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Accevia private alpha launch!

Our new homepage!

Hi, it’s been a while since we last posted anything on our blog. But we definitely have news – Accevia is finally in private alpha. For those of you who knew us when we were investAway, we hope you like the new and *improved* version! If you want to sign up to be one of our rockstar test users, email for an invite code. Also, follow us @accevia if you were previously following us @investaway.

We’ve had a whole load of new changes at Accevia recently. As a quick background on us – investAway was a class project at Stanford and our premise was basically to create something that would literally and figuratively broaden our investment horizon. Our idea was to help people out there, like us, who want to know what’s cool and hip in the world of investing, especially since there are so many new ideas and startups out there. More than just talking about these cool services, we wanted to make them accessible – whether it be Registered Investment Advisors (RIAs) who only take on filthy rich clients or niche startups who’re just getting started – we wanted our users to be the first to know about them and to use them (think better deals!).

We’re still on the same path and thankfully, with all the help of SSE Labs (Stanford’s very own startup incubator), we’ve rebranded as Accevia.

We’re using this blog as a way to talk about the financial services and tools that we find fascinating and worth using. As we’re a team made up of a recent grad (who is still bumming at Stanford!) and a current student – we are going to focus on the tools that are free and really easy to get started with.

Stay tuned!

Oops.. I'm broke by 75?

I ran across a cool personal finance site the other day – It’s a site focusing on the personal needs of women, which I strongly relate to – not only because I am a woman but because of the following facts: as a woman I’m going to live longer than my spouse, I’m going to take more time off (maternity leave, etc) and I will probably make less than my male counterpart – which makes retirement a much more pressing issue for all women in general. Being broke while being old is quite a bleak thought, at best.

The site is rather crowded and there’s a whole barrage of information provided from the sun tanning to the cheapest savings account. But the one thing that’s definitely worth checking out are their calculators – they’re free and very easy to use. Most importantly, they show you your “broke”-factor, as I like to call it. Their Retirement Shortfall calculator is a great way for you to see how much income you’ll need for after retirement and how long you’ll be able to sustain the kind of lifestyle you had prior to retiring.

As a 22 year old – retiring seems EONS away but I also know that each day brings me closer to it (sadly..). And apparently, given the kind of life-style I want to have as a 65 year-old, my nest-egg will be long gone by the time I’m 75 – so, I have 10 years of somewhat okay retirement and then the rest of my years would be spent shuttling from one kid’s place to another’s – doesn’t sound too promising in my mind. The fact that I am a potential future liability not only for myself but for my future family is a daunting enough prospect for me to get my act together now. LearnVest recommends saving putting away 15% of your income today in an IRA or ROTH IRA (they have a great page on the differences between the two as well that’s worth checking out).

I’d always thought that it was enough to save ~10% of my pre-tax income but I clearly forgot to take into account inflation (can go up to 3% in the future) and any fluctuation in the returns on my assets. So, my short-term goal is to see how I can change my life-style today to increase that 10% to 15%…

I’m not a big believer in penny pinching or long checklists of things I should be doing to save (they’re boring and honestly, useless). I’m looking for an effective way for me to be leveraging my current assets in order to be generating returns that can sustain my current lifestyle as well as add to my retirement goal. Sounds lofty – but I’m sure it’s doable, just like everything else 🙂

Professional Advice or not?

I happened to come upon Paul Bucheitt’s blogpost on “What to do with millions..” – a response to a 20 year-old on Hacker News looking for advice as what to do with $5M that he/she’d just received from selling his startup. To sum it up in four words – the post is refreshing. Paul touches on two very important points – the role of financial advisors and when you should get one. To address both those issues, Paul mentions that you have to address the deeper underlying issue of knowing yourself.

This is precisely where I think that the system is flawed – I walked into Wells Fargo the other day and talked to one of the representatives about how best to go about investing my signing bonus, (which, sadly, is nowhere close to the $5M..) without taking on undue risk. After mispronouncing my name multiple times, I was walked through the cookie-cutter survey a Wells Fargo advisor walks every client through. I was given the classic recommendation of a CD where I would be earning 0.00000001% interest (seriously.) and a basket of mutual funds (most of which are Wells Fargo funds). Fantastic.

