I must say that I am pretty excited to go check out the event on Friday – nearly sold out (10 spots left)…

We have been planning this one for some time and can’t wait to see all the great people in the Seattle/Bellevue/Redmond tech community come out for Happy Hour. Last year was an awesome year for TechCafe events – so awesome we took a few months off from getting geeky with the best startups and technologists in the area – rest assured though we are back and planning a few awesome events. If you are interested in sponsoring or hosting one – let us know!

First up is one of our personal favorites. Blue Box Group! We have been watching this team grow for a while now and it has been a lot of fun, we first had an event with them when they moved to Seattle from Tacoma and now that they are growing and expanding (new east coast datacenter and new offices) we couldn’t wait to get into their new space and hear what all the excitement is about. I know they are hiring, I know they will have loads of free food & drinks, and I know that they will have swag…

With facts like that it is hard to avoid the obvious assumption that the event will be awesome! Plenty of cool hackers, startupers, founders, and people in the Seattle area tech community will be attending so if you want to get some free food/drinks, do some networking, and learn more about what is driving this awesome growth of a cool local startup – this is the place to be.

When – 2/24 @4:30PM

Where – Blue Box Group’s new swanky digs (register for details )

Registration – http://techcafebluebox.eventbrite.com

Co-sponsoring the event will be Colliers International (p.s. co-sponsored events are always better funded)!

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I recently came across this story on TechCrunch about Fitbit’s new $12m business Fitness Tracker Fitbit Raises $12M To Market New Wi-Fi Enabled Smart Scale, Aria. Like all ideas, someone else thought of this one well before Fitbit thought it up. In fact when I thought it up eight years ago, I probably wasn’t the first to think it up either.

But being a relatively good idea that I thought I had at the time, seeing this funding got me thinking. Why didn’t I pursue that idea further seven years ago? Whether you are an entrepreneur, an intrapreneur, or even a wantrapreneur. When you have ideas that you think are good, what holds you back from pursuing them? Is it fear, is it being lost at where to start, or is it a lack of skill/capital? The same is true if you are investing – be it day trading, investing your retirements account, or managing your employee stock purchase plan. If you have an idea to improve your investing strategy, what holds you back from pursuing it? Is it fear of losing money?

Ownership

Ownership is a big one. What I mean by ownership is that when it is your idea – you own everything about it. This can be tough for a lot of people.

It means that no one else made a decision that you are following. It means that you can’t honestly place blame elsewhere. It means that when you succeed or fail – YOU are the only one that is responsible. Yes there are other factors that might make it hard for you to succeed. Yes there are people and ideas that are better than yours and they may beat you. There are also people and ideas that are not better than yours… but do you want to find out what sorts of competition is out there for an idea that you personally dreamed up?

As we go through school we spend a lot of time studying things that other people thought up, living by a schedule that someone else created, even making art and music the way that someone else prescribed. The ability for us as we get older to break out of that cycle of safety that we are taught to appreciate is hard. I’m not talking about thinking outside of the box or any of those cheesy phrases people use to think differently. I am talking about the latent idea in our society that we should follow the ideas of other people. We encourage the use of someone else’s ideas too often and we reward highly people who execute on those ideas. We rarely encourage true ownership as we raise our young and the result of this is a difficulty with assuming ownership when our young grow old.

Starting

Starting is another big one. I mean actually starting. Not thinking about the idea more. Not dreaming about all the money you’ll make. Not dreaming about all the people you will affect. But actually starting – putting a solid definition around your idea, talking to people who will fund your idea (managers, investors, customers, etc.), talking people into helping with your idea, defining what success of your idea might look like in the near term, figuring out the different ways that your idea can be leveraged, etc.

The difference is that these are tangible things that you can make tangible progress on. These are not *just* discussions over beers with your spouse or friend. These are actions that you need to take to move your idea forward and actually going from having the idea (or many ideas) to owning the idea is hard enough. Going from owning that idea to starting to pursue that idea is MUCH harder. It means real work and a lot of times that means long hours, stress, etc. It also means that you are pursuing your idea and bringing something to the world that didn’t and couldn’t exist before.

