I've got an old 401k that I'm going to roll over soon. I've been doing some research, and websites like Betterment and Wealthfront have caught my eye over traditional investment brokers. Anybody have any experience with either of them?
I've got an old 401k that I'm going to roll over soon. I've been doing some research, and websites like Betterment and Wealthfront have caught my eye over traditional investment brokers. Anybody have any experience with either of them?
You can get some savings for the first year or two with their automated tax loss harvesting. But then for the rest of your investing life you're paying higher fees than with a simple Vanguard product and getting the same returns. I went with Vanguard and VTSAX but they have other funds that are lower fees than the roboinvestors and have a different asset mix.
Because Vanguard exists. I swear its like they invented the term robo-investor and then tried to find a way to sell it.
It's my understanding that I would end up with a traditional tax-sheltered IRA, and therefore would not be eligible for any tax loss harvesting. I know that I could go to Vanguard and invest in an ETF myself, but what appeals to me about the robo investors is the simplicity and broad diversification. The primary reason I'm rolling over is because my asset allocation has become pretty unbalanced, and while it's done very well for me, I'm not willing to push my luck much further in that regard, so I'm looking to diversify more than my current holdings reflect. Instead of being invested in a single fund, I would be invested in several, and all I have to do is adjust the level of risk that I'm comfortable with, and they do everything else for .25% (which is significantly lower than what my current servicing company will soon be charging me).
I'll give the Vanguard approach some more thought though, and I'll look into that specific fund.
Vanguard has a number of funds that offer diversification within the fund itself. VTSAX is 100% US stocks so wouldn't be good if you're looking for diversification. But say you go with a Vanguard Target fund, that is a balanced retirement fund that automatically rebalances the assets based on when you plan to retire. You choose which specific fund based on your expected retirement date.
So, say 2040 is your projected retirement. They have VFORX, "Vanguard Target Retirement 2040 Fund." Fees are .18% and they automatically handle everything other than you actually earning the money to put into it. Yeah the fees don't sound much different but it adds up to thousands of dollars by retirement.
If you wanted to DIY your asset allocation, a fund like VTSAX has fees of .05% and you can find other funds like VBTLX which is the total bond market and has .07% fees and build you own portfolio at much lower costs. It's not scary once you've done it, it's the getting started that's nerve racking.
The big things I like about Vanguard is they've been around for a long time and are a non-profit. So you're not betting on a complex business model like Betterment to succeed. If Betterment folds you'll still have the underlying funds but you're stuck with dozens of things to track and make sense of as opposed to one (or three) funds with Vanguard.
I hope I've helped, I'm kind of rambling, but that's sort of the peril of a message board thread about a complex topic like this. ;-)
It's interesting how we're seeing this "anti-index" stuff coming up a lot more now. I think this is making a lot of investors question whether Indexes are the way go, and looking for easy ways to diversify.
Seems to me the traditional managers are feeling threatened.
I'm an index guy all they way.
You can't be more diversified than by owning all the indexes...
Robbie wrote: You can't be more diversified than by owning all the indexes...
That was kind of my thinking. This isn't my primary retirement savings, so I guess I'm trying to decide if I should go for tons of diversification and sacrifice some potential gains for consistency, or if I should be more aggressive with it and see how much I can grow it by being less diversified.
I like this:
https://www.bogleheads.org/wiki/Three-fund_portfolio
The three fund portfolio can offer diversification and simplicity with incredibly low fees. Even simpler is to just follow the "Lazy portfolio" suggestions.
https://www.bogleheads.org/wiki/Three-fund_portfolio#Lazy_portfolios
PHeller wrote: It's interesting how we're seeing this "anti-index" stuff coming up a lot more now. I think this is making a lot of investors question whether Indexes are the way go, and looking for easy ways to diversify. Seems to me the traditional managers are feeling threatened.
Seems like the two are very related.
alfadriver wrote:PHeller wrote: It's interesting how we're seeing this "anti-index" stuff coming up a lot more now. I think this is making a lot of investors question whether Indexes are the way go, and looking for easy ways to diversify. Seems to me the traditional managers are feeling threatened.Seems like the two are very related.
My northwestern mutual "financial planner" (read: insurance salesman - not bad, just different), was very mad when I told him I would be taking my investments out of his hands and going with simple vanguard index funds. He was also very well armed with "data" from Northwestern Mutual about how his funds had higher growth than vanguard index funds did. I am still buying life insurance from him, so I have to ask - why was he so mad if he truly didn't profit from "managing" my portfolio (like he said)?
In the end it really all comes down to who you believe, but I find it hard to believe people and data that are so clearly self-serving. I work in data so I know how to make it say whatever you want it to say.
Use fee based certified financial planners only. All others take "kick backs" from the plans they sell.
Several of the low-cost brokers also offer similar services (IIRC Vanguard and Schwab do).
As to "our growth is better than their growth", until a couple of months ago I was working for a company that provides investment analysis software. Actually working on said software. It's not hard to show that your fund has better growth than any other fund if you pick the right three days in the last fifty years and make sure you ignore the fees charged. Ask your financial sales person to provide you the same data from 2006-2015 taking the fees into account and watch him get even more mad 
. Time range is important and they often like to pick the Goldilocks timeframe for their fund.
I don't have access to the software anymore so I can't throw up the graph, but the impact of fees on long-term investments is massive if you compare a fund or ETF at a low cost provider that charges less than 0.1% annually and an insurance company based fund that charges in the order of 1%. The charges are a cumulative drag on the performance and over the typical investment horizon of 20-40 years leave you with a lot less money if you're in a high-cost fund.
Fueled by Caffeine wrote: Use fee based certified financial planners only. All others take "kick backs" from the plans they sell.
Actually you want a "fee only" CFP. "Fee based" doesn't necessarily mean they're not getting kickbacks, only that they're charging you a fee.
from investor.gov (hopefully low bias source):
since this is assuming simple 4% annual return (which is low), and also looks like there is no regular addition of money, you can do the math to compare other cases.
Vanguard .05% fee would leave 217k at the end.
So the difference between 1% and .05% fee is about 37k over 20 years. OR ABOUT 30% OF YOUR TOTAL GAINS!!!! (total gain of 220k-100k = 120k)
Have you guys heard about how Index funds allow bad leadership to stagnate because stock holders aren't involved in determining leadership of said companies? Passive investment, as they call it, is bad for growth.
BoxheadTim wrote:Fueled by Caffeine wrote: Use fee based certified financial planners only. All others take "kick backs" from the plans they sell.Actually you want a "fee only" CFP. "Fee based" doesn't necessarily mean they're not getting kickbacks, only that they're charging you a fee.
thats what I meant.
PHeller wrote: Have you guys heard about how Index funds allow bad leadership to stagnate because stock holders aren't involved in determining leadership of said companies? Passive investment, as they call it, is bad for growth.
I think that's a huge leap of faulty intuition (not even logic) and is beyond the purview of most individual investors.
PHeller wrote: Have you guys heard about how Index funds allow bad leadership to stagnate because stock holders aren't involved in determining leadership of said companies? Passive investment, as they call it, is bad for growth.
Except that most of the time, all the board members (the real leaders of the company) will be owning a humongous amount of that companies individual stocks. So they have a real personal incentive for growth. Not to mention that if the stock isn't going to do well, a non-total market/sector index fund isn't going to own it.
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