[HN Gopher] Launch HN: Financial Choice (YC S21) - Checking acco...
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Launch HN: Financial Choice (YC S21) - Checking accounts with
market returns
Hi HN, we are Stefan and Konstantin, co-founders of Financial
Choice (https://financialchoice.com). We offer a checking account
alternative that lets users invest their balance (not FDIC
insured), otherwise it works like a normal checking account. Our
background is in computer science (we're ex-Googlers), but we also
love modern portfolio theory, and long-term investment in low-cost,
broadly diversified index funds (we're big Bogleheads fans).
Annoyed by our checking account's low returns, we asked ourselves
if there was a way to invest our checking account balances, but
still keep the checking account features. Financial Choice (FC) is
our answer. When a user deposits money with FC, like a paycheck, FC
automatically invests that money according to our user's investment
preference. When a user withdraws money, e.g. for rent/mortgage or
at the ATM, they get money instantly, while FC automatically
triggers a sale of their investments to cover the withdrawal. In
many cases, investments sell in time to directly cover the
withdrawal, while other times, the withdrawal is made on margin
until the investments' sale completes. Users choose what they want
to invest in based on what risk they are comfortable with. Many
invest in stock index funds (e.g. S&P500 with 10.3% average annual
return, -43.1% worst year [1]). Some users invest in bond index
funds (e.g. 6.1% average annual return, -8.1% worst year [1]). Some
choose socially responsible investments. Those with the lowest risk
tolerance invest in US treasuries. On a macroeconomic scale, we
believe that our approach can solve major problems of the current
banking system. Today, banks invest customers' deposits and keep
the returns mostly for themselves (the national average interest
rate is just 0.03% [2]). When there are losses, FDIC guarantees
that customer deposits never lose money, but when the losses become
significant enough (like they did in 2008 [3]), the taxpayer ends
up paying with bailouts. With FC, users invest their money
directly, so returns are transparent and there's no need for
bailouts. Beyond giving people a choice, there's also a couple
other cool features that we're excited about. Naturally there are
funds flowing in and out of a checking account (paycheck, rent,
bills, etc), and we can use these to automatically rebalance a
portfolio. Similarly, we can optimize our users' tax burden by
being smart about which investments get sold and performing tax-
loss harvesting. Financial Choice is currently free to use and
available in the US. We build on top of Fidelity that provides all
checking and investing features. Building on top of an existing
financial institution has been hugely helpful to get a full-
featured product to our customers quickly (but it does mean that
users have to share their credentials with us, similar to Plaid).
We'd love for you to try it out (sign up at
https://financialchoice.com/signup), and give us feedback. We would
also love to hear what you do with your checking account balance,
and what you think the major problems with today's banking system
are (and how they can be fixed). [1]
https://investor.vanguard.com/investing/how-to-invest/model-...
[2] https://www.fdic.gov/regulations/resources/rates/historical/...
[3] https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80...
Author : konne88
Score : 46 points
Date : 2021-08-09 13:08 UTC (9 hours ago)
| mapgrep wrote:
| I actually think this is a really intriguing idea once you push
| yourself past the knee jerk reaction of "wait you want me to put
| my whole checking balance in mutual funds?!"
|
| As you know if you read enough about banking, and as the intro
| points out, _banks already invest your balance in risky stuff_.
| Namely they lend it out to small businesses, homeowners, and
| others at substantial risk for default. There are mitigations
| like collateral and sometimes securitization, but the risk is
| real and there and has blown up countless times in the past.
|
| Yes, the stock market can "blow up" too. But at least you're
| capturing the upside of the risk with this model. Even interest
| bearing checking accounts share an infinitesimally small fraction
| of the return the bank can make on your money.
|
| I'm not saying this is for everyone. When I was younger I would
| routinely deplete my balance and I do not think this is a good
| setup for people in that position. But at a more advanced age
| people tend to start carrying significant balances in their
| checking as a matter of course, and I actually think there is
| some strong if slightly counterintuitive logic here in this idea.
| ChicagoBoy11 wrote:
| The idea is intriguing, but I think the gist of it lies in your
| point about this "not being for everyone." This essentially
| makes a super common financial decision... "for everyone," in
| the sense that if you weren't sophisticated enough to set up a
| proper investment vehicle, or properly allocate all the money
| in your checking account, you don't need to worry about that
| anymore. However, I think the set of those folks and the set of
| folks you consider that this prob. "wouldn't be for" is
| probably pretty large. It's just an assumption, but I'd hazard
| a guess that most folks who don't set up more sophisticated
| investment vehicles are also folks who simply can't afford to,
| or who'd struggle with a checking account which suddenly could
| have less money than the day before. If you are not in that
| camp, I think you're very likely well versed enough to know you
| have a lot of options on what to do with your money should your
| checking account balance exceed your needs for a daily/monthly
| use.
|
| Also, I think the point with the bailout is a bit disingenuous
| on their part. True, if your account is not FDIC insured, then
| the government wouldn't need to bail YOU out. However, if we
| experience a similar crisis like we did in 2008, they will bail
| EVERYONE ELSE out. You just happen to be the sucker who will
| have paid into it but not been covered. If the argument were
| for eliminating FDIC insurance altogether, I'd be super
| onboard.
| vineyardmike wrote:
| > eliminating FDIC insurance altogether, I'd be super
| onboard.
|
| Why
| akerl_ wrote:
| It doesn't matter what my bank invests the money in; my money
| is insured by the FDIC, which isn't the case here.
| konne88 wrote:
| I think there are two reason why you should care how your
| bank invests money. 1) For society, because the government
| has to bailout your bank if they take risky bets. 2) As a
| customers, because you don't have any choice about how much
| risk/returns you get (which might be fine, if low risk/low
| reward is what you are after).
| akerl_ wrote:
| Low risk / low reward is the entire premise of checking
| accounts.
|
| If this product was billed as "a brokerage with better
| tools for depositing/withdrawaling money", the comments
| here would be radically different.
| koolba wrote:
| As a consumer with insured deposits I want my bank to make
| the highest risk/reward bets they can get away with by law.
| Let them make their money that way so they don't need to go
| after me for nickle and dime fees.
|
| My deposits are always under the FDIC limit per account so
| outside the inconvenience, there's no true risk of loss.
| Y_Y wrote:
| That's a good point, but just covers the case where your bank
| fails. In the event of currency depreciation, your (e.g.)
| dollar-denominated account can lose a lot of value. Of course
| this may be accompanied by a crash in the same stocks they're
| proposing you invest in.
| akerl_ wrote:
| The risk level of my checking account becoming less
| valuable due to currency inflation/depreciation is
| minuscule compared to the risk of putting that money into
| the stock market.
|
| The comment I replied to above suggested that checking
| accounts hold risk due to the bank making risky
| investments, which is fundamentally wrong for everybody
| operating with in the FDIC coverage limits (which is the
| overwhelming majority of Americans).
| mapgrep wrote:
| Your first sentence is wrong for many scenarios and is
| meaningless without a time interval. Over a period of 10
| years the risk historically is absolutely higher from
| inflation than a total market mutual fund.
|
| If people were good at sweeping excess balances into
| their investments I think this idea would be less
| appealing. But for a variety of reasons, many perfectly
| rational, people like having a nice cushion in there. It
| feels safe. Long term, it isn't. These guys should lean
| into that in their marketing.
| mapgrep wrote:
| They're both tradeoffs. In my FDIC checking account, I know
| for certain I will lose the rate of inflation every year on
| my carried balance (~4 percent historically) but I won't lose
| due to the bank's investment (if I'm under the FDIC balance
| limit).
|
| In the other account, based on the same history, I'll stay
| well ahead of inflation most years, but lose far more in
| some.