Dan Shapiro does a good job explaining what that looked like for him with a recent startup he built and sold. This was the keynote at the 2011 NWEN Entrepreneur University and is well worth the time to watch it. He talks about the difficulty of having an idea and actually owning the idea and then STARTING…

Skills and Capital

Skills and Capital are an illusion. I include them here as a category because I hear and feel too often that this is a reason not to pursue one’s ideas. These are not reasons though. If there is a good idea, the skills and the capital are never far away. Remember the first two problems above? The Ownership & Starting? Well there are a lot of people who run into those problems – and because they run into those problems - they are really excited to use their skills and capital on your great idea!

Yes you have to convince them. Yes that is hard.

If you can’t convince a couple of people to get behind your idea in the first place – I really don’t see how you have asserted yourself as the owner of that idea and actually started pursuing it. If you think you have taken ownership of it and started… but you still can’t convince anyone to work with you on it – you need to decide how passionate you are about the idea.

Did you hear Dan griping about the lack of skills and capital in his keynote? All I heard was a bunch of creative ways Dan navigated the need to have skills and capital when he pursued his idea. It is no different for investing or pursuing an idea inside of a larger company.

For me, eight years ago it was all three. I was a bit naive and didn’t understand what truly owning an idea meant. I come up with ideas all the time, but standing behind them – championing and defending them was not something that I was taught. I see this with a lot of people and am starting to believe more and more that this is a failing in how our society raises our young. Of course at the time I had no idea this was part of the problem. I didn’t know where to start and thought that I lacked the skills and capital… and thus would never make it happen. Well it was true, I didn’t know where to start, but I was confused about what I needed to have to start and just how to go about getting those things. I thought I needed to be able to do the hardware integration between the scale and a wireless adapter. I thought I needed to be able to develop the software that would send/receive the weight data so that it could be tracked. I thought I needed to grow a small customer base. I thought I needed to accomplish all of this before I really got anyone else on board.

Truth is that I did need to understand facets of all those things – but to start?

I really only needed to work on a model of how this technology would generally work. I really only needed to find one or two people to work with who was already accomplished in the hardware & software integration realm and myself focus on that financing and customer base problem. This could easily be a side project for a couple of people or we could pursue it as something bigger. I definitely saw the larger problems and made a decision not to be in a position to deal with them. I probably should have pursued the idea – but alas that is a lesson learned in life.

My decision was as if I were driving down a street and pulled up to a nearly deserted intersection with no stop signs or traffic lights, I slowed down and looked around. As I looked around, off in the distance, I saw several major intersections. These intersections had big traffic lights, roundabouts, and a lot of heavy traffic. I heard the faint sounds from the intersections – honking and cursing mostly – and thought to myself, I haven’t been through an intersection like that before. It looks difficult to navigate and I am just not equipped to go through it. So instead of proceeding down the open road ahead of me picking up a few passengers and preparing my vehicle along the way, I pulled over to the side of the road. Eventually, as evidenced FitBit’s funding, I was watching other cars pass me on the road that were not in too much different shape than I was when I pulled over.

What about you? Side projects, startups, corporate projects, or investment ideas – if you have an idea and are thinking about pursuing it, what is holding you back?

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Following up on my post about the modes of communication I found this video by Simon Sinek on leadership, inspiration, and doing something meaningful important – Sinek explains how these are all tied together and need to be used at the same time. I believe that the message you are providing matters just as much as the mode you are communicating that message in and Sinek provides some great insights into making that message more important. Definitely some good lessons here for people and companies to think through when they communicate with people.

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Communication is at the heart of all things in life… finding the love of your life, raising a round of financing, getting a promotion, or enjoying life with friends and family. Some of those communications are obviously more critical than others and some are more time sensative than others as well.

Living in a world where corporate training dollars fuels the research and instruction that permeates our training attention we are all well aware of the communication styles that research such as Myers-Briggs brings us. This is good and we all make efforts to adjust what we are saying depending on the type of person we are talking to (more data/less data, small talk/straight to the point, etc.). All of this focus on communication style seems to skip the relevance of communcation mode. The problem with not focusing on communication mode at all is that the mode of communication matters just as much or more than communciation stye!!