I felt like the next sucker in line for a portfolio that would undoubtedly crash and burn in the next crisis. I’m not being cynical but it just seems too easy. I’m a complicated person with complicated desires – I have a hard time gauging my own risk and suddenly I have to believe that a 20 question survey knows enough about me to recommend how I should invest my first savings? When I asked the advisor at Wells Fargo about this, they gave me the traditional answer that this is what everyone else does.

Clearly, everyone else isn’t doing the right thing.

Just look at the statistics: in the past 20 years – the equity market has seen returns of an average of 10.4%, and the bond market has seen returns of an average of 7.6%, but the average investor has only seen returns of 1.87%. With a CD giving me pretty much 0% return and a cookie-cutter basket of mutual funds, I’d be lucky to even be seeing 1.87% return!

So, what are my options? I definitely think that the way for me to start is to better understand how I deal with winning and losing money before I take any drastic steps with my money. The next step would be to find someone who legitimately recognizes the need of “knowing your client” in order to give me the right advice. I just think that it’s unfortunate that only high net-worth individuals are worth “knowing” by advisors and that the rest of us are just put in the loser buckets, i.e. we lose the most when the market doesn’t do well and then don’t ever gain enough to make up for the losses a.k.a permanently burned by the market.

Anyhow, I walked out of Wells Fargo somewhat bitter and annoyed (I’m not going to lie.) yet with a purpose – find out more about myself and then a) either get rich enough to be able to get the attention of the right advisors or b) create something that lets smaller investors like me find the right advisor.

I’m leaning towards b) right now but have to attack Step 1 first: know thyself!

Sexy inflation.. and umm not so sexy Greece

From the sandy beaches of Mykonos in Greece – time finally seems as though it’s on your side. The idyllic beaches, fantastic cocktails and all night clubs just make the rest of the world simply disappear. Heaven is an island in the Mediterreanean.

Suddenly these images are replaced with ones of riots and street warfare in Athens – an unfortunate casualty of the credit crisis as the media portrays it. I don’t deny that the credit crisis had a major part to play in Greece’s woes but I think it also has to do with the fact that no matter how much the rest of Europe loves frolicking on Greek beaches with Greek women – bailing Greece out is a completely different issue. Thankfully with the latest $750 Billion bailout plan, the Euro Zone has decided to take a forceful stance against the train nicknamed “sovereign default” heading straight for them. About time, or that train was about to turn into a ship ready to annihilate the European economy. And annihilate is a nice word to use here.

My point here is that when the Euro Zone decided on adopting a single currency across multiple nations – they gave up monetary policy, which today could have been a plausible solution for Greece’s current problems. The idea here is simple – depreciate yourself out of debt, but in this case as there is a common currency – the Greek Central Bank cannot use interest rates as a tool in its arsenal against problem such as these. Hence, the need for a massive bailout.

But what about the US? US gross debt is at a staggering 87.3% of GDP where 56.6% is held by the public, and 44.4% is intra-governmental (think China!) – that’s about $700,000 per person in the US and about $2.1 Million per household in the US. These numbers don’t even hold any meaning for me  – how does this even start to affect me?

This is where it all gets hazy as no one has clear cut answers for someone like me who is thinking about starting to build a financial plan – the focus is on all the big guys. I definitely know of at least one thing that’s impending on the horizon is inflation – with interest rates this low for these many years, the fed will most probably be too slow in hitting the accelerator on interest rates when inflation starts to take off. This might not be a bad thing especially if it allows the Fed to depreciate it’s way out of some of its debt and for me, it’s basically a great way to have an artificially bloated stock portfolio. Yes, inflation is suddenly starting to look pretty darn sexy.

So, here’s the plan – as a starting point for my financial plan, I’m thinking about going for mutual funds or ETFs with a blend of equity and fixed income – nothing too impressive. However, I definitely want to either buy in on a fund where they know exactly when to start swapping out of fixed income into equity when interest rates start going up – any ideas where I could find something like this? Or even better – what are my other options?

drama drama drama.. but what's my role?

For those of you who haven’t heard about the SEC vs Goldman case, I’m not sure as to where you’ve been for the last week. For those of you who have heard about it, how many of you actually understand what’s going on here? Article after article just talk about finger wagging, scandalous emails and a poor Frenchman nicknamed the Fabulous Fab. But mind you, we’re talking about a 2 billion dollar “scandal” here and far overreaching consequences such as a conspiracy to hide Greece’s debt problems to the fact that UK government now owns a majority share of Royal Bank of Scotland.

