AllThingsD » Cake Financial

A Service to Make 401(k) Tweaking a Piece of Cake

Walter S. Mossberg — Thu, 20 Aug 2009 01:09:04 +0000

In the current economic turmoil, with investment portfolios melting in value, it’s become harder than ever to plan for retirement. Many people lack good investment advisers, or the time and skill to do their own investment research.

So, a small San Francisco company, Cake Financial, is introducing Thursday a $99-a-year automated service that attempts to tailor a mutual-fund portfolio that will get you to retirement according to your goals. It’s designed to be simple, clear and relatively quick, using plain English, easy-to-understand graphics, and a step-by-step approach that walks you through the process. In essence, it’s a robotic, low-cost investment adviser.

[ See post to watch video ]

The service, called Cake Premium, automatically imports your investment and 401(k) account information from any of 65 major investment companies, analyzes and categorizes your holdings, and then proposes how best to reallocate your positions. It uses its own proprietary formula to rate funds, both on their performance and on their fees, and suggests substitutes that it believes would be better.

This new Premium service evolved from two earlier Cake products, a free investment-tracking service and a $30-a-year service comparing mutual funds. Both products emphasized social networking among active investors. But the new Premium version goes much further in terms of recommendations, is aimed at average folks and doesn’t focus on the social networking. Like the others, it’s Web-based and runs in all the major browsers.

Cake (cakefinancial.com) isn’t a registered adviser or broker, and doesn’t actually conduct any transactions. So, if you choose to follow its advice, you’ll have to buy or sell the necessary funds elsewhere. The company says it doesn’t receive commissions or fees, and has no financial ties to any mutual-fund company, bank or broker. It says its income from Cake Premium comes solely from consumer subscription fees.

I’ve been testing Cake Premium, using a dummy portfolio provided by the company. Because I am not an investment expert, I can’t evaluate the merit of Cake’s recommendations. You may want to ask a trusted adviser about that after test-driving it via Cake’s 30-day free trial. But I can say that I found the service clear and easy to use, and can see how it could be helpful to average people with limited time and knowledge. However, I also found that Cake Premium has some significant limitations.

Here’s how it works. After you enter a few basic facts, like age and desired retirement date, you tell the service your login information for your retirement account, such as a 401(k). But it won’t work if your account isn’t at a major investment firm like Fidelity or Schwab (SCHW). And you can’t manually enter your data from an account that isn’t covered. The company assures users this is all done very securely.

Next, Cake Premium will assess the mix of mutual funds you hold, and decide if that mix matches your goal. It rates each fund, categorizes them by type, and then labels your current strategy by degree of risk. For example, it might tell you that your current holdings are “moderately aggressive” or “conservative.” It might also tell you “you are paying way too much in fees.” All of this is displayed in very clear text and graphs.

Then, it makes an overall judgment. In my case, Cake Premium declared that the investments in my test account weren’t properly diversified and represented the wrong level of risk for my situation.

Finally, the service will suggest a new allocation of funds, propose you substitute some funds with others it considers better, and present you with a detailed listing of which ones to sell and which to buy—naming specific funds. You can, at any time, alter Cake Premium’s proposals to see how your chances of meeting your goals will change, and you can do the same by adjusting a few factors like when you might retire and what percentage of current income you’d need.

But what about those limitations? For one thing, the service is focused only on mutual funds, and can’t give you advice about CDs or money-market funds. Also, it is all about retirement, not other goals, like saving for college.

And unlike a good investment adviser, Cake Premium learns only a portion of your financial picture, so its mutual-fund recommendations aren’t made in a complete context. For instance, it includes only a single small box into which you can type a total of your other assets. The company says it plans a more detailed information-entry process in future versions.

Finally, a maddening problem: If you are trying to reallocate the mutual funds in a 401(k) plan, Cake Premium isn’t smart enough to limit itself to suggesting substitutes that are actually available in your plan. It may in fact suggest only alternative funds that your plan doesn’t offer. The company suggests you purchase such funds for a separate account, like an individual retirement account.

Overall, Cake Premium may be a helpful tool in confusing times. But its limitations make it an incomplete solution that’s no threat to a really good, honest investment adviser.

