The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: Cincy Stache on January 14, 2014, 12:26:07 PM
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I could be rehashing old stuff here. But after hearing about Betterment on a few podcasts I thought I'd look into it. WOW, am I late to the party? This looks like a perfect "investing" compliment to my Mint account...
The problem is, I'm not sure if Betterment or Vangaurd is right for me. (I need to roll some things over just to get my ball rolling again)
I'm thinking about pulling 12k from my OPERS (Ohio Public Employee) account since it's unlikely I will be a public emp again. I'm 28 years old and have 6 years in the system.
I want to roll over my "deffered compensation" account with ING that has about 5k just sitting with no contributions since I've been a public emp 2 years ago.
My thought is once I get one or both of these accounts rolled into a Betterment or Vangaurd and get $100/month going again that I'll be back on track with my retirement savings.
I would also like to start keeping my "savings acct/emergency fund" into this as well, since it seems fairly liquid if I were to NEED $.
**I like the idea of tracking, but not messing with my longterm investments.
Is Betterment really as good as I think it is for my use? Any current users?
Thanks in advance!
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I'm a big Betterment fan.
The long story short: if you enjoy tinkering/tweaking your investments and trust yourself to do it faithfully and correctly for the next 30 years, use Vanguard.
If you want to just throw money into investments and not have to think about it and feel that .25% is worth it, knowing that it'll be done correctly every time.. then go with Betterment.
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If you want to go completely hands off at Vanguard, pick an automatic investment amount and a target date fund. No further tinkering required.
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For the casual investor who only needs to know one thing (your preferred Asset Allocation, such as 80% stocks and 20% bonds), and just wants to deposit money into on a regular basis, Betterment is the perfect tool. I use it for my long term savings. It's probably the most user friendly, attractive, easiest to use set-it and forget-it investment account out there. And fees are minimal compared to everything except index funds.
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If you want to go completely hands off at Vanguard, pick an automatic investment amount and a target date fund. No further tinkering required.
+1
You can't get any easier or inexpensive than this. Target date or even Life Strategy funds would work too. After you pick one and set up that automatic investment there is no annual .25% leeched off.
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If you want to go completely hands off at Vanguard, pick an automatic investment amount and a target date fund. No further tinkering required.
+1
You can't get any easier or inexpensive than this. Target date or even Life Strategy funds would work too. After you pick one and set up that automatic investment there is no annual .25% leeched off.
+2.
I vote Vanguard.
It's just as easy to set up automatic and hands off stuff, without giving up extra money for not much.
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I don't get Betterment. They have slick marketing and get people into their funds, but they charge more than Vanguard. If you invest $10,000 per year on a monthly basis, the .25% Betterment up charge in 10 years is $1249.40. Over a lifetime of significant investing, this turns into a very large sum.
My advice is to read their blog a little, then put your money in Vanguard. Then read the Vanguard site and Bogleheads at: http://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit (http://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit)
Set it up and then fund Vanguard regularly.
[Mod Edit: Fixed Hyperlink.]
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You may want to consider just leaving the funds with OPERS. You're fully vested and you forfeit all service credit when you get a refund or do a rollover. The funds they offer have extremely low expense ratios.
Their stock index fund for example has an ER of 0.03%. Vanguard's ER on their total stock market fund (with admiral shares) is 0.05%. Even their target date funds are extremely cheap - 2050 is 0.08%.
If your account balance is over 5K, you won't have any other fees or expenses associated with the plan.
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I don't get Betterment. They have slick marketing and get people into their funds, but they charge more than Vanguard. If you invest $10,000 per year on a monthly basis, the .25% Betterment up charge in 10 years is $1249.40. Over a lifetime of significant investing, this turns into a very large sum.
My advice is to read their blog a little, then put your money in Vanguard. Then read the Vanguard site and Bogleheads at: http://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit (http://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit)
Set it up and then fund Vanguard regularly.
[Mod Edit: Fixed Hyperlink.]
This. Not only do they charge more THAN Vanguard, they charge more FOR Vanguard. They point out the low cost of the funds they want to put you into and then charge you to do it. That would be like me telling you how much you can save by shopping at Costco and then making you pay me to shop for you at Costco.
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Thanks all! It looks like Vangaurd wins purely from a fee standpoint. This is the route I'll likely go...
For now, maybe I'll just leave my OPERS account alone and track how it's doing.
What are your thoughts on a place to put an "emergency fund" or savings account. Frankly, I'm tired of keeping my savings in a brick n' mortar bank along with my checking. Is a .85% online savings account better than throwing it in (betterment suggested) conservative investment account that can be withdrawn on anytime? How can I make the most of this sitting $ while also being able to access it quickly if I needed to?
