology startups is you switch roles frequently, resulting in a myriad of legacy 401k and IRA accounts scattered across institutions. Personal Capital certainly helps to give you a comprehensive view of your entire financial portfolio.
I use it to keep tabs on whether I am achieving my desired savings rate and to keep track of overall net worth growth.
Learn more: Personal Capital
Auto, Umbrella, Homeowners Insurance: Geico
When it comes to auto insurance, I've sought to optimize for low premiums, great customer service, and good web & mobile interfaces. Geico succeeds on all marks and have been happily using them for years now. Every couple of years I seek out competitive quotes from other auto insurers and have continued to see that they provide me the lowest rates. Whenever I need to call them, I'm able to get someone on the phone quickly without long wait times. And they are surprisingly happy to talk to me, which I can't say for my other customer service experiences (think Comcast). They also have a great web interface and mobile app. They even now allow you to avoid having to keep putting the latest auto insurance card in your car every six months and instead use their mobile app to show your latest proof of insurance to police officers (in states like California that allow it). The mobile app also allows you to easily request roadside assistant, and more. I've never really enjoyed the agent model where you need to find a local agent to buy insurance products. Car insurance largely feels like a commodity, so don't see any benefit out of a personal insurance agent. Instead I used to find getting in touch with a specific agent rather time consuming and unhelpful. Much prefer Geico's model of directly working with their support team.
I recently purchased an Umbrella Insurance policy through Geico as well. Umbrella Insurance provides extra liability coverage beyond the limits of your auto and homeowners insurance. These becomes valuable when you have significant assets, which in California includes pretty much anyone who owns a home given the recent property price spikes. Driving a car remains a rather scary endeavor, with over 33,000 annual fatalities in the United States alone. We also live in an incredibly litigious time, where hitting the wrong person and them complaining of neck pain could sadly result in a painful lawsuit. While I can't wait for self-driving cars, in the meantime I picked up some Umbrella Insurance to protect myself, especially since it's fairly inexpensive (Geico quoted me a premium of $133/year for the first million in coverage, plus an additional discount on top of that for already having auto insurance with them).
I also recently got a new homeowners insurance policy through Geico, taking advantage of the multi-line discount and continuing to get the great and friendly customer service I always get with Geico. The policy is actually underwritten by Travelers (as Geico does not directly underwrite homeowners insurance), which is one of the largest homeowners insurers in the nation with a strong property claims reputation, as shown in J.D. Power Insurance Ratings.
Learn more: Geico
Tax Preparation Software: TurboTax
If you haven't seen the trend yet, I tend to trust sophisticated software over humans in most aspects of my financial stack. Tax preparation is no exception. I've used TurboTax for years to prepare my tax return. They do a great job of finding plenty of tax savings, ensuring I file everything correctly, and giving me the transparency and detail I crave in understanding exactly what information I'm submitting and providing me details on total AGI, all available deductions, and more.
While I have used an accountant in a few years where my taxes were complicated by the acquisition of my startup, for the most part I've relied on TurboTax and plan on continuing to do so.
Learn more: TurboTax
Credit Score Monitoring: Credit Karma
There are a lot of gimmicky sites out there that will promise to give you your credit score for free, but I recently signed up for Credit Karma which is the real deal. It will give you continuous monitoring of your credit score completely for free from 2 of the major agencies: TransUnion and Equifax. It's helpful to know what your score is and to monitor any dips and understand why that may be occurring. Lots of great suggestions on improving your credit score as well.
Learn more: Credit Karma
Identity Theft Protection: BillGuard
Unfortunately we now live in an age where financial data breaches are happening every month across popular retailers that we all use. While being subjected to such data breaches entitles you to free credit monitoring, it's rarely enough to stay on top of fraudulent charges on your credit card. BillGuard offers a great mobile app to enable you to do just that. One of it's key features is a smart inbox that keeps track of all transactions on your credit card and lets you swipe right to OK them or swipe left to flag them as a transaction you don't recognize. This makes it far quicker and easier than trying to do this at the end of the month when you receive your credit card statement, which most of us don't bother doing anyway. It also has smart features like notifying you of potential duplicate charges that sometimes occur, so you can get a refund if necessary. It even tells you when one of the merchants you use has been breached. The paid version offers more functionality, but I've simply been leveraging the free offering to-date. A great no-hassle way to get a bit more protection against identity theft.
Learn more: BillGuard
Annual Credit Report Review: annualcreditreport.com
Every year I also get a free copy of my credit reports from the three major agencies: TransUnion, Equifax, and Experian, in order to ensure there are no inaccuracies in my report. I then file online disputes in case there are. Your credit score is 100% based on information in these reports, so it's valuable to ensure it's accurate. It's also helpful to see what accounts you may have forgotten about that you still have open so you can know and take any action necessary. annualcreditreport.com makes it very easy to request an annual credit report from each of the agencies once per year. Takes no more than 15 minutes.
Learn more: annualcreditreport.com
While I hope the catalog of my financial stack was helpful, I'm always looking for suggestions and feedback, so would love to hear from you in the comments on what's your financial stack and what you've had the most success with.
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Jul 29, 2015