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The CEO Of Wealthfront Tells You Exactly How To Invest $50,000

The Huffington Post The Huffington Post 22/02/2016 Quora
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These questions originally appeared on Quora - the knowledge sharing network where compelling questions are answered by people with unique insights.Answers by Adam Nash, CEO of Wealthfront, on Quora.Q: How much finance did the team need to know in order to create Wealthfront?

A:There are three types of financial expertise that have been essential to building Wealthfront.

The first is our investment research team, led by Burt Malkiel, which is staffed with a team of professionals with PhDs in subjects like finance, statistics & economics.

The second type of financial expertise are engineers who have built institutional-class trading and brokerage infrastructure.

The third type are talented professionals with deep industry expertise in regulatory compliance.

Surrounding these people with some of the best engineers and designers in Silicon Valley and focusing them on a mission to build the future of investing is what Wealthfront is based on.

Q: In the current market situation, what would you recommend doing with cash in the order of $50,000?

A:Let me start out by saying that everyone's financial situation is different, so frankly, the real world answer realistically could vary a lot.

However, in general, at Wealthfront we strongly advocate that the first priority for individuals to be healthy financially is to make sure that they pay off expensive debt, spend less than they make, and build up an emergency fund of 3-6 months of expenses before they approach long term investment. An emergency fund should be allocated to an FDIC insured savings account - it is not there to make you money, it is there to protect your long term investments from short-term, unexpected expenses.

Assuming that is taken care of, Wealthfront recommends investing the money into a low cost, tax efficient, fully diversified portfolio. The DALBAR research clearly shows that individual investors dramatically underperform the markets, largely for two reasons. They pay too much in fees and they make behavioral errors with their investments. Marketing timing is the number one behavioral mistake investors make - they think too much about "the current market situation". Markets go up, and markets go down. The benefit of a long term, passive investment strategy is that you can automate your savings and investment and ignore the emotional day-to-day movements of the market. The best thing you can do is expose yourself to the power of compounding, keep fees low, stay diversified and be smart about taxes.

Q: Is it a mistake to major in a liberal arts field?

A: Sorry to be blunt here, but of course it is not a mistake to major in a liberal arts field.

That being said, I do think a lot of students choose to major in liberal arts for the wrong reasons. There is a false promise out there that you can major in whatever field you find interesting and your career will just work out. As I was growing up, my father gave me a heavy dose of the view that world does not owe you a job. Too often people confuse interest with value.

I am a huge fan of a liberal arts education, which I think of as exposure and exploration of a wide variety of intellectual disciplines and topics. When I was in school, I had a heavy interest in topics like philosophy, chemistry, economics and greek mythology. I also had a heavy interest in computer science, which I made my major. The others were electives.

There is a fairly common Venn diagram out there that I think summarizes the career advice that I give students. There are subjects that you'll find interesting. There are subjects where you have talent. And there are skills that the world economically values.

In most cases you want to find your career at the intersection of those three.

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