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The richest 1% of Americans have access to great financial tools and advice: Firms like Goldman Sachs provide them with (legal) tricks like Tax Loss Harvesting (TLH). Never heard of TLH? Neither had I until my buddy Andrew Dumas, after reading my post titled "Show Me The Money: Six Strategies to Put Your Cash to Work," mentioned a new startup called Weathfront that was on the cutting edge of ETF fund-based portfolio management. This opened a whole new world of investing up to me, which I'd like to share with you.
But first some background: In my past blog post I talked about ETFs, or Exchange Traded Funds, which are a class of funds that create a basket of stocks based on a particular segment of the market. For example, in the past if you wanted to invest in technology companies you basically had two options: You could pick the companies you thought would be the winners, like Google and Yahoo and buy stock in those directly, or you could invest in a mutual fund that has an expert who picks the companies, and you'd pay a management fee for his or her expertise. But ETFs offer a third choice, and it's worth really understanding how they work. Here's a description from Wikipedia:
"ETFs generally provide the easy diversification, low expense ratios, and tax efficiency of index funds, while still maintaining all the features of ordinary stock, such as limit orders, short selling, and options. Because ETFs can be economically acquired, held, and disposed of, some investors invest in ETF shares as a long-term investment for asset allocation purposes, while other investors trade ETF shares frequently to implement market timing investment strategies. Among the advantages of ETFs are the following:
• Lower costs – ETFs generally have lower costs than other investment products because most ETFs are not actively managed and because ETFs are insulated from the costs of having to buy and sell securities to accommodate shareholder purchases and redemptions. ETFs typically have lower marketing, distribution and accounting expenses, and most ETFs do not have 12b-1 fees.
• Buying and selling flexibility – ETFs can be bought and sold at current market prices at any time during the trading day, unlike mutual funds and unit investment trusts, which can only be traded at the end of the trading day. As publicly traded securities, their shares can be purchased on margin and sold short, enabling the use of hedging strategies, and traded using stop orders and limit orders, which allow investors to specify the price points at which they are willing to trade.
• Tax efficiency – ETFs generally generate relatively low capital gains, because they typically have low turnover of their portfolio securities. While this is an advantage they share with other index funds, their tax efficiency is further enhanced because they do not have to sell securities to meet investor redemptions.
• Market exposure and diversification – ETFs provide an economical way to rebalance portfolio allocations and to "equitize" cash by investing it quickly. An index ETF inherently provides diversification across an entire index. ETFs offer exposure to a diverse variety of markets, including broad-based indices, broad-based international and country-specific indices, industry sector-specific indices, bond indices, and commodities.
• Transparency – ETFs, whether index funds or actively managed, have transparent portfolios and are priced at frequent intervals throughout the trading day.
Some of these advantages derive from the status of most ETFs as index funds."
So, ETFs are a great way to place bets on, say, "technology" or "healthcare" if you believe in those industries, or classes of companies like "Large Cap," "Small Cap," "Domestic Market" or "Emerging Market" stocks without having to pick specific stocks.
But back to Dumas' suggestion: There's also another way to get into ETFs -- via two startups that have created an investment management service around ETFs. Think of it as a "financial advisor 2.0," offering much lower fees (as low as 0.15%) than traditional mutual funds. One of these startups is called WealthFront, and the other is called Betterment. My wife and I have put money in both of them, at the same time, and we're going to compare which one is more effective at maximizing wealth, as well as being the most usable of the two. It's the "battle of the automated investment services."
These two services both offer access to things like Tax Loss Harvesting that once was reserved for the richest 1% of Americans. TLH is explained by Betterment here, but at a high level, it basically consists of selling assets that have depreciated in value to create a loss, then re-buying in that same asset class, and using the loss to offset your other gains. Think of it as making the bset of a bad situation -- and it typically adds 0.77% to a typical customer’s after-tax returns, annually.
This blog will be a running post with updates as we experience the two services. Let the Games begin! See the comments on this post for running comparisons between the two services.
PS -- as I wrote in my "Show Me The Money" blog, anyone can start investing with as little as $25 -- seriously. Being an investor is a mindset more than anything. So if you don't think you have enough money to start investing, put down that Venti Starbucks Frappuccino, scrape together $25, and get started.
I'm the SVP of Strategic Partnerships at ShareThis. It's my job to find the right strategic partners for us to work with. This morning, in the shower, I thought "I'd like to have a simple combo slide deck + narrated screencast to show to prospective partners."
So, I just finished hacking together a simple site that explains our business. It's something I did in just under an hour using a combination of HTML, Google App Engine, Google Slides, HelloBar, Vimeo, iShowU, Google Labs' ShortLinks and AdRoll. It was fun to make it and I expect it'll prove useful.
That activity, of taking an idea I had in the shower this morning and hacking it together in an hour today, got me thinking about the difference between makers and managers, and about how few managers really appreciate (or are able to participate in) the creation process -- especially when it involves some amount of hacking.
I find that managers who are also makers have an ability to key in on opportunities that non-maker managers miss. They have a better ability to connect with their teams. They can go a level deeper into projects than non-maker managers. They can ask more intelligent questions. They can conceptualize and create efficient processes much more quickly and easily. Or to put it another way, they can be much better managers by also being makers.
Startups feel like a race against the clock, because they are. The trick is to extend a startup's runway (or as one of my investors put it, "oxygen in the the scuba tank") long enough to become successful. This means creating the right team, finding product/market fit, executing flawlessly, and either becoming profitable or raising enough money to keep oxygen in the tank until you do (or until you get acquired trying).
