Many investors are just looking for a way to generate consistent investment returns long term with minimal management to build wealth. Over the last century, the stock market’s average annual return is approximately 7% after inflation, even accounting for long stretches of time where stocks really didn’t move up or down. However, as measured by JP Morgan, the average investor has earned only 1.9% on average per year after inflation. That is a huge underperformance. 


Let’s take a look at what drives the underperformance and how to build wealth with set & forget investing: 




They often get the best of us at the worst moments. When markets are way down, investors are quick to buy into an even worse future narrative and sell out at very low prices. When markets are way up, investors are in a FOMO frenzy at high valuations. Even the most seasoned investors struggle with this. In fact, over a 15 year span, 92% of US fund managers underperform the S&P500 index. Meaning, the majority of investors simply do not outperform the index.


Timing The Market 


Timing the market is a popular concept amongst many investors. However, timing the market simply does NOT work. There is very few investors that could have imagined US stock indexes climbing to new all time highs during a deep pandemic induced recession. So, investors that tried to sell out and buy back in later have been badly burned. In addition, investors that are still waiting to invest have been left in the dust (for now). As famous economist Kenyes said, “the markets can remain irrational longer than you can remain solvent.” Markets are truly difficult to predict so it is better to stay invested longer than wait for the right time. That said, at times of great uncertainty and high valuations like 2020, utilizing a dollar cost averaging strategy over time allows you to spread your risks over time while still actively investing.


High Fees 


Every day investors are often charged high fees, many of them very hidden fees. For example, a financial advisor at a typical bank may charge you ~1% to manage your money every year. In addition, your typical bank financial advisor is likely to select higher fee investments like mutual funds. While the average passive index fund has an expense ratio of 0.2%, the average expense ratio for actively managed mutual funds is between 0.5% and 1%. Thus, you can end up losing 1.5-3% of your return to fees every year in this case. In the long run, 1.5-3% in fees a year can really hurt your return. In addition, most typical financial advisors underperform the market thereby lowering your returns even further.

Related NerdWallet Analysis: A 1% Fee Can Cost Millennials $590,000 in Retirement Savings


Less Is More 


When it comes to investing, the less you trade, the better for long term wealth building. While trading is all the rage nowadays, staying invested and making regular contributions to a low fee investing plan will significantly outperform trading in the long term. Trading is typically a gamble, whereas investing regularly is a true wealth building strategy.


Passive Investments 


Passive investing has quadrupled since 2010. Due to low fees and strong performance, passive investing has created a ripple across the industry. Passive investing is a great way to invest in just a few holdings for wide diversification. For example, Vanguard S&P500 Index ETF (VOO) tracks the S&P500 index at a very low expense ratio of 0.03%. Meaning, you will be charged a $30 fee per every $100,000 invested per year. Passive investing is a great strategy to track various market indexes with low fees.


Set & Forget Investing 


Anyone can invest in a passive ETF. However, it’s also important to utilize a strategy that keeps you invested through the ups and downs over the long term. In addition, every basic investing strategy should include investing additional funds at regular intervals. For instance, you could deposit $500 into a stock market account every month. The goal is to buy more regardless of what happens to prices in the short term.


Robo Advisors To The Rescue


Robo Advisors are digital platforms that provide automated and algorithm driven financial and investing services with little to no human interaction. Finally, a product that quizzes you, assesses your risk profile/tolerance/horizon, and then recommends investments in layman’s terms with very low fees. In just a handful of ETFs that track various indexes like the S&P500, you gain exposure to thousands of companies across various industries, countries, etc.  From there, robo advisors take advantage of tax loss harvesting to lower your tax bill while keeping your return in tact. Also, robo advisors offer ways for you to automate your regular (e.g. monthly) contributions and help you visualize the change in potential return. Most importantly, robo advisors charge exceptionally low fees that allow you to maximize your return and build more wealth long term.


Our Top Choice: WealthFront


Here at ROT, we have personally used Wealthfront for a small part of our portfolio in the past. Wealthfront charges a 0.25% fee to provide robo advising services. First, Wealthfront quizzes you to determine your goals and risk profile. Depending on your risk tolerance, WealthAdvisor recommends an investment plan that allocates between US stocks, foreign stocks, emerging markets, dividend stocks, and various bonds. After this, you can automate your savings and investments using Wealthfront’s autopilot feature. Best of all, you get all of these great features to automate your investing while keeping fees very, very low (~0.35% a year).


Interested in Wealthfront? Sign up today and get your first $5,000 managed for free. 


Other Robo Advisors 


While reviewing robo advisors, we also recommend checking out Vanguard Digital Advisor and Betterment. While we haven’t used them personally, they offer a platform almost identical to Wealthfront. So, it really comes down to personal preference.


BOTTOM LINE: Anyone Can Build Wealth With Set & Forget Investing 


By utilizing robo advisors like Wealthfront, you can build long term wealth with set & forget investing.While we call it set & forget investing, it is anything but that. Robo advisors are constantly tweaking your portfolio to maximize gains while minimizing the taxes you will need to pay on your gains. In nearly all cases, this strategy will generate greater returns with minimal involvement.