Find all of Walt Mossberg’s columns and videos online, free, at the All Things Digital Web site, walt.allthingsd.com. Email him at mossberg@wsj.com.

TechCrunch40: Day 1

John Paczkowski — Tue, 18 Sep 2007 04:04:48 +0000

[ See post to watch video ]

TechCrunch40 Fourth Session: Crowd-Sourcing

John Paczkowski — Tue, 18 Sep 2007 00:52:04 +0000

Digital Daily’s John Paczkowski is blogging from TechCrunch40 in San Francisco. Technical difficulties at the conference site prevent him from live-blogging, so he summarized the fourth session on crowd-sourcing:

Cake Financial. Here’s an intriguing idea: investor hive-mind. Cake aggregates historical investor data that can be used to guide the investments of others. Interesting, assuming the aggregate guidance isn’t compromised by the unskilled investors almost certain to jump on something like this. Presenter notes that top 10% of investors have been beating the SAP by a significant margin lately.
Docstoc. This is virtual shared professional document storage. Users can upload documents and designate them as shared (under Creative Commons license) or private. Docs then become searchable to original creator or the Docstoc community. Company hopes to create a massive repository of shared professional documents.
Teach the People. Marketplace for peer-to-peer-powered learning communities. Presenter uses the word “monetize” nine times in first five or so minutes of the presentation. Communities of learning that distribute knowledge to community subscribers. Ad-supported or subscription-based. Teach the People takes a cut of both. Presenter then pitches the service as a Facebook-style social network tricked out with education tools. A place to offer foreign-language lessons or guitar lessons, etc. An eBay for education. (An eBay for education?) Ah, the crux of it all: “We all have knowledge to share, why not earn money from it?”
CrowdSpirit. Some sort of social network revolving around “ideas” and “solutions.” Presenter offers up an example in which a user has proposed the idea of a “Facebook phone” and proposed a “solution” that involves a
bunch of Facebook phone mock-ups. Other community members may then either offer up alternative solutions or critique the original. Apparently the idea is that entrepreneurs can use the CrowdSpirit community to refine their ideas. The community can ascribe a value to the idea, and if it becomes significant enough CrowdSpirit will investigate manufacturing costs, etc., and refine the idea into a “product” with a real price. And then, if I’m understanding this correctly, if enough members of the community agree to purchase the product at that price, CrowdSpirit will actually get it manufactured and distributed. Seems a bit of a
stretch, this one.
Ponoko. Personal manufacturing outfit. A Service that allows one to design, create and sell one’s own products. Presenter describes the design and creation of an acrylic top (the spinning kind) which can then be sold to others. Interesting, an outfit that takes inventors from the creation to marketing phase. Apparently, we’re at the advent of the Personal Industrial Revolution.

Judges Panel:

Ron Conway likes Cake Financial, in which he’s apparently an investor (this was disclosed as a preface to his comments). And beyond that Ponoko.

Rajiiv Motwani likes Cake, but wonders how much faith he can put in the collective investment advice of a group of investors whose net worth he doesn’t know.

Don Dodge piles on, noting that the only thing people lie about more than their sexual prowess is their investing skill.

Yossi Vardi, riffing off Dodge’s analogy, suggests that Cake might benefit by the addition of a sexual prowess tab to its site.

Dodge likes Cake, too. Also, Teach the People. Noting that charging for content on the Internet has proven extraordinarily difficult, he asks how the company will convince people to pay for content which they haven’t really seen.

Vardi likes Cake, too. Point-blanks Conway and asks him if, as a Cake investor, he eats his own dog food. Conway says no; he doesn’t manage his own investments. Vardi: “Who does, your wife?” (Someone should give Vardi a bike horn to punctuate his jokes. Or a drummer with a snare and cymbal.)

Conway redirects, but Vardi pursues asking him how many of the 160 or so companies he’s invested in he actually uses. Conway says 40%. Vardi follows up with the inevitable: “And you expect us to risk our money investing in the other 60% you yourself don’t even use?”

Laughter. But no answer from Conway.

Vardi addresses all presenters. Apologizes to those who might feel jilted by a lack of attention from the judges. He says, in the end, it doesn’t really matter since we really don’t have the foggiest idea what will happen down the road: “Between us, Ron [Conway] and I have more failed investments than you can imagine.”