One thing I've firmly come to believe after doing several startups is that a startup doesn't die until its founder(s) give up. By that I mean, there's always one more thing that the founding team can do to eek a bit more oxygen from the tank, even when things look hopeless. But when a founder gives up, there can still be money in the bank and it won't matter; the startup is done. It kind of feels like the tail wagging the dog, in a way -- startups succeed from pure, raw determination of the founders as they race against time.
What got me thinking about writing this post, though, is an awesome blog post I read about putting time in perspective. So often in startups it can feel like time's running out that it's refreshing to think about time on a grander scale. Here's an infographic from that article that really does put things into perspective. A great quote from that article is:
Vision Mobile just created a fantastic report called "State of the Developer Nation." Here are some highlights and thoughts:
There's no question that apps are here to stay (and that was a big question, even just 24 months ago). Over half of all phones sold worldwide are now smartphones:
With lots of app growth already and doubling in the next 24 months:
I never thought I'd say this, and I'm not sure how I feel about myself for saying it, but it's an exciting time to be in advertising.
There's a famous quote attributed to John Wanamaker, a pioneer in marketing from the late 1800's that goes:
Indeed, it's almost certainly way more than half. But the lack of quantifiability has always been the elephant in the room, even now, 150 years later.
A crazy story is unfolding in Silicon Valley right now: RadiumOne CEO Gurbaksh Chahal was fired by his board after he pleaded guilty to two misdemeanors of battery and domestic violence against his then-girlfriend, who he accused of having sex for money and allegedly assaulted. He says it was just an argument. She called 911.
But while that is crazy, that's not the really crazy part to me: Watching the reactions of those of us in the blogosphere who don't know all the facts of the case is the really crazy part.
With so many contradictions out in public, someone must be lying, and those contradictions are whipping social media into a frenzy. Here are a few examples:
• On his blog, Chahal says there was no abuse, just a "normal argument." The police say they have a video of him assaulting his then-girlfriend 117 times in 30 minutes, that she was taken to the hospital and that, according to BizJournals, the officer testified that the girlfriend told him "that Chahal grabbed her by the hair, threw her on the bed, hit her many times about the head with his palm, threw her back on the floor and also spit in her face and rubbed it in to her face and chest" and, according to TechCrunch, that she suffered a hematoma after the attack.
• On his blog, Chahal says the supposed security video footage wasn't used in court because "If anything, it actually made the SFPD look bad because they violently assaulted me as I opened my door despite my being fully cooperative.". According to Re/Code, the video -- if it exists-- could not be presented in court because it was seized from his home security system without his consent. The police argued they were afraid he would erase it; the judge didn't accept that argument, so it was thrown out.
My wife Sue and I have been mulling over how to most effectively deploy cash in the current economic climate to generate decent returns without taking outsize risks. We've honed in on six main strategies, which I outline below in descending order of risk.
Since everyone has a varying amount of cash to invest, I'm going to specifically call out ways to deploy small amounts of cash in some of these strategies, as I want this post to be really actionable for anyone. The most important part is to just get started, and the biggest barrier to doing that is you thinking "I don't have any money to invest." So get yourself out of that mindset and jump into the world of being an investor, even if it's just with $25 (yes it's possible, below), $100, or $1,000 or $10,000, or whatever. I also recommend putting money aside every month to invest; that's a great way to get started.
Riskiest: Angel Investing
Unless you've been living in a cave, you've probably heard that WhatsApp was purchased by Facebook for $16 billion in cash plus $3 billion in RSUs.
But what you may not know is that originally, WhatsApp was not solving a problem that people had. In fact, originally, WhatsApp was completely ignored.
It's a great lesson for startups: WhatsApp kept at it and iterated from zero traction, to the fastest growing messaging platform of all time (in fact, some might say the fastest growing platform as calculated by monthly active users of all time). Here's what that growth looks like:
But the original concept for WhatsApp was more of a status update app. This Forbes article articulates it well:
Based on your recommendation of First Round's "Review" blog, I've been reading all the posts. AWESOME one today on how Pandora managed an engineering resource crunch to get to where they are today!
“This is incredible, because someone very smart at one point thought, ‘We would be absolutely stupid not to do this thing.’ But really, when viewed in context of all the opportunities for the business, half of the things people thought were important immediately fall away," says Conrad.
I've been blogging about mobile for six years. Including things like whether native would beat HTML5, why Facebook switched back to native from HTML5, Native vs. Web, the rise of apps, the evolving definition of ‘app’, how Fortune 1000 CEOs are going to be fired for missing the Mobile Crush, how apps have a strong distribution channel, about NPR, Nat Geo, USA Today, Washington Post & others talking about mobile strategy back in 2010, how mobile is way more than a 2nd screen, how mobile data connections will replace wifi, the future of media on mobile, the mobile engagement challenge that nobody's talking about (yet) and how there are two types of engagement to optimize for, the basics of mobile, the future of mobile advertising, mobile events like WWDC 2010, a 45 min screencast back in 2010 with some big thinking about small phones, how mobile influences social strategies, what the iPad means for media, Sprint vs. AT&T speed comparison (spoiler alert: AT&T wins by a landslide), using mobile to lifehack a check deposit from 2000 miles away, mini apps, how mobile enables the interest graph, why we founded + sold AppMakr and Socialize (and the infrastructure required to run it), Android’s growth, SDK adoption tips (and tricks), as well as what mobile might look like in the future, including a review on Google Glass, hacking Glass, Tile, the Internet of Things, and what APIs mean for mobile. So needless to say, I’m deep into mobile.
But what I just read in the First Round Review (I talk more about FRR here) just blew my mind. They write:
Bam. Mind blown. Just like that. Native wins. At least for now.