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FolioInvesting CEO Steven Wallman describes how his company aims to help retail investors diversify. By using the portfolio strategies offered, retail investors are better able to stay the course, he tells

Kate Stalter: Today’s guest is Steven Wallman, founder and CEO of FOLIOfn and FolioInvesting.

Steve, there are a number of intriguing angles that we can discuss today. I wanted to start out by pointing out that you are a former SEC commissioner, and I understand that one of your objectives in forming this company was to address what you saw as some unmet needs of individual investors?

Steven Wallman: That’s absolutely right. When I was investigating why individual investors seem to have trouble investing in a wise way, we discovered a number of things:

  • There was much less diversification than one would expect from those who were in the market.
  • There was no attention or almost no attention paid to taxes.
  • There was a misunderstanding as to fees and costs.
  • And there was a general tendency for people to go to one-size-fits-all investments without thinking about their own real risk levels, or how best to structure an investment for themselves.

So we started the company with the notion of creating a smarter, better way for people to invest, which would be through diversified portfolios that they can customize and tailor to meet their preferences and needs at very low cost.

We have a set of pricing plans that really allow for all the costs to be taken out, in terms of commissions that otherwise an investor would incur, and also to be able to look at after-tax returns as an important factor in thinking about how best to invest. We try very much to encourage people to diversify, and to diversify intelligently.

Kate Stalter: To follow up on that, it appears that you do have a couple of different divisions of the company, ways for the retail investor to either work through an advisor or be self-directed. How does that work?

Steven Wallman: We do have two divisions. One is direct to retail, which is our offering. The other is our platform for investment advisors, which is offering.

What we discovered early on, when the company first opened its doors a little bit more than a decade ago, was that we had a number of investment advisors using our retail platform seeking to try to create good diversified portfolios for their advised clients. They came to us and said, “Can you guys build an institutional platform that really serves us well, so that we can use the same concepts that you are offering to individual investors for our clients?”

We sought out to do that, and we did. So, today on the platform, individual investors can invest the same way that, for example, large institutions and endowments have learned to invest, which is to really diversify well, to be able to think about the appropriate risk levels that they want to incur, and to act in a consistent manner that allows them to not try to time the market, but grow with the market.

On the advisor side, they get the same platform benefits, although in many cases they will create their own portfolios for use by themselves for their clients. Whereas on the retail side, we provide a whole series of portfolios that an investor can start with and further customize as they wish, or create their own and start from scratch with stock screeners or other lists that they may have, to provide a diversified portfolio for their own account.

Kate Stalter: I’m looking at the home page of your site right now as you’re describing this, and I see, right off the bat, a number of different portfolios that would appear to address various objectives. Can you just walk us through this, Steve? If I’m an individual investor approaching your site for the first time, what would I see, and what would I be looking for to start making some decisions?

Steven Wallman: We provide about 140 to 150 what we call “ready to go portfolios,” that are good starting points for an investor, somebody who really doesn’t quite know where to begin but wants to start to invest in a good way.

By going to the page that shows all those, you can see our featured ones and brand-name ones that come from people like Zacks and others, and be in a position to work through our offerings to create a great portfolio for them. They can be in various types of styles, risk levels, etc.

On the home page, we show, for example, the ones that have been performing best over the last three months. Those are interesting.

For example, in our Internet Five portfolio, it’s got five holdings, and those five holdings include Amazon (AMZN), Baidu (BIDU), EBay (EBAY), Google (GOOG), and Priceline (PCLN). Over the last three months that portfolio has been up almost 17%, over 16.9%. So, it’s returned quite well, and it’s a portfolio that allows people to invest with one click in those five stocks.

In addition, however, most of our portfolios actually are much more broadly based, and we’re very proud of our target-date portfolios. These are portfolios that are really very suitable for people looking to invest through their IRA or through a retirement account.

They come in different risk levels: Moderate, conservative, aggressive. And they reach from current—for folks who are already in retirement—to as distant as the 2050 and the 2055 timeframes going up to 2060.

They are comprised primarily of ETFs, and those ETF holdings include in most cases anywhere between eight and a dozen different ETFs from different providers. We put together those portfolios for people to be able to use and select to meet their retirement needs.

These portfolios have really performed quite well over the last four to four-and-a-half years. On this site, we actually provide a whole white paper describing how our portfolios differ very significantly from the traditional target-date mutual funds that are otherwise offered to investors.


Tickers Mentioned: Tickers: AMZN, BIDU, EBAY, GOOG, PCLN