| stefanheule wrote:
| I completely agree, what a nice summary :) I also agree that
| this is not for everyone, and honestly one thing that's on our
| mind is making sure we give the users the tools to know what
| kind of risk they should and should not take on. We are not
| there yet, but we're hoping to have some very cool modeling
| tools available that help with this.
|
| But I'm also curious, what other steps could we take to make
| sure people use this in an appropriate way?
| ChicagoBoy11 wrote:
| It seems you are reducing the friction in using a more
| sophisticated investment vehicle, which is awesome. But I can
| only imagine that there will be far more friction with "where
| did my money go?" since there is quite a bit of
| history/custom that you are fighting with in terms of the
| checking account. Somehow gracefully setting up a slider-like
| ability to determine what amount REALLY NEEDS TO BE IN MY
| ACCOUNT OR ELSE I CANT MAKE RENT and everything else would
| probably be important; your wonderful value-add could be in
| the background doing all the necessary operations to match
| that user preference.
|
| As it stands now, I need to consciously pick a fund, make a
| transfer, check it, withdraw, etc... But ultimately all I
| care about is broad definitions of how aggressive my
| portfolio looks and what I have in what is essentially cash.
| If you'd just modify all of those transactions into a simple
| slider for me, the value prop. would be super clear, and I'd
| also sleep well at night not fretting suddenly having less
| money than I need.
| akerl_ wrote:
| The right approach here is to market it as a brokerage with a
| game changing UX for deposits / withdrawals / risk modeling,
| rather than a checking account with a shocking amount of
| risk.
| koolba wrote:
| > As you know if you read enough about banking, and as the
| intro points out, banks already invest your balance in risky
| stuff.
|
| Not really. They invest primarily in mortgages which they
| package up and sell to Fannie Mae.
|
| More importantly checking and saving deposits are insured by
| the FDIC so the risk of loss for the end consumer is zero below
| $250K (per account!).
|
| Investment accounts would have SPIC insurance against
| insolvency but the actual risk of market loss is borne entirely
| by the end consumer. If you're riding your mortgage payment on
| whether you don't _lose_ in any given month, things could get
| ugly. Ditto for the tax consequences of churning to cover
| bills.
| EMM_386 wrote:
| > As you know if you read enough about banking, and as the
| intro points out, banks already invest your balance in risky
| stuff.
|
| When the bank screws up and loses 90% of my money, I'm
| guaranteed by the FDIC to get it all back (as long as it's
| under the insured amount).
|
| When I screw up, I lose money.
|
| Sure, that's the way investing works, but people generally
| separate "funds I can afford to invest/lose" from their day-to-
| day checking accounts.
|
| These days, you can just electronically transfer your money to
| your broker and it's available "instantly". I am not really
| seeing an advantage.
| steviedotboston wrote:
| How does this differ from having a Fidelity debit card tied to an
| investment account?
|
| https://www.fidelity.com/cash-management/faqs-atm-debit-card
|
| "The Fidelity debit card is available on youth accounts and
| nonretirement brokerage and cash management accounts with
| individual, joint tenant, and trust registrations"
| konne88 wrote:
| If you withdraw money using a Fidelity debit card (without
| Financial Choice), from a brokerage account without any cash in
| it, that withdraw will create a margin loan that you have to
| manually pay back and that you also have to pay interest on.
|
| If you withdraw money using a Financial Choice debit card, that
| withdraw will automatically trigger a sale of your stock in the
| appropriate amount, so that you won't be building up margin
| loans.
| vineyardmike wrote:
| Who wants to be using a debit card instead of a credit card if
| you have a choice?
| notyourday wrote:
| I do not know what is more bonkers - the fact that this is being
| pitched as "checking accounts" or the fact that YC invested in
| it.
| tmorton wrote:
| Is this the modern equivalent of getting stock tips from shoe-
| shine boys?
| md_ wrote:
| "Today, banks invest customers' deposits and keep the returns
| mostly for themselves (the national average interest rate is just
| 0.03% [2])."
|
| Yes, but banks aren't just turning around and investing deposits
| in the S&P 500. Right now, the marginal reserve requirement in
| the US is 10%. So the bank is keeping 10% of your deposit as
| cash.
|
| This is pretty similar from the common advice to "keep 3 months'
| living expenses as an emergency fund." And thinking about that
| advice, I have to question the value of Financial Choice:
|
| * If I'm a user with a reasonably high net worth--say, 10x my
| 3-month living expenses--I should probably just put the 3-month
| expenses into an FDIC-insured bank account and put the other 90%
| of my assets into a low-cost mutual fund or ETF.
|
| * If I'm a user _without_ 10x my 3-month living expenses, I
| _definitely_ shouldn 't be investing my emergency fund in
| speculative assets like equities!
|
| So, like, who is this for? :)
|
| Edit: Reading some of the other comments here, I get the
| impression there are some posters here in my first category who
| would like their 3-month living expenses to also be invested in
| equities. And yeah, if you are relatively high-net-worth-
| relative-to-expenses, you can risk it--someone in the "10x"
| category can suffer a 40% market downturn and still have a
| meaningful emergency fund.
|
| On the flip side, consider that market downturns and the need to
| tap the emergency fund are not statistically independent; the
| emergency fund exists, in part, to avoid forcing you to reduce
| your market position to cover expenses when you lose your job in
| a downturn!
| stefanheule wrote:
| Personally, I'm the former kind of person. I have enough to not
| suffer from a 40% downturn, and I'd rather have my emergency
| fund invested in the market.
|
| But I agree, not everyone is like this. Note though that you
| don't have to invest in the S&P500, there are many lower-risk
| (and lower-return) investments to choose from. For instance,
| bonds historically have seen 6% average return, with their
| worst year seeing a drop of 8.1% (source:
| https://investor.vanguard.com/investing/how-to-
| invest/model-...).
| sebastian_z wrote:
| That is an interesting idea. Some related options that the target
| audience for this service may use are funds like ICSH or crypto
| interest accounts like BlockFi.
| ram_rar wrote:
| This is a great, we need more of such financial instruments than
| traditional checking account. But I'm wondering,
|
| [1] How do you handle capital gains tax, when the user withdraws
| the amount from their account?
|
| [2] How is this different from marcus/ally and thousand others,
| that provide money market fund accounts and money there is
| insured by FDIC.
| konne88 wrote:
| 1) You will usually pay short term capital gains tax every time
| you spend money. Note however that your taxes will only be a
| fraction of your gains, not your total assets. E.g. if you have
| $1,000 gains in a year and pay 35% short-term capital gains
| tax, you will make $650 post tax. If you have $0 gains, you
| will also pay $0 in tax.
|
| You can configure which of your shares we will sell first. If
| you set this to Tax-Sensitive, we will sell shares with a low
| tax burden first, so if you have a greater inflow into your
| account than outflow, all the shares with a high tax burden
| will never be touched and they will eventually be classified as
| long-term capital gains.
|
| 2) Money market funds only allow you to invest in low risk/low
| reward securities. We allow you to invest a much broader set of
| securities (including bonds, stock, ETFs, etc).
| aetherane wrote:
| What about wash sales? That seems like a big threat to this model
| konne88 wrote:
| We currently don't try to avoid wash sales, so they can happen
| indeed. That's not the end of the world though (wash sales are
| completely legal), it just means you can't do as much tax loss
| harvesting as you might like.
|
| Long term, you could imagine that our automation could buy and
| sell securities that are slightly different, so that you would
| get the full tax loss harvesting benefits.