What do I mean by communication mode? Well the actual method of transmitting the message. Is it via phone, twitter, email, text, ?? This method of transmission matters – a lot. Everyone has their preferred mode of communication and when you are trying to land a message neatly in someone’s lap, choosing the wrong mode or decidedly shutting down a mode can make that landing near impossible. Personally my favorite mode is email. Email has been the best way for me to communicate for what seems like my entire life. I can still vividly remember being in my High School computer lab as a kid feverishly typing up emails to everyone. My parents had email accounts, and being a child of divorced parents I found email as a necessary tool to communicate with them. It gave me a level of separation that I didn’t have to worry about. In fact I remember one of those classes, I spent nearly the whole class typing one email to my Mom – telling her my girlfriend (now ex-wife) at the time was pregnant with my first son. Yeah I know, kind of a crappy way to break the news. Clearly I wasn’t thinking of my Mom and how she might best react to the message I was trying to transmit to her. I was being a bit selfish and focusing on the fact that I didn’t want to face her in person. Being a great Mom though, she adapted to my need to communicate over email at first and responded with an email herself. Her email response was the best thing she could have done to make the transition to an in-person discussion a possibility. We ultimately did change modes to a more mature mode of communication for a topic like teen fatherhood, but it would have been difficult without my Mom recognizing what I needed from a communication mode perspective.

Granted, I didn’t learn this lesson back then when my Mom taught it to me. It took me years to learn! I thought that since that worked so well, I could rely on email for all my communications. Regardless of the other person’s desire to communicate in other modes. This haunted me throughout my life without me knowing it. I had difficulty closing sales, raising funding, and getting promoted. Eventually I learned that communication mode and considering how the other person wants to receive the message is just as important as the communication style. Certainly the message itself is a much bigger topic that I’ll leave for another time to talk about.

Here is a short presentation I recently gave regarding the art of communication and the importance of communication mode. Of course without the recording it is not as valuable as it could be – happy to redeliver it for you if are interested…

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I have been on the road a lot more lately and I found myself the other day suddenly zoomed all the way back home with the help of text messaging and instant messaging.

I was pleasantly working on some emails and out of the blue I started to receive text messages from my kids. First one, then the other, then the IM from my wife popped up. Here I was trying to stay focused on the work I was doing and I was pulled hundreds of miles away into Seattle responding to the kids, discussing with my wife the right approach to take, checking on the status of their grades online. Then diving into my lecture on responsibility in a few 140 character responses… it was only a matter of 10-15min… but I was glad that I could be a part of my families events that day as I am glad that I can participate in how their homework is progressing or when they get home from school through text messages.

How do you manage interacting with your kids when you travel?

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If resumes didn’t exist anymore or if employers just stopped accepting them, how would you choose to convey your talents?

I was recently reading this article on the Wall Street Journal about Union Square Ventures removal of resumes in their hiring process. Christina over at USV is sharing the progress they are making and discovering that people are behaving different then expected. Namely that despite a timeline for taking their online interview, candidates waited until the last minute to get in before the deadline… busy prepping or procrastinating? I think the latter.

Interesting though, as I’m sure the fire and forget resume submission process that happens so frequently is a bit circumvented here as the candidate needs to think about the firm they are applying to, the skills they have, and the value they add. Of course I’m not the first to come up with this, Seth Godin has been talking about not having resumes since 2008. The difference of course is that Seth and others are taking the approach that those looking for jobs need to change their style. What Union Square Ventures is doing and what I think is more likely to change the game is how employers change how they recruit candidates.

There have been a few startups related to filtering resumes over the last few years and certainly LinkedIn is trying to change the way that resumes are shared amongst peers. Are there better ways?

Granted, shitty jobs are those that are created by other people and dream jobs are those that you create yourself… but working in those shitty jobs that someone else dreams up is one that we deal with in our society. But I digress, we are talking about innovating in the hiring process and getting both the candidate and employer closer to a good fit while reducing the amount of time it takes.

