We all joke about the bad financial decisions we see doctors make. I have to agree that some of them do totally insane things with their money. It’s like they’re drawn to crazy investments.

One of the advantages of being a divorce lawyer is having a ringside seat for observing the investment decisions of others. It’s always interesting.

You’d think we’d learn from others’ mistakes. You’d think our unique position would give us an advantage when it comes to making our own investments.

Not so much.

When it comes to handling their personal money, I’ve watched lawyers make decisions just as bad as those doctors make.

Taking the Guesswork (and Emotion) Out of Investment Decisions

Recently, I’ve come across a smart, simple way to manage your money. I’m using it, and it’s working. I thought I’d share it with you.

As you know from being a regular reader, I’m a big believer in technology. I think Marc Andreessen is right when he says “Software is eating the world.” Jobs are disappearing as software advances (many of ours included), and investment decision making seems especially well suited to computers.

Along comes Wealthfront. It’s in the business of tweaking an algorithm designed to invest your money based on your preferences for risk. You answer some questions, and the software determines your risk tolerance. The formula then invests your money and keeps it invested in the right funds without any intervention from you.

How It Works

How does Wealthfront do it? Is the software magic? Does it leave you wondering what it’s doing with your money?

There’s no wondering involved. It’s totally transparent. You’ll see exactly how it works; it’s really simple. Once it determines your risk tolerance, it allocates your money among a group of exchange-traded funds. These funds carry much lower management fees than mutual funds. Wealthfront shows you exactly what it’s doing, and you can do it yourself if you prefer.

You don’t need to use Wealthfront to take advantage of its system. You can copy the investment plan yourself if you like. All of the funds are publicly available. However, Wealthfront will take over the hassle of balancing the funds according to the plan based on your risk tolerance. It charges a trivial amount (0.25% per year, or $250 on a $100,000 investment), so why not let the software do the work for you?

Wealthfront can handle your IRA as well as your after-tax investments. Your money is invested in funds run by the big names—Vanguard, Schwab, iShares—and it uses an insured clearing brokerage to deal with the cash. A special tax-advantaged strategy is built into the software, which helps when your account exceeds $100,000.

Wealthfront will accept a small initial investment and can grow right along with you. You can develop the risk profile without even registering with the site. The best thing is that Wealthfront takes you out of the equation and puts an end to the emotionally driven, irrational decisions.

Is Wealthfront Right for You?

Who is the ideal Wealthfront customer? It certainly makes sense for the small investor who doesn’t warrant personal attention from an experienced advisor. Is it right for the larger customer, say someone with more than a few million in investable assets? I suppose that depends on how much you believe in the value of the advisor when compared to the value of the algorithm. My guess is that many investors will come down on the side of the software.

Does Wealthfront replace stockbrokers and investment advisors? The advisors will argue that they can’t be replaced (just like we’ll make the same argument for our jobs), but sadly, Andreessen is right. Software is eating the world.