| ramesh31 wrote:
| There's probably less than a hundred public securities that
| would have the liquidity and spreads needed to do this
| without wasting your money. If you're talking about making a
| sale with every debit card purchase, it's going to be
| impossible to avoid wash sales.
| DavidPeiffer wrote:
| The government hasn't really provided a definition of
| "substantially identical" for purposes of wash sales.
| Buying the exact same company is an identical security.
| Going from and S&P 500 index at one brokerage to another is
| a bit different. S&P 500 to a total stock market fund is
| quite different.
|
| If S&P 500 index funds and similarly broadly defined funds
| from each brokerage house are available and deemed
| "different enough", it could significantly increase the
| money moves available before encountering a "required" wash
| sale.
|
| I'm not familiar with the behind the scenes aspects of it,
| but it feels like there may be a clever solution out there
| that could augment some of the liquidity concerns you
| mentioned if you could batch the transactions together.
|
| E.g. Alice has $1,000, Bob has $1,000, and Charlie has
| $2,000. They all have a transaction on the same day. Alice
| and Bob were on $Illiquid_Fund_A, Charlie is in
| $Illiquid_Fund_B. Alice and Bob trade with Charlie and
| everyone goes about their day.
| koolba wrote:
| Do cash debits and checks lead to automatic sales of securities
| or does it roll into an automatic margin loan?
|
| If so, how do you decide what securities to liquidate?
|
| If not, what's the margin rates and is there a spread atop
| Fidelity's rack rates?
|
| I'm in the skeptical camp as well as none of this seems that's
| useful vs the potential fee structure and risk profile. Anybody
| that wants this now can setup a checking account alongside their
| brokerage and manually sweep cash as needed. That also has the
| advantage of being in explicit control of what monies get moved.
| konne88 wrote:
| All good questions.
|
| Yes, cash debits and checks lead to an automatic sales of
| securities.
|
| You can configure the liquidation, e.g. to the Tax Efficient
| strategy, which minimizes capital gains taxes by selling shares
| with the lowest returns first.
|
| We sometimes can't sell quickly enough, e.g. when you withdraw
| money at the ATM on the weekend, and then you would be paying
| for a margin loan until we sell your securities (usually the
| next trading day). It's just Fidelity's normal margin rate, we
| don't add any spread on top of that.
|
| Manually moving money around is possible but it has some
| drawbacks. 1) Even with the best manual management, you do need
| to keep some buffer of money for unexpected withdrawals, and
| that money earns you essentially zero returns. 2) Fine grained
| manual management is pretty tedious.
| mellavora wrote:
| Some people apply discounted cash flow analysis to current market
| prices, and conclude that the expected market return is -6% (or
| worse) under current conditions.
|
| I'd prefer my checking account to have 0% returns to -6%.
|
| It is simple for me to set up automatic deposits from my checking
| account to my brokerage account, and also include automated
| investment of those funds.
|
| Perhaps I'm old fashioned, but I'm not really seeing the value
| prop. I have an investment account separate from my checking for
| a reason. Many reasons, actually.
|
| and to close, referring to your interest in portfolio theory,
| there is an option value to holding cash. Not saying it should be
| a major portfolio allocation, but having a certain amount in cash
| makes sense from a financial engineering perspective.
| dannyw wrote:
| In a short term time horizon, sure. But what if you use a
| service/strategy like OP over a decade, or more?
|
| Since 2016; I have more or less keep all of my cash, minus a
| small emergency fund, invested into equities at all times.
|
| I have nearly twice as much wealth as I would otherwise have,
| if I didn't do this and kept cash.
|
| I'm not worried whatsoever on what analysts predict. They are
| consistently as wrong as they are right, and I've been hearing
| calls for overvaluations and market crashes for years and years
| ever since 2013.
|
| You can't time the market.
| endisneigh wrote:
| I'm not sure what this has to do with the parent comment,
| who's saying you can just automatically move money to an
| investment account now.
| terrib1e wrote:
| Ponzi Scheme Longevity Rules:
|
| Encourage "reinvestment" of income. The less income the schemer
| pays out, the longer the scheme will last.
|
| Moderate the amount stolen each year. If he steals a smaller
| amount each year, the scheme will last longer and he will likely
| be able to steal more money overall.
|
| Discourage redemptions. Paying out principal to investors at a
| high rate will crash the scheme quickly. Therefore institute a
| large penalty for early redemptions or promise an even higher
| Rate of Return if the principal is reinvested instead of
| withdrawn.
|
| The Rate of Return promised should be higher than alternatives
| but not so high that paying out income will quickly bankrupt the
| scheme.
|
| Recruit new money. New money is key to maintaining a scheme for
| an extended period
| trailrunner46 wrote:
| I can see how you came to wanting this but I think it could lead
| to dangers for many.
|
| For most people (this is not financial advice for any one person)
| money in checking and savings should have a low rate of return
| and therefore low volatility because they need or may need that
| money to actually be there to pay bills or in times of crisis
| (emergency savings). Once you have these two pools of money, then
| you should invest in retirement and finally extra taxable
| investments. Most people should automate the money going into
| retirement and investments I agree but turning your entire
| checking account into a volatile/uninsured pool of money I think
| is the wrong direction.
| stefanheule wrote:
| I like your explanation of how to think about money, and I
| think it's the right strategy for some people. But there are
| also a lot of people (e.g. if you have a decent amount of extra
| taxable investments) you can do better your checking account in
| the market. Yes, this has risks (markets can drop), but this is
| okay for many people. One way to deal with this is to just keep
| more money in the "checking account". This is fine, now that
| the balance is getting market returns.
| trailrunner46 wrote:
| Im not sure I agree with this. If you have a lot of extra
| taxable money just put it in a taxable investment account and
| keep some lowing amount in checking to handle bills. Keeping
| it all in checking and making the entire thing investments
| seems like an odd approach, the low interest you are getting
| in like <10k in your checking is not a big deal.
| konne88 wrote:
| I personally used to keep about a $20K balance in my
| checking account, and I was actually surprised by how much
| a difference it can make to invest that. If you have an
| investment with an expected annual return of 5%, that's a
| $1K / year that you are missing out on.
|
| We've also seen users who needed to keep much larger
| amounts of money in their account for relatively long
| periods of time, because they were shopping around for a
| house or trying to buy a new car.
| md_ wrote:
| Note the point I made elsewhere: that you're likely to draw
| on your "cash" emergency fund in times of market downturn.
| (E.g., you lose your job because of layoffs due to a market
| crash.)
|
| Having that "emergency fund" be invested in the market means
| you will have "buy high/sell low" events.
|
| For sure some people can afford this and just like to live
| dangerously, of course.
| jklein11 wrote:
| How is this better than what Charles Schwab already offers? With
| their Investor's Checking account there is no overdraft fee as
| long as it is covered by another account(can be a brokerage
| account.) If I overdraft I can the $$ can be pulled from cash in
| the brokerage account or margin. The checking account is FDIC
| insured if I do decided to carry a cash balance. The brokerage is
| SIPC insured(which I am hoping your offering will be)
| konne88 wrote:
| Good question. Here's the difference. When you withdraw money
| from Charles Schwab and there's no cash in your account, it
| creates a margin debt. You then have to pay that margin debt
| back manually, and you pay interest until you do. With
| Financial Choice, we automatically sell your investments to
| cover your withdraws so you don't build up that margin debt.
| fhrow4484 wrote:
| > With Financial Choice, we automatically sell your
| investments to cover your withdraws so you don't build up
| that margin debt.
|
| If I withdraw $10,000 with that Charles Schwab margin debt,
| and let's say I repay it 3 months later, how much interest
| will I have paid to Charles Schwab? (Napkin calculation, I'm
| not quite sure what the interest rates is on those margin
| debt.)