So take a step back and think through how you would truly communicate that you were a good fit if there not such a thing as a resume. If you are or were unemployed and decided that you wanted to have a particular job at a particular firm, how would you want to convey your skills and talents in a world with no resumes? How would you ask for information from potential candidates without a resume?

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Ok, I get it. The account you have at Fidelity where your ESPP shares are dumped each quarter doesn’t allow option trading. Now you read my post on how to sell covered calls against your shares and are lost as to how to make that happen in your account. I thought about this and have been pretty hesitant to walk through the steps to make this work for everyone… If I have to walk you through how to make this happen in your account, are you really ready to start trading options? Well,. being a consultant though I guess I can’t help myself. Selling covered calls isn’t exactly putting on an Iron Condor or Butterfly option strategy. It is simply saying that you already own shares of a firm and are specifying the exact price that you are willing to sell them for in the future. You don’t really need in-depth knowledge of the markets, option trading, or how to configure your Fidelity account to figure out what price you would be willing to sell the shares of stock that you own at. So I am caving in. I will walk through all the details. Screen shots, screencasts, whatever it takes.

This is NOT complex! This is something that anyone with enough brain power to get a job where they have an ESPP can do, so I will walk through the steps in a few posts. The first was the last one – You Have an ESPP Now What – this is the second – Configuring Your Account to Trade ESPP Options, and third will be actual execution of the trades – Selling Covered Calls in your ESPP Account. All of these will be based on accounts at Fidelity as the three major firms I have worked for in the last ten years have all used Fidelity for this sort of thing (Microsoft, EMC, & Washington Mutual). I am sure there are other firms out there (Morgan Stanley Smith Barney, Bank of America, etc.) I may touch on the specifics of those after I get through the Fidelity configuration – or not.

So here is the step by step… Once you sign into your fidelity account, go to the “Update Accounts/Features” link in the lower left hand corner.

This will lead you to a page with a bunch links that allow you to turn on margin, configure your address, etc. At the bottom left of the page, there is a link to “Margins and Options”. If you follow this link…

You will get to a page that allows you to configure Options for your account. I know it seems a little out of place and complex, but the series of questions and pages that follow are pretty straight forward. Click the “Add” Button in the lower right and corner to get into the configuraiton wizard.

After clicking Add, you get the first screen – birthdate, spouse, kids…

The next page is employer, and the basic question of whether or not you own a significant amount of any publicly traded firm.

After these is the basic net worth and income numbers. I’m not sure these have much bearing on the actual approval of options trading, but they are there and I believe that most any answer would be fine.

Next up is a brief survey of your trading experience (number of equities, options, bonds, etc) that you have experience trading. Put in honest answers. Even if that is zero for options trading and 1 for equities. The goal here is to put in the honest details of your experience, later we will specify what we are looking to trade.

Afer we put these in, the next screen is shown. Here, click the link and read through the popup material. The popup covers things such as conservative vs agressive risk and short vs. long term time frames. Definitely good to read through the popup and then select the first option “Covered Call Writing of Equity Options”

We get to the screen where we specify what kind of option trading we are interested in doing. The first step is to click the link to see the risk profile, then select “Covered Call Writing of Equity Options” – this is what I described in my last post and all we need to do to earn the extra return we are looking for. Once we select these options, the next screen

There is a brief survey of what your history is of each of the option trading strategies – again be honest. The more honest you are here the better. This leads you to a summary page for you to accept and once you do there is a final thank you page.

This gets into the system at Fidelity and will eventually result in approval. Once we get approval we can look at putting on trades for the ESPP shares that are dumped into the account. While we wait for the approval I will put together a screencast of the options and post the video. If you have any questions about the options to select – feel free to ask!!