Thanks again!
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Thanks all! It looks like Vangaurd wins purely from a fee standpoint. This is the route I'll likely go...
For now, maybe I'll just leave my OPERS account alone and track how it's doing.
What are your thoughts on a place to put an "emergency fund" or savings account. Frankly, I'm tired of keeping my savings in a brick n' mortar bank along with my checking. Is a .85% online savings account better than throwing it in (betterment suggested) conservative investment account that can be withdrawn on anytime? How can I make the most of this sitting $ while also being able to access it quickly if I needed to?
Thanks again!
I have mine earning 1% at SmartyPig.com - takes about 3 days to transfer, but I'm not sure of an emergency where I couldn't use a credit card (temporarily, then pay off with cash), or couldn't wait 3 days for the funds.
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I don't get Betterment. They have slick marketing and get people into their funds, but they charge more than Vanguard. If you invest $10,000 per year on a monthly basis, the .25% Betterment up charge in 10 years is $1249.40. Over a lifetime of significant investing, this turns into a very large sum.
My advice is to read their blog a little, then put your money in Vanguard. Then read the Vanguard site and Bogleheads at: http://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit (http://www.bogleheads.org/wiki/Bogleheads®_investing_start-up_kit)
Set it up and then fund Vanguard regularly.
[Mod Edit: Fixed Hyperlink.]
This. Not only do they charge more THAN Vanguard, they charge more FOR Vanguard. They point out the low cost of the funds they want to put you into and then charge you to do it. That would be like me telling you how much you can save by shopping at Costco and then making you pay me to shop for you at Costco.
Couldn't explain this better myself!
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Hi Cincy Stache,
Katherine from Betterment here. The fee Betterment charges for its services is minimal compared to the value provided.
My advice is to read their blog a little, then put your money in Vanguard.
[Mod Edit: Fixed Hyperlink.]
If you read our blog, you'll discover all that we provide our customers for such a low fee. For example, we recently posted an analysis of the behavior gap, or the performance many investors forgo due to poor investing behavior. Betterment, on average, provides customers a performance gap that is 1.3% less than what an average investor experiences. That's 1.3% in additional returns per year for investing with Betterment (and the most you'll pay us in a management fee is 0.35%). Even if you're a well-behaved investor, our software is designed to optimize long-term returns. It automatically rebalances customers' accounts and automatically reinvests dividends -- you can do that on your own, but why would you want to? Let's suppose you invest $100,000 with Betterment. The fee amounts to $15 per month. Take that time you would spend doing everything Betterment does automatically on your own, and you can use it to the tune of a lot more value than $15. Whether it's work, learning a new skill, spending time with family, or even sleeping, we're giving you your life back for a minimal cost.
Our rollover process is also one of the most efficient in the industry. We have completed thousands of rollover and ensure what is normally a frustrating process runs smoothly.
Take care,
Katherine
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That's some really interesting shilling.
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That's some really interesting shilling.
Now, now, play nice.
I disagree with most of her post, but it's nice that they're at least coming on to discuss their product, hopefully honestly, and thus able to answer questions, etc. about it.
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I don't know. People who want to company line can find it with a one word google search, and all of those arguments have been given by Betterment's marketing team on this forum before. (Deja vu (https://forum.mrmoneymustache.com/profile/?area=showposts;u=1846).)
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The argument that most people don't manage their portfolios optimally (given their desired asset allocation) is a valid one. The question is whether the OP would be disciplined enough to do so, or at least get close enough to be better off than paying a 0.25% management fee.
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I don't know. People who want to company line can find it with a one word google search, and all of those arguments have been given by Betterment's marketing team on this forum before. (Deja vu (https://forum.mrmoneymustache.com/profile/?area=showposts;u=1846).)
True.
The argument that most people don't manage their portfolios optimally (given their desired asset allocation) is a valid one. The question is whether the OP would be disciplined enough to do so, or at least get close enough to be better off than paying a 0.25% management fee.
Fair enough. What that means to me though, is that the advice should be given as "Vanguard is better, but with the caveat that...*" (insert info about discipline and investor psychology, risk tolerance, etc.), and let the person decide based on that.
That is, not argue that theirs is mathematically better in some way, ala:
Even if you're a well-behaved investor, our software is designed to optimize long-term returns. It automatically rebalances customers' accounts and automatically reinvests dividends -- you can do that on your own, but why would you want to?
Or that the fee is small ($15 on 100k), but basically say it's for people who can't handle the mathematically better investing because it takes discipline.
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Don't forget to elide over that dividend reinvestment is free, effortless, and instantaneous with or without giving Betterment .25% of your money every year.