|
| With your product, indeed no margin debt, but if those 10k
| are obtained from an investment were originally a 5k
| investment from many years ago, then, assuming 20% ltcg +
| niit, I suddenly owe around $1200 to the IRS, and some other
| $$$ to the state maybe.
|
| In which situations do you see this being a better money move
| than the margin debt way?
|
| 2 additional questions :
|
| - when selling do you minimize tax (i.e. attempt to sell the
| lot with the least amount of gain)
|
| - do you attempt to "cover" taxes? (i.e. withdraw actually
| ~$12k, so that i roughly have $10k actual cash, and the rest
| to pay the IRS bills - assuming your users can indicate which
| marginal tax bracket they fall in after W2s)
| whoknowswhat11 wrote:
| Fantastic product.
|
| Business accounts have much higher cash drag - much harder /
| complex market but if you had the full package would be amazing
| (cash drag can be around $500K easily).
|
| For larger uses of money (house purchase etc) how does that work
| in this system.
|
| Also, I'd tag it a brokerage account with excellent cash
| management features - that's the normal way to call this.
| konne88 wrote:
| We're focusing on consumer first, as you mentioned it's a bit
| easier to get into, but I definitely agree with there being an
| opportunity for businesses as well.
|
| Large purchases work pretty much the same way as small
| purchases (you get the money instantly, then we sell your
| investments to cover the withdraw), except that you may run
| against the $100,000/day limit on electronic funds transfers.
|
| Completely agree on the phrasing, we can do a lot better there.
| whoknowswhat11 wrote:
| House purchases etc are usually wire out - I think clear
| disclosures there might work on limits.
|
| Or do a wire option with strong 2FA with callback - no SMS
| for authentication with a 90 day account age requirement and
| 15 day fund old or similar.
|
| We normally have a fair bit I can't be bothered to shuffle to
| and from Vanguard and they've limited some of their cash
| management offerings. I do like having prompt access to funds
| so the wire option is appealing (even for a $25 - $50 fee)
| for me.
| vineyardmike wrote:
| > In many cases, investments sell in time to directly cover the
| withdrawal, while other times, the withdrawal is made on margin
| until the investments' sale completes.
|
| Very rich people have access to borrow against their investments
| so they don't have to sell (and trigger taxes).
|
| I would never use FC as it is. BUT if you made a product where
| you never sell the underlying assets, and instead offer a 0% loan
| against them when i withdraw (and take a fee somewhere to cover),
| I would be very interested. Ideally, it might have protections so
| i can never get a margin call and be in debt during bad market
| times. Perhaps i can only borrow against the invested amount (or
| eg 75% of it), and any asset growth is profit, and not borrowed
| against.
|
| The benefit to this is great. I can watch assets grow, and
| capture their growth and not deal with taxes, while still
| benefiting from liquidity. For people will large, regular income
| (eg. SDEs), you can usually rely on a continued income stream. I
| am fortunate that i usually invest a large % of my income (sde
| DINK yay), so being able to only "borrow" against a subset of it
| for faux-checking seems fine.
| konne88 wrote:
| I completely understand your desire to avoid sales of your long
| term investments that may have huge capital gains. To deal with
| that, you can configure us to sell shares in a tax sensitive
| way, where we will sell shares with a low tax burden first, so
| if you have a greater inflow into your account than outflow
| (which would be the case for a SDE DINK), we will usually just
| sell recently bought shares that haven't accumulated any
| capital gains, and all the shares with a high tax burden will
| never be touched.
| vineyardmike wrote:
| > we will usually just sell recently bought shares that
| haven't accumulated any capital gains
|
| There may be an opportunity here for some sort of pattern
| recognition to keep cash equal to expected inflow/outflow.
|
| Eg. "80% of the days, they make a $10 lunch purchase, and get
| paid weekly", so keep $40 a week in cash to avoid cash <->
| asset conversions at all.
| ddorian43 wrote:
| Get an IBKR credit card starting at 1.6%
| vineyardmike wrote:
| I didn't know this existed! This is great. Does anyone know
| if other brokerages do this too?
|
| (I rather hate the IBKR app and don't like using it)
| zie wrote:
| Almost all the others have higher margin rates. M1 is like
| 2% or so. Fidelity, Schwab, etc are like 8% or so, and
| BOA/ML is like 5% or so. (rough numbers, I haven't checked
| in a while).
|
| But yes, they basically all do this, though on their debit
| card products, not their Credit Card products, I assume the
| original commentor meant Debit Card and not credit card.
| m4xm4n wrote:
| I guess I don't quite understand the target audience? I put in my
| average checking amount and it quoted me at how I'm potentially
| missing out on $262 dollars/year, at which point, I think, yeah
| okay, but I have FDIC-insured deposits, so I don't feel too
| compelled to forgo that for the promise of maybe adding another
| $262 to my wealth. I'm just simply not keeping 10s of thousands
| of dollars in my checking account. To me, that's what a savings
| account and/or investment accounts are for.
|
| So who are these people keeping so much money in their savings
| account that they want to invest it, but are not already being
| served by other offerings from traditional investment firms of
| high-yield savings accounts?
| konne88 wrote:
| Great question. The motivation will differ from person to
| person, but I can give you the reason why I'm using it.
|
| I live in a high cost of living area, so I used to keep ~20K in
| my checking account at all times to pay for rent etc. All the
| rest of my money I invested in a total market stock index fund.
| The checking account balance is just a small fraction of my
| overall balance, so the FDIC insurance really didn't help me.
|
| Financial Choice has two benefits for me. 1) I now get to
| invest those ~20K which gives me a ~1-2K expected annual return
| without any hassle, and 2) I can just keep all my money in my
| Financial Choice account, so I don't need to bother moving
| money between a checking and brokerage account anymore.
| gremlinsinc wrote:
| Curious, what's required to startup in this space? I've had some
| ideas myself, and have looked at banking as a service platforms,
| but everything seems complicated.
| stefanheule wrote:
| It's definitely not trivial, there is a lot of jargon, and a
| lot of regulation. We don't have any silver bullets, but we
| found Y combinator (the startup program) to be hugely helpful
| to connect us with other startup folks who have gone through
| similar problems.
| endisneigh wrote:
| This seems pretty terrible IMO.
|
| Hypothetically let's say everyone was using this already. Then
| something like Covid or another "worldwide bad event" occurs.
|
| So people spend their money, which in this case means they're
| liquidating their investments. This further drives down the price
| and increases volatility - in other words the people who need the
| money most in the most desperate times will lose the most as they
| will need to spend the largest percentage of their holdings.
|
| To add insult to injury if enough liquidated then you could be in
| the bank run territory since there's no FDIC insurance you could
| lose everything.
| masterof0 wrote:
| I really like your take. Also Fidelity offers a Cash Management
| Account(https://www.fidelity.com/cash-management/fidelity-cash-
| manag...) that is insured up to 1.25 M. That's a lot of
| money(at least for me). I think for people that are not rich,
| and need a certain amount of money saved in their account for
| rent, utilities, etc... a market downturn will put them in a
| pretty horrible situation. Imagine you get paid 3000 at the end
| of the month by your employer, and the next day you have only
| 2100 left, how do you make up for the difference?
| codegeek wrote:
| So this is an investment account ? If you are not FDIC insured,
| can you guarantee that I will not lose any money at any time ? If
| not, it is not really a checking account in my opinion. With my
| brokerage account, I can already sell securities whenever I want
| and take the cash out (with tax consequences). Aren't you
| essentially doing the buy/sell for me but everything else applies
| just like any investment/brokerage account ?