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This seems to come up a lot in large companies and having been on the end of not knowing what to do as well as currently being on the end of having some thoughts about different strategies to manage ESPP participation, I thought I would share with everyone. I won’t say that I know everything about investing or managing an ESPP… but I definitely have been using a solid strategy that makes sense. The basic principles of the investment strategy are:

Sell covered calls against the ESPP shares

• This puts cash in my account that I can use to invest elsewhere
• Ensures that if the stock is sold, it is sold for a profit higher than the 10%

Collect the dividends from the shares (Assuming your company pays dividends)

• This provides money to be invested elsewhere in addition to the premium from the covered calls

Try to hold most shares for more than a year

• I generally pay less taxes on the actual sale of the stock because of this
• I am fine with paying higher taxes on the options as it is a smaller portion of the account
• I am stuck paying the marginal rate on my discount on the stock

I know a lot of other folks aren’t comfortable with this strategy as options are confusing and they seem like something that day traders should be using or require a lot of research. To be honest, I get that line of thinking, I didn’t even know what options were (let alone a covered call option strategy) when I was using the ESPP at Washington Mutual. I just wish someone would have taken the time to explained it to me. Yes I held all the WaMu shares and lost plenty of money – I guess if we don’t learn from other people’s mistakes we learn from our own. Not that I want more people selling covered calls and reducing the small premium I earn on mine…

So here is the deal with the covered call strategy. It is a very simple and safe way to leverage a larger long term position for short term gains. When you have a larger position in a stock as usually happens for people who start using a corporate ESPP and aren’t sure how to manage it, there is a desire to see some of that money sooner and the fear that if you sell now the stock will go up or the taxes will be too high. Certainly if the company pays dividends you get some money and if you don’t reinvest the dividends you can use that cash for spending or investment money. Selling covered calls allows you to go one step further and strategically plan to sell a significant portion of your holding at a reasonable profit. I’ll briefly walk through the strategy starting with what the covered calls are, what strategically planning your sale prices means, and what benefits there are to the plan.

Generally speaking options are a contract that allows a party to buy or sell a defined number of shares at a specified price. Like most any contract the option contract is good until a specific date. Usually the contracts expire on the third Friday of the month – to be sure of the date though there is a nice CBOE Options Expiration Calendar that you can reference. When you are selling a Covered Call Option Contract, you are selling to another party a contract that guarantees them the right to purchase from you the equity that the option is for at the specified price between the date of sale and the expiration of the contract. Sorry, that was a mouthful… As an example, if you sold me a contract today that allowed me to buy 100 shares of Microsoft stock for $30 and the contract expired on 2/18/2012, I would have between now and the 18^th of February to purchase the Microsoft stock from you for $30 per share. For this option, I would have to pay you a premium today that you pocket regardless of whether I exercise my option or not. We’ll say that I pay you $0.14 per share for the contract – That is $14 that you get to keep minus any taxes and transaction fees for that one contract. I lose $14 plus any transaction fees for the privilege of owning this contract that you sold me.

Am I really spending all this time explaining how you can make $14? After the first few ESPP deposits into your account, most of us don’t have enough shares to sell 100 contracts (10000 shares) to pocket $1400. There is more to the strategy than the $14 if you care to bear with me through the second part. If you purchased the shares at a 10% discount today, you paid $25.43 per share. You could easily sell those shares today and earn $2.83 per share in profits. Of course you pay the standard rate that is applied to the discount between the price of the shares and the discount you received in the ESPP (which happens to be your marginal rate). Using rudimentary calculations and assuming a 25% tax bracket, you would have your roughly $2.12 to spend on other investments or that new Ford so that you can check out the Sync. The alternative would be to hold the shares today, sell a covered call and earn the $0.12 per share (subtracting the 25% short term capital gains taxes – remember the short term capital gains taxes is generally your marginal tax rate). In both cases we are assuming transaction fees are zero. So you lose out on $2 per share today for some undetermined amount in the future. This means it will take a lot longer to get that Ford and you’ll have to go in and sell more covered calls every so often.

