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.
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-...).
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.
> 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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."
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
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.
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
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.
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.
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.
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.
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?
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.
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.