| konne88 wrote:
| Yes, you are completely right, this is an investment account
| with the money management and instant cash access features of a
| checking account. It is not FDIC insured and you can lose
| money.
|
| We are buying and selling the stock in such a manner that you
| get instant access to cash (e.g. at the ATM), which would be
| impossible or very tedious if you did this manually :-)
| sarora27 wrote:
| This is an awesome idea! Signed up and playing around right now.
|
| One quick piece of feedback around the setup process
| (specifically "pick an investment strategy"). It would be great
| to see what the 1y & 5y ROI looks like for each of the ETFs
| you've listed. I'm currently going from your page to google to
| search for each symbol individually to gauge the ROI. It's taking
| a while!
|
| Edit: Did not realize I would need to open a Fidelity account to
| make this work :(
| konne88 wrote:
| Thanks for playing with it, and the signup workflow feedback.
| Fidelity is unfortunately a requirement right, but are planning
| to transition to our own platform in the medium term.
| keeganj wrote:
| This is brilliant.
|
| This is absolutely a painpoint for me and other individuals that
| prefer to hold as much of their assets as possible in the market.
| The amount held over in checking for day to day transactions
| feels like little more than "cash drag" once you have enough
| saved that you can weather a market downturn. Right now I do
| expense tracking and budgeting largely so I can figure out how
| much balance I should keep in my checking account, then transfer
| the rest to investing. Combining the accounts like you propose
| would save me substantial time and missed market returns.
|
| A problem you may run into in targeting bogleheads is that they
| like to see that you're well established before committing their
| life savings. Putting a substantial amount of money in a non-FDIC
| insured financial institution without a track record could be a
| non-starter. Advertising on your landing page that you base your
| services on top of Fidelity might lower that perception of risk.
| konne88 wrote:
| Thanks for the positive feedback :)
| TekMol wrote:
| Who is the target audience?
|
| People who want to hold 0% of their assets in dollar?
|
| I often debate with my friend on what percentage of ones assets
| one should hold in dollars. 0% seems a rather radical choice. I
| don't know anyone personally who does that.
|
| I am not saying it isn't a rational choice. Only that I don't
| know anyone who does it.
| konne88 wrote:
| With today's existing banking products, it is indeed basically
| impossible to keep 0% in cash, because you then couldn't pay
| your rent etc.
|
| On the question of how much money you should keep in cash, I
| think it really depends on how much savings you have. Most
| experts recommend a rainy day/emergency fund worth 3-6 months
| of normal expenses. If you invest that rainy day/emergency
| funds in a Financial Choice account, it is important to choose
| an investment strategy with an appropriate risk/reward profile,
| and adjust the savings target to account for the additional
| risk from the investments. Betterment has a pretty good writeup
| on this idea https://www.betterment.com/resources/safety-net-
| funds-why-tr....
| notyourday wrote:
| I do not see a market for this product:
|
| * People for whom this product matters ( those who don't have
| much money and hence should welcome the earning upside no
| matter how small the interest is, should not use this product
| because it is an investment account masquerading as a DDA
| account and could lose value. Having living expenses in an
| unstable account is just a plain bad financial advice.
|
| * People who have a pile of money want their cash to be cash
| and cash only. They already have exposure to the market via
| investment accounts with checks/debit cards against them
| provided by the likes of Schwab, Fidelity, BOA, Chase and
| their immediate liquidity needs are addressed via revolving
| credit lines.
| nmhancoc wrote:
| You may find most people are actually short the dollar (< 0%)
| on a net basis. That is, most people hold significantly more
| dollar-denominated debt than they do assets.
| Bostonian wrote:
| If you have $3000 rent due, you can keep $3000 in checking to pay
| that, but you should not put that money in the stock market,
| since it could be worth only $2700 at the due date. Therefore I
| think the statement "We offer a checking account alternative that
| lets users invest their balance (not FDIC insured), otherwise it
| works just like a normal checking account" invites trouble.
| People should use checking accounts primarily to pay bills, so
| risky investments do not belong in them.
| konne88 wrote:
| Thanks for highlighting that the investments can lose
| significant money, and that this is something to watch out for!
| Completely agree here. I do think that there is subtly around
| risky investments not belonging in a checking account. I agree
| that if you are in a situation where you live paycheck to
| paycheck you would only want to invest in very low risk assets
| (say US treasuries). That said, if you have some money saved
| up, you can invest your checking account balance more
| aggressively and still stay liquid even in really bad
| downturns.
| Bostonian wrote:
| Nitpick, but "US treasuries" include long-term bonds, which
| can fall substantially in value if interest rates rise. So
| low-risk short-term assets are confined to things such as
| Treasury bills with duration less than 1 year.
| konne88 wrote:
| Great point!
| allendoerfer wrote:
| If you are really aggressive, you only need to keep money in
| your checking account between your payday and the due dates of
| your rent, utility etc. Everything else can be invested
| instantly on your payday.
|
| If that amount of money is significant to you and you think you
| are missing out, you should stay away from the stock market.
| You are basically on the verge of bankruptcy, especially if you
| live in a country without proper social security (e.g. the US).
|
| I like the idea if you are saving for something you do not
| really need, e.g. your second yearly vacation or some vehicle.
| dsg42 wrote:
| So you built a financial product to convince people to forgo FDIC
| insurance on their primary checking account? What an evil premise
| for a company. That's despicable. I'm sure almost none of your
| customers will understand their inherent cost of repeatedly
| moving money in and out of a volatile asset, not to mention that
| this concept would ruin the economy if widely adopted, because
| the FDIC was invented for a reason. I hope the SEC destroys you.
| cyberge99 wrote:
| Am I the only person who read this comment in Kevin O'Leary's
| voice?
| dang wrote:
| You've broken the site guidelines with this comment. Would you
| please review https://news.ycombinator.com/newsguidelines.html
| and stick to the rules? They include:
|
| " _Please don 't fulminate._"
|
| " _When disagreeing, please reply to the argument instead of
| calling names. 'That is idiotic; 1 + 1 is 2, not 3' can be
| shortened to '1 + 1 is 2, not 3._"
|
| " _Please respond to the strongest plausible interpretation of
| what someone says, not a weaker one that 's easier to
| criticize. Assume good faith._"
|
| I'm sure you can make your substantive points thoughtfully, so
| please do that instead.
| salakotolu wrote:
| wow. what a comment. I think there's a place for this product.
| sure it's not for everyone, but modern investing apps are
| already erasing the lines between risk on and risk off money.
|
| https://tolusnotes.com/the-true-cost-of-fdic-stability-broke...
| konne88 wrote:
| I completely agree that our product could be used the wrong
| way, and we want to make sure we guide our customers to the
| investments that will have the best risk profile for them. In
| particular, we are currently seeking to become a registered
| investment adviser, so we can make suggestions based on our
| customers' individual situation (e.g. so we can recommend that
| people without significant savings invest in lower risk
| securities like US Treasuries and Bonds).
| kulkarnic wrote:
| Isn't the risk profile of a checking account "don't lose
| money"?
| dsg42 wrote:
| It's shocking to see the similarity to how you talk about
| this product compared to the founders of Robinhood. They've
| been very successful at tricking people into gambling away
| their money in the name of "investing." This is essentially
| the same thing at a smaller scale. This is a bad product for
| most people, who will silently lose money over time by moving
| money in and out of the stock market. Perhaps you're initial,
| wealthier customer base will be able to make use of such a
| service, but if you end up achieving any amount of scale, you
| will invariably end up wrecking someone financially. I hope
| you enjoy the moment when someone can't make rent because the
| stock market had an off week.