With your 100 shares, let’s say that you sell 1 covered call contract every other month for the entire year. To make things easy, let’s also say that you will sell the covered calls at strike prices that are $1-2 above your purchase price. This means that if you sold me that contract today, you would be back at fidelity selling covered calls in March (or late February) for an April expiration with a strike price of $30 (keep in mind that the strike prices are usually round numbers, although some are halfway between two round numbers like $27.50). This continues in May, Jul, Sep, & Nov. By December you have earned a whopping $71.40 after short term capital gains taxes! Add to those big earnings the dividend (4 times per year) of $60 after taxes. Now you are up $131.40 on your investment of $2542.50. Ok, so that’s barely over half of 10% – I know, you bought the stock in the ESPP so that you could get the 10% bonus right?

Fine, once your year is over you have two choices sell immediately or lower the exercise price of the option contracts you are selling. If you lower your option strike price to $29 or $0.50 over your purchase price you will have a higher premium (for example $0.36) so you get to pocket that and then when your option contract is exercised you sell all the shares for $29. Now you have earned the $131.4, the $27 for the last covered call you sold, & $303.88 for the sale of the stock. So what does this look like in comparison?

Well assuming you are paying a marginal tax rate of 25% (I’m not making judgements on what your real rate is) and assuming you are paying Long Term Capital Gains. You have the opportunity to nearly double your profits over a short term sale when you hold for the year, sell covered calls, & collect the dividend. This is just on the basis of 100 shares and a specific strategy of selling the covered calls every two months. I did leave out the extra premium for the covered call after the year was up. Assuming you wanted to sell in January of the following year, you would want to sell the current month covered call (the January covered call) which usually will be worth a penny or less.

I have talked to a number of people about this strategy and they always tell me that they earn more money selling immediately, that it is too complicated, or that they can earn a higher return somewhere else. The other one I hear is that the markets are efficient and that this is impossible. Maybe they are right, but on a tax adjusted basis the covered call strategy has the possibility of returning 15% for the year over the immediate 8.33%. Maybe I’m missing something and there are some other opportunities that I just don’t know about to get these kind of returns. Personally I take my profits when I sell and purchase other strong stable companies that give me dividends that I can sell covered calls on… that way I am diversified and maintain strong returns.

I will warn that there are some caveats, there are no easy ways to make money….

The first is a positive one. Sometimes the stock is called away early and you have to sell before the year is up. Sometimes that strike price sneaks up on you and suddenly you are stuck selling your stock. That sucks that you pay the higher tax rate (but assuming this happened in February on our $30 strike price contract you would have $12 + 343.13 in after tax profits so it is still a better deal than selling immediately.

The second is a negative one. Sometimes the price of the stock is less volatile and just slowly goes down. In these cases the premiums on the strike prices that are appealing disappear and there aren’t any good contracts that you can sell for a profit after transaction fees. In these cases you may be holding the stock for the whole year and only sell one covered call. You still get the dividend and you may not be able to sell it immediately after the one year holding period considering it may drop below the original price and even below your discounted ESPP price. In these situations you may end up accumulating a lot of shares, in which case you start to earn a lot more from selling the contracts as you can sell 10 contracts (1000 shares worth) for $.05 and feel pretty good that you can cover transaction fees with your $50 gross earnings.

The last thing!

To find the option contracts are available (what their names are, their prices, etc.) use the CBOE website. Assuming that you are using a big firms ESPP, you will be doing the transactions at Fidelity. To turn on covered call writing in Fidelity (this is not turned on by default), you will have to go into the configuration of your account under margin and options and request option trading. There will be a lot of hoopla about how experienced you are and such. What they are trying to scare you out of doing is turning on options trading or margins with no knowledge of what you are doing. Just be honest on the forms but only select that you want to start “writing covered calls” (that means selling other parties a contract to buy your stock at a specified price). They will turn on the configuration without much trouble and you can muddle your way through the rest.

I am not going to make any claims that you will actually be able to get comparisons exactly like the chart above (I will tell you that the two caveats above play a major factor on the whole strategy). I personally do better than the “sell immediately” strategy using the “covered call strategy”; however, your mileage may vary.