To get the facts and to continue on my journey of financial understanding, I attended an event hosted at Stanford University titled “GS vs SEC”. After much discussion by Darryl Duffie from the GSB and Joseph Grundfest from the Law School, I came to realize that this is nothing more than a company, ACA, who was on the wrong side of a bet crying for vengeance and an overzealous government agency trying to make a point. The heart of the matter is that Paulson and ACA entered into a bet – Paulson bet that the housing market would crash and ACA bet that it wouldn’t.The size of this bet was a staggering $2 billion and the market ended up crashing (as we all know). ACA couldn’t hold up their end of the deal and could not pay up. ABN Amro was the company that was supposed to back up ACA in case ACA fell through. ABN Amro was acquired by Royal Bank of Scotland. Most of us know how that went – RBS was bailed out for $50 billion by the UK government.

So, now I’m wondering as to why there’s all this hype about ACA not knowing that Paulson was on the other side of the deal or not. It’s a bet! Isn’t it common sense, that if you’re betting that something is going to go up – there has to be someone betting that it’s going to go down! And if you’re betting $2 billion, you sure as to have someone on the other side betting exactly $2 billion against you. Whether it was Paulson (who, by the way in 2007 was pretty much a no-name) or anyone else, the amount would still be the same and the bet would still be against you. That point is clearly moot.

Now Goldman is also being blamed for fueling the financial crisis by selling and marketing these vile complicated options to innocent parties. But, I can’t buy a CDO and neither can the average person. According to the SEC, only “sophisticated investors” can even get close to these kinds of options and actually trade them. In this case, ACA was a sophisticated investor who just made a stupid call. A very stupid call.

It makes me wonder if the drama that has been unfolding over the last couple weeks has been nothing but a way of the SEC to flex some of its severely underused muscles, if you could even call them that. After years of under-regulation of the financial market, the SEC is again making a huge mistake by entering into a case where it has no idea of how the synthetic CDO market works or is even structured. Sure they can bring Goldman employee after employee to the stand only to find them painfully arrogant yet, not wrong.

In my mind, save the tax payers’ dollars and figure out a solution to the problem. The problem here is that there was too large of a bet made by people who clearly were not capitalized enough to make the bet. So, the easiest thing would be to set up a clearing house and make everyone who wants to make such bets post collateral. Think of collateral as a down payment – if ACA had posted say, $500 million on the bet that it made, they probably wouldn’t have been in such a bad situation when they lost the bet. As the old saying goes, put your money where your mouth is.

Mostly I’m irked because my portfolio has been wildly fluctuating because of all this unnecessary drama. Also, I’ve come to realize that sadly, my only role is to be nothing more than a bystander as this case unfolds. Initially I was a victim of the financial crisis and now I can only hope that the SEC has enough sense to overcome its bruised ego to actually make effective policy changes. One can only hope…

Asset Allocation

In my opinion, a key ingredient to investment success is asset allocation and the management of risk.  Avoiding undue concentration in specific asset classes results in the diversification of your portfolio and the reduction of the risk that a specific asset class such as real estate or gold might negatively impact the performance of your portfolio.

Perhaps readers of this blog can suggest Investment Advisors and tools that assist the process of diversification and risk management.  – Ed Bierdeman

What next?

Overload – that’s the word that comes to mind when I think about all the information that is out there about investing. There are over 100 blogs professing ways to help you save money, get out of debt, “get rich slowly” and the list goes on and on. I can choose from over 10 brokers, 1000 investment advisors, 10000 securities and the numbers just keep getting bigger. So, what does someone like me do?

Unlike the stories behind most of the other financial blogs I’ve come across – my story is rather mundane. I haven’t messed up – no, I’m not bankrupt. I haven’t lost my house in a foreclosure and neither do I have a $100,000 loan looming ahead of me due to risky day trading. I’m just a grad student who is going to graduate this June and looking forward to a life where I would still be financially secure. I’m not sure if I’m a rare case but I do know that there are people like me who do have financial stability and are just looking for a way for this stability to persist. There are definitely a ton of options out there, but which is the right one for me?

I wanted this blog to be a way to document my journey of financial self-discovery. I know this sounds rather fluffy but really I just want to know what it takes to put together a solid financial plan before you’ve actually messed up! What should this financial plan even look like and how do I even start?