| konne88 wrote:
| I completely agree that we don't want to end up being the
| next Robinhood. One interesting technical aspect there is
| that our customers don't manually trade securities, instead
| they provide us with a strategy that we then execute when
| we need to automatically buy/sell their investment. I think
| this will implicitly guide our users toward choosing a long
| term investment strategy (like mutual funds) instead of
| doing day trading.
| loourr wrote:
| I'd be very careful with that. If you suggest something to a
| customer that causes them to loose money you can be sued and
| potentially held liable. Becoming an RIA would likely force
| your product to become hyper conservative in it's approach
| which perhaps is good if you're billing yourself as a bank
| account alternative, but also perhaps not your intention.
| 1123581321 wrote:
| The standard investment risk questionnaire, in combination
| with risk-appropriate choices, is a safe harbor for
| advisors.
| salakotolu wrote:
| I do agree that this should be positioned as a brokerage
| account with a debit/credit card for spending.
| groaner wrote:
| Interactive Brokers already offers this, so I'm wondering
| what the actual innovation is here.
| loourr wrote:
| I think your criticism is a bit misguided. The FDIC insurance
| fund only covers a tiny fraction of bank deposits and if a
| single small bank had a run the fund would be insufficient to
| cover it's customer base. It also covers derivative losses
| before balance losses, so it's really more of a psychological
| tool then anything else.
|
| Also banks are investing all of your money in highly illiquid
| risky assets (aka mortgages) so I don't see how this would ruin
| the economy or even meaningfully change the risk profile if
| adopted at a large scale.
| jaywalk wrote:
| I wish I had so much money that $250k was a tiny fraction of
| it.
| rrrrrrrrrrrryan wrote:
| > The FDIC insurance fund only covers a tiny fraction of bank
| deposits
|
| Isn't it $250,000 per customer?
|
| It wouldn't be enough to save the bank if there was a run
| (because of accounts with huge balances), but it'd be enough
| to save most of the customers that need saving.
| notyourday wrote:
| It is a per-signator per-bank per-type per-POD
| Cola wrote:
| I wouldn't say 250k per person per bank per account type is a
| tiny amount. Moving money from a bank account to the market
| is a significant increase in risk for all but the most
| wealthy.
| cthaeh wrote:
| You mentioned that you can optimize which investments get solds.
| Assuming my risk tolerance is fine with stock index funds, what
| happens if I want to withdraw, say 1/2 of my portfolio but the
| S/P 500 is down 20% (aka March 2020 withdrawal).
|
| Would this go through and the customer loses 10% of their account
| value or will you guys stop such a withdrawal.
| konne88 wrote:
| Let's use concrete numbers just to make it easier. Say you have
| $10K in your account. You would be withdrawing $5K which we
| would allow. If you did this withdraw while the markets were
| close, and the value of your portfolio is only $8K when the
| markets are open, you would have $3K left in your account.
| neil_s wrote:
| As a Googler, I have this pain point. I was envisioning a product
| that sweeps the leftover income at the end of the month after all
| credit card bills and rent are paid, into a brokerage account. It
| would also automatically invest that amount into my choice of
| ETFs, which Vanguard bizarrely doesn't seem to support today.
| This seems to achieve the same goal with a simpler
| implementation, and then as you improve your cash flow
| predictions, you could start keeping a cash buffer and delaying
| investments to avoid some cash<>asset conversions.
|
| Worrying about capital gains taxes is a head-fake - you're only
| paying tax on your gains, which would have otherwise been minimal
| interest, which btw is taxed higher than gains. The risk here is
| just that the amount of margin interest I pay is dependent on how
| quickly you're able to sell, although hopefully this shouldn't be
| a massive issue for VTI et al.
|
| Your messaging on the website seems clear to me, I wouldn't worry
| about anyone living paycheck-to-paycheck mistaking your technical
| looking homepage for a regular checking account.
|
| One of your mentioned use cases doesn't sound right though - if
| I'm saving up towards a short-term spending goal like a car or
| house downpayment, I probably want a predictable balance and not
| exposure to sudden price shocks.
| konne88 wrote:
| Thanks for the thorough writeup! I agree that our
| implementation seems to solve your use-case.
|
| Let me provide you with a bit more context about the house
| buying use case. When buying houses you need to keep a chunk of
| money (around $60k) available to wire next day for a "good
| faith deposit" in case you're the winning bid, and it's quite a
| waste to keep that money in a checking or savings account
| (since the house buying process can take months).
| geraldwhen wrote:
| This is a brokerage account, not a checking account.
|
| Deceptive post.
| Galanwe wrote:
| Don't traditional bank already have brokerage accounts? I do
| personally use interactive brokers, but my bank is HSBC and I
| know I could have a dedicated brokerage account to buy stocks,
| ETFs, etc there. How is that different?
| stefanheule wrote:
| The key difference is that we allow you to invest all your
| money and still give you instant access to cash. With
| traditional banks/brokerage accounts, yes, you can invest your
| money, but if you invest it all, you can't go to the ATM and
| withdraw money. With Financial Choice, you can.
| Galanwe wrote:
| I see. I don't live in the US, so I don't know how easy it
| would be to convince someone to have a startup as a bank
| there. In Europe, I'm pretty sure nobody would pick a new
| bank (especially a startup) just for avoiding monthly saving
| tranfers. That seems more like a nice feature a bank could
| have, rather than a new business idea.
| notyourday wrote:
| > The key difference is that we allow you to invest all your
| money and still give you instant access to cash. With
| traditional banks/brokerage accounts, yes, you can invest
| your money, but if you invest it all, you can't go to the ATM
| and withdraw money.
|
| Yes, you can. Every single one of my investment accounts
| comes with a debit card that can access both uninvested cash
| and take a loan against the value of my securities, which I
| can either repay by selling the securities or by transferring
| cash.
| [deleted]
| LamdbaMamba wrote:
| It's dangerous to call this a checking account alternative. It is
| not a checking account, it is a taxable investment account.
|
| You're going to get users who sign up thinking this is just like
| a bank account, but with better returns. Then the market will
| drop 10% when their rent is due tomorrow. Bank rates are so low
| because the money is always there and insured. Anything without
| these features should not be called a checking account.
|
| You call yourself Bogle fans, but passive index investing and
| instant cash access are fundamentally opposed from a time
| perspective. Finally, this is a tax nightmare. People will think
| they have huge gains in their account but get hit with a capital
| gains tax when they go to withdraw.
| stefanheule wrote:
| You bring up some very good points, thank you. I agree we want
| to be careful to not call this a checking account, and I think
| we need to work on our wording here.
|
| "passive index investing and instant cash access are
| fundamentally opposed": I agree, this is the case right now,
| but we want to change that, because there isn't any fundamental
| reason for this.
|
| Yes, people will owe tax, but remember that only your gains are
| getting taxed. So if you get a tax bill, it's because you made
| money. That is still a net-positive. There are also a lot of
| things you can do to reduce (though not eliminate) the tax
| burdon, such as carefully selection what investments to sell,
| predicting money flow (e.g. not investing a paycheck if rent is
| due a day later), tax loss harvesting, etc.
| shmatt wrote:
| if i put in $50k, gained 10%, then payed rent with $2k. Is
| that $2k taxed as the profit? as someone not very
| knowledgable in the investment world, this seems pretty
| complicated, and also weird that i'd be taxed for every "faux
| checking" use if my portfolio is in the green
| konne88 wrote:
| If you put in $50K, and it gained 10% your account would
| now have $55K. If you withdraw $2K, you could be taxed on
| the 10% profit on that $2K, so $200. So if your tax rate is
| 25%, you'd pay $50 in taxes because of that 2K withdraw.
| zie wrote:
| You are correct, but assuming the holding was < 1yr and
| STCG applied. If >1yr holding period, LTCG would apply.