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Insider buying is a rarely understood indicator of what a stock or market is doing. This is usually due to the fact that there is so much insider buying and selling as a part of compensation plans and on behalf of management who have shares of their firm managed on their behalf.

Thinking about insider buying and selling, it should be pretty obvious that if the buying and selling is directly attributed to a manager’s unscheduled decision, the actions are pretty indicative of what that manager’s views are about their business and the market that the business is operating in. This story by Mark Hulbert discusses this concept in more depth with the view that Professor Nejat Seyhun indicating that the performance is forward looking 12+ months and not shorter term.

Interesting enough, there are some great examples of recent buying in $FXCM and $IGOI where the price is low and management is heavily adding to their positions on the open market. Granted the prices are cheap, but is there more to the story that we don’t see in the 12+ month timeframe?

Considering most managers are buying or at least not selling, it would make sense that if insider selling were occuring, the manager’s doing the selling would have a negative view of their firm in the 12+ month timeframe. This is a particularly revealing aspect that makes looking at $CRM a little more interesting as insiders there are selling (almost daily) and re-organizing their compensation plans and accounting schemes so that the expense of allocating shares (that management is selling, not holding) does not count against their “earnings” numbers. Definitely looks like management here also sees something in the 12+ month timeframe that we don’t have access to.

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I don’t know if any one else has noticed the trend in retail investment advances that have been taking a crack at Wall St. lately – but I think we can forget what value the Occupy Wall St. movement will provide and start looking at what people with productive skills and a desire to change the world are trying to do. Over the last year I have seen a number of great products come out that are focused on reducing the cost and increasing the efficiency of middle class investors. Of course all while taking some of the money (the fees at least) out of Wall St. I am not talking about peer to peer lending (I have been playing with those groups for a while and am not sure managing default rates on LendingClub is the way I want to spend my saturdays).

I am really talking about investment advisors, the people that the middle class have been paying 2-5% for years to “advise” which funds they should buy with their retirement and investment money. This is a huge market with thousands of advisors who work for large Wall St. firms who focus on retail investors. There are loads of them out there – Ameriprise, Morgan Stanley, Edward Jones, Fidelity, etc. – they all take your money and recommend an investment in the funds that they are getting discounts to purchase or the funds that they manage. Seems a little backward that they give you a stock form that is a risk analysis and recommend a few specific investments out of a group of 20 funds that they are allowed to “sell” you. So why haven’t we fixed this yet with technology?

Introducing Betterment, Wealthfront, and FutureAdvisor - all three of these are focused on just that, cut out the middle man selling you a group of funds at a huge markup and give you, the 99% a recommendation for the lowest cost most diverse funds that meet your risk and life stage profile. Each has some pros and cons and each has a better fit for different investors, I have taken a brief look at all three and found that they all operate in a fairly similar fashion. Great looking front pages that entice a quick sign-up in a matter of minutes. Each walks through a similar set of questions

• How old are you and how much money do you want to retire with at what age
• How much risk in portfolio value fluctuation can you stand
• How would you like to get started

Wealthfront is focused on all investments, and after a quick profile makes recommendations to specific low cost funds that match your profile. Then offer a sign-up that will provide portfolio rebalancing based on changing conditions. Their recomendations are based on an algorithm (not too different than the algorithm that your existing advisor is using). They also allow you to modify your investment goals and tollerances with a projection into how those changes may affect your portfolio.

FutureAdvisor is uniquely positioned to look at your 401k and make investment recommendations based on the 401k options and tax situation. That’s right, you connect FutureAdvisor to your company provided 401k plan and let them look at the options, look at your profile, and specifically recommend how to allocate the contributions to your retirement. Of course they don’t stop there, they also recommend other areas of tax advantage when it comes to retirement (recommending IRAs where appropriate, etc.)

Betterment takes a different approach and actually manages the money for you. Taking the difficulty of having both an online investment account and an online investment advisor down to a single account. You setup a deposit to the account, your profile, goals, savings vs investment needs, and let Betterment do the work for you. This is definitely a great hands off approach for managing that money that is between the checking and 401k accounts that you just don’t know what to do with.

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