| chances are it would only be a 15% tax rate in a LTCG
| applied tax. given current 2021 tax brackets.
|
| Even this is incomplete, because we don't know the other
| tax situations, was there a tax loss carryover that
| would/could be applied, etc, etc, etc.
|
| Taxes are complicated.
| rmah wrote:
| It depends on how much of your assets are invested in the
| market. And on how you're handling cost basis. And if you
| are carrying forward any previous losses. And how long
| you've held the asset. And... well, you get the idea.
| shmatt wrote:
| well I'm not handling cost basis, Financial Choice is.
| and they're not sharing any of that AFAIK. which makes
| this confusing. Especially with the comparison here and
| on their home page, to a checking account.
|
| Sounds like if the market is green I'm paying a hefty
| free for every single checking transaction
| jklein11 wrote:
| I think the tax filer max the ultimate decision on cost
| basis, not the financial institution.
| vineyardmike wrote:
| > passive index investing and instant cash access are
| fundamentally opposed
|
| They are opposed. Passive investing requires long waiting and
| holding, not lots of tx like a checking and cash access
| require.
|
| Margin against the contents might be better, since you can
| keep the gains and not pay tax.
|
| > e.g. not investing a paycheck if rent is due a day later
|
| Yea, this is the problem! If you use this as a checking
| account, then you can't NOT invest it.
| stefanheule wrote:
| I think you are right if you assume that people generally
| keep their checking account balance at exactly what they
| need. If that's the case, then I agree, there isn't really
| a point to what we offer.
|
| However, doing that is really hard, and requires you to
| micromanage your checking account. I personally (before
| using FC) had $10-20k in my checking account, because 1) I
| really want to make sure I don't miss a rent payment
| because I mess and 2) I don't want to micromanage. So, at
| least in my situation, some of the money is moving in and
| out and can't really be invested, but a decent chunk
| (probably >10k) just sits there. I imagine this is true for
| many people.
| dantetheinferno wrote:
| While I do wish the best of luck with your product, I
| feel like there's a difference in checking account needs
| for people with 10-20k of cash sitting around and people
| who live paycheck to paycheck. I think calling it
| anything close to a checkings account leads to "this
| isn't a checkings account and you're going to hurt people
| who think it is."
| jldugger wrote:
| > Finally, this is a tax nightmare.
|
| I can maybe get past the risk since I invest a lot anyways, and
| cap gains since interest bearing accounts are also taxed as
| ordinary income, but if every withdrawal causes a reportable
| sale, how is this not a IRS paperwork nightmare?
| konne88 wrote:
| You can usually aggregate all your trades into a single line
| on your tax form.
|
| "You can aggregate all short-term and all long-term covered
| transactions and report them as single-line entries directly
| on Schedule D. A covered transaction is one where your broker
| provided a 1099-B Form to the IRS that: 1) Show acquisition
| date and basis and 2) Don't require any adjustments or codes"
|
| https://www.hrblock.com/tax-
| center/income/investments/report...
| kohanz wrote:
| As a counterpoint to the nay-sayers, I personally see value here
| and would opt for this were it offered to me by my bank, for
| example. This is not for people who live paycheck to paycheck, of
| course. However, for people who often have (a sometimes large)
| surplus in their checking account that they don't have the
| time/effort to move and invest elsewhere, this would be great.
|
| I would love to be able to set a "surplus" threshold as part of
| this solution, say $5k (just an example - it should be set by the
| user), such that any amount above that in the account is
| invested, while the rest is kept in cash. That would solve the
| "emergency" funds issue for some people.
|
| I think framing this is a checking account is what people are
| having trouble with. It really seems like an investment account
| with easy liquidity. If you add a section that is kept in cash,
| then it's checking + investment with automatic rebalancing.
| JumpCrisscross wrote:
| > _see value here and would opt for this were it offered to me
| by my bank_
|
| Fidelity has a Cash Management Account [1] that functions as a
| checking account as well as hold securities. (It also sweeps
| into FDIC-insured accounts overnight.) I find it useful for
| planning large expenses by _e.g._ buying a Treasury or other
| bond that matures around when that expense will be due, thereby
| earning a bit more yield while making the available cash
| actually represent unencumbered cash.
|
| The UI isn't super modern, though. That may be worth giving up
| some of the securities features one will never use and the FDIC
| insurance.
|
| [1] https://www.fidelity.com/cash-management/fidelity-cash-
| manag...
| jklein11 wrote:
| Lol! That is one heck of a value proposition:
|
| We can't really help you if we end up losing all of your
| money... but our page looks way better than the alternative!
| JumpCrisscross wrote:
| > _our page looks way better than the alternative_
|
| They're built on Fidelity. Sweep will come. And there is
| value in being able to _e.g._ have an easy interface that
| says "I want this cash to be liquid around this date with
| about this confidence" and let the system work for you. Or
| designate cash as a rainy-day fund, or as buffer cash that
| can be invested in risky, marginable securities, _et
| cetera_.
| toomuchtodo wrote:
| > I think framing this is a checking account is what people are
| having trouble with. It really seems like an investment account
| with easy liquidity. If you add a section that is kept in cash,
| then it's checking + investment with automatic rebalancing.
|
| This is absolutely the case. This isn't a checking account.
| This is liquidity management for those who are comfortably
| operating aggressively with their personal finances. With that
| said, definitely going to give it a spin side by side with my
| Fidelity Cash Management account.
| konne88 wrote:
| Good point about the "checking account" phrasing. I agree we
| should be more careful here. In my mind, traditional checking
| accounts are characterized by two orthogonal features. 1)
| They offer money management features (debit cards, ATM, bill
| pay, check writing, scanning checks etc), and 2) they provide
| low volatility investing. Financial Choice offers 1) but
| gives you more choices with 2).
| [deleted]
| konne88 wrote:
| We've heard from a few users that they would like to keep some
| of the money in cash. I think that's a reasonable feature which
| we should add support for. In a sense, keeping a fixed amount
| of cash in your portfolio is really just investing in a mix of
| securities (similar to how people invest in bonds & stocks),
| which seems like a perfectly reasonable choice for people with
| a certain risk/reward profile.
| debarshri wrote:
| To me it feels like a feature to existing trading/investing
| apps or platforms than a standalone product. Wouldn't it be
| quite easy for other established apps to do this? I mean,
| barrier seems to be pretty low for established players. Only
| way I see them creating barriers would be creating proprietary
| strategies.
|
| Also, the fact that not many of them have this feature is kind
| of a red-flag. But then I am not the expert and I might be
| absolutely wrong.
| jprafael wrote:
| The problem is incentives. Banks are required at least a 10%
| cash colateral (deposits) to issue new loans. If the funds
| are automatically invested into stocks/bonds/etfs, then the
| capital available for banks to issue new (profitable) loans
| decreases.
| debarshri wrote:
| That's not a great premise for a company either. You are
| implying that this company is a risky investment.
| vineyardmike wrote:
| It is a risk. It doesn't sound FDIC insured AND you can
| face market loss.
| cj wrote:
| > feels like a feature to existing trading/investing apps
|
| I had the same thought at first. But at the end of the day
| the competitive edge a company like Financial Choice has
| might simply come down to marketing and UI/UX.
|
| Wealthfront, Betterment, Robinhood, etc are very narrowly
| targeted at investors (e.g. if I send a link to Wealthfront
| to my cousin who wants to earn a return on a $5000 checking
| account she set up for her young child, or even her own
| checking account, she's very unlikely to convert)
| rmah wrote:
| Yes, some (many?) brokers already offer similar services
| (i.e. debit card and checking). I think they typically only
| allow those to access cash on hand though and won't initiate
| any sales of any securities.
| stefanheule wrote:
| We have debated this question a fair bit at Financial Choice.
| I agree, the barrier does seem low, but also keep in mind
| that this is often the case for new companies, and the
| barrier is often higher than it seems for existing companies.
| For really established players, it's often hard to move fast
| (anyone who has worked at a big company probably knows this,
| there is often so much red tape).
|
| But I also think for others, this is quite a mental shift on
| how to look at checking and investing accounts. There are
| some investment companies like Wealthfront and Betterment who
| are starting to move into checking accounts, but it feels
| very much like a afterthought to a customer.
|
| We are hoping to truly unite the two account types.
| notahacker wrote:
| My suspicion is the main reason is that the costs of
| providing checking account functionality are high (banks
| subsidise this with penalty fees and marketing
| loans/mortgages and credit cards to their checking account
| customers as well as earning significantly higher returns
| oj their investment portfolio than they pay depositors). As
| much as in theory I'd love to hold money I might need to
| spend in the near future in fungible, low-risk government
| bonds, the middleman provides quite a lot of value in
| convenience.
|
| Presumably you have put some thought into how you're going
| to manage these costs (beyond not providing branches) or
| what checking account functionality you are uninterested in
| providing.
| codegeek wrote:
| "I think framing this is a checking account is what people are
| having trouble with"
|
| Yes exactly. Checking account is the safest thing you can do
| online especially with FDIC backing. It is misleading to say
| that it is like a checking account. It is not. People can lose
| money with this product and I think that needs to be clarified
| which is the opposite of a Checking Account.
| vineyardmike wrote:
| > I would love to be able to set a "surplus" threshold as part
| of this solution, say $5k (just an example - it should be set
| by the user), such that any amount above that in the account is
| invested
|
| My old investment account offers to watch my checking account
| and pull any "excess" money into investments. if i drop below a
| threshold? Sell and move to checking.
|
| (The firm is "betterment" if you want this). Would not
| recommend for/against. I no longer use this firm.
| nmhancoc wrote:
| Hey I like this idea, I think the tax management is a nice value
| add too.
|
| I don't know why nay-sayers are freaking out about this aside
| from calling it a checking account. Most HSAs (like Health Equity
| which I use) have a threshold cash balance (say $500), and then
| allow you to invest the rest, even in equities. No one seems to
| yell at them for being irresponsible because a medical emergency
| may coincide with a market downturn.
|
| Maybe this is inappropriate for a Launch HN, but do you see a
| path to profitability for this that isn't based on selling
| advertising / marketing data? Is there sufficient income or a
| sufficiently large addressable market here to make this work on
| just cash management / tax planning?
| konne88 wrote:
| We haven't really considered the path of selling ads or
| marketing data. Our current thoughts around business model are
| closer to Wealthfront (which charges 0.25% of assets under
| management) or Acorns (which charges up to $5/month for
| advanced services).
| naturalauction wrote:
| > No one seems to yell at them for being irresponsible because
| a medical emergency may coincide with a market downturn.
|
| It's not just coincidence for a checking account, people often
| need access to cash during market downturns as unemployment
| generally increases.
| nmhancoc wrote:
| Sure, I can see that line of argumentation, but you're paying
| a constant opportunity cost for having cash around
|
| In some sense this is a form of self-insurance rather than
| paying a "premium" in opportunity cost to the bank each month
| / year.
|
| Also: I know recommending options to novice investors is
| considered heresy, but in my experience 1 year puts insuring
| 50 or even 70% of market value via strike price are often
| considerably less costly than a 6-8% assumed annual
| opportunity cost between SPX and some 0/1% saving's account.
|
| Something that's automated like this could easily just buy
| puts with a 1 year window on deposit and paired sell them
| with equities on withdrawal.
| jesuslop wrote:
| Shiller PER is at 38.5 [1], signaling overheating. Is it now a
| wise moment to do an all-in of your savings in an S&P index
| replica? It is dubious to me. I buy bogleheading in general, but
| some market timing thinking seems unavoidable to make the choice,
| specially if one is not young and comes from a zero investment
| prior.
|
| [1] https://www.multpl.com/shiller-pe
| stefanheule wrote:
| One of the core points of Bogleheads is to never time the
| market, and I actually fully live by that. This is one reason
| why I like what we do at Financial Choice, it removes another
| way for me to try and time the market: Before FC I would
| manually move extra funds in to an investment account on a
| sporadic fashion, but this was definitely prone to market
| timing either explicitly, or implicitly. If when I tried not to
| time the market, you often think of moving the extra money when
| you hear news about markets, so this was definitely not
| uninfluenced by that. With FC I take myself out of the loop and
| remove a source of trying to time the market.
| andrewmcwatters wrote:
| You don't have to time the market, but when everyone is
| jumping off a cliff, you can say to yourself, "No thanks, I'd
| rather not jump off a cliff."
| sonograph wrote:
| Putting the Checking account into a fund/security and then
| selling the fund/security for ATM withdrawals, or individual
| expenses etc will be a headache come tax time. How does your
| product simplify this?
|
| From your description, it sounds like this is not FDIC insured?
| konne88 wrote:
| Every year you will receive the necessary paperwork from us to
| file your taxes. While there will be many trades, you can
| usually combine them into just one line on your tax return that
| sums them all up.
|
| That's correct, because your money is invested, this is not
| FDIC insured.
| oplav wrote:
| So is this essentially Fidelity's Cash Management Account with
| access to riskier investments?
| calderarrow wrote:
| Congrats on the launch! Few questions:
|
| 1. Do you think there's an opportunity for you to obtain 3rd-
| party insurance on deposits, as a sort of middle ground between
| uninsured deposits and FDIC?
|
| 2. How/why did you choose to partner with Fidelity?
|
| 3. Have you launched on any other financially-focused websites?
| If so, how was your product received by those crowds?
|
| 4. Out of curiosity, what tech are y'all building with?
|
| Best of luck!
| stefanheule wrote:
| Thank you!
|
| 1. It's a good question, I don't think we have really looked
| into this, so honestly I can say much. But worth of further
| investigation on our side!
|
| 2. It turns out that we need a number of features (investment
| account, checking account with debit card, etc, ability to
| spend money against your investments, and a few more), and
| there are not too many players left that we could build on top
| of. So it was process of elimination mostly.
|
| 3. We haven't, this is our first big public launch.
|
| 4. We are built on AWS using lambdas and DynamoDB. We are using
| Typescript as our main programming language, both in the front-
| end and backend, which is very convenient, especially since we
| are using a monorepo. Makes code-sharing very easy. Our
| frontend is built using React.
| Straw wrote:
| Can't you effectively buy varying levels of deposit insurance
| by purchasing puts on the underlying portfolio?
|
| Pay X% to limit your maximum losses in a year to Y.
|
| For example, right now you can buy yearlong puts on SPY at a
| strike price of $260 (58% of the current value) for 1% of the
| current price.
| vineyardmike wrote:
| > We are using Typescript as our main programming language
|
| How are you managing financial numbers safely in TS? Any
| library to ensure its "safe"?
| stefanheule wrote:
| I won't lie, this is not my favorite aspect, but the only
| way to do it is have numbers be represented as a string
| (e.g. "10.128") and use a library to manipulate them. The
| number type unfortunately just does not work.
| steviedotboston wrote:
| that seems ... really really risky
| vineyardmike wrote:
| Would you mind sharing details about this, and your
| experience?
|
| I ask not to challenge you or critique, but i have a deep
| interest in fintech and love Typescript. The ability to
| use it for fintech would be great, i just assumed it'd be
| too clunky to be practical.
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