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It seems that I'm the resident Betterment fanboy so here we go. I'll put it in a less eloquent way then Betterment can because they would be afraid to insult their potential customers.
That .25% is money well-spent. It's protection money. Only rather than protecting you from the mafia or a local gang, it's protecting you from yourself.
"But I don't need protection from myself... I know exactly what I'm supposed to do and I'm disciplined enough to do it consistently for the next 40 years!"
If the above statement sounds like you, then chances are..... You need protection.
The service Betterment offers is not just passive index investing. You can get that from Vanguard. What Betterment offers you is the ability to just throw money into your account without having to think about anything. I mean ANYTHING. Ever. Just let that sink in.
In the past 16 months I've paid less in fees to Betterment than I paid in a single month to Sharebuilder as an active trader (back when I thought that was cool.)
If you have the time to sit down and calculate your current balances and correct percentages to allocate new funds on every deposit (I deposit weekly) then go for it. You probably won't always have the time or interest to do so, for various personal and professional reasons. (In fact, I hope you don't... Having a family and a fulfilling career is a wonderful thing.)
But if you don't have the time, if you just want to throw this extra $500 sitting in your checking account into a diversified basket of low-cost funds without having to stress AT ALL then Betterment is for you.
If you think that you're good enough, smart enough, and persistent enough to manage your investments for the next 40 years without skipping a beat then good for you!.....But you're probably wrong. :)
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For me, financial knowledge eases money anxiety and worry. Doing an investment policy statement and then deciding on asset allocation and index funds is not that hard. Of course, one can overthink or do too much slicing and dicing, but there are plenty of simple portfolios at Bogleheads and other sites that will fit most people. There are knowledgeable people here and on other forums to help if you ask.
Betterment's ad writing is smooth and enticing and it does contain some good stuff, but it simply leads to higher cost. Remember, a typical financial adviser does not act in a fiduciary capacity. Further, if you are planning on a 4% draw on your retirement savings, losing .25-.35 to Betterment during the buildup of an account and the spend down seems unnecessary when it is easy peasy at places like a Vanguard.
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It seems that I'm the resident Betterment fanboy so here we go. I'll put it in a less eloquent way then Betterment can because they would be afraid to insult their potential customers.
That .25% is money well-spent. It's protection money. Only rather than protecting you from the mafia or a local gang, it's protecting you from yourself.
"But I don't need protection from myself... I know exactly what I'm supposed to do and I'm disciplined enough to do it consistently for the next 40 years!"
If the above statement sounds like you, then chances are..... You need protection.
The service Betterment offers is not just passive index investing. You can get that from Vanguard. What Betterment offers you is the ability to just throw money into your account without having to think about anything. I mean ANYTHING. Ever. Just let that sink in.
In the past 16 months I've paid less in fees to Betterment than I paid in a single month to Sharebuilder as an active trader (back when I thought that was cool.)
If you have the time to sit down and calculate your current balances and correct percentages to allocate new funds on every deposit (I deposit weekly) then go for it. You probably won't always have the time or interest to do so, for various personal and professional reasons. (In fact, I hope you don't... Having a family and a fulfilling career is a wonderful thing.)
But if you don't have the time, if you just want to throw this extra $500 sitting in your checking account into a diversified basket of low-cost funds without having to stress AT ALL then Betterment is for you.
If you think that you're good enough, smart enough, and persistent enough to manage your investments for the next 40 years without skipping a beat then good for you!.....But you're probably wrong. :)
What would stop someone like that from just setting up an autodraft into Vanguard which automatically purchases a target date fund (which itself automatically rebalances, reinvests dividends, etc. etc.)?
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I reiterate that, IMO, Betterment is perfect for the casual investor who just wants to deposit money and watch it grow "in the stock market". It's easy for us to say that investing on your own is easier, but tell that to the people who come here and post in Ask a Mustachian and tell us about how they want to invest $25,000 that's been sitting in their bank for the last five years, but they are so intimidated they obviously haven't even tried googling about how to get started investing. Those people want someone to hold their hand throughout the process. That's what Betterment does well, and I believe Betterment is there for. It's not a service that most of us here would likely need. But considering the alternative for uninformed investors (getting fleeced for 1%-2% somewhere), I don't mind recommending it if all you want is simplicity.
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The service Betterment offers is not just passive index investing. You can get that from Vanguard. What Betterment offers you is the ability to just throw money into your account without having to think about anything. I mean ANYTHING. Ever. Just let that sink in.
Okay, I have to ask. What is someone with no interest in thinking about investing at all doing hanging around the Investor Alley section of this forum?
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I do that with Vanguard. Ok, I may have to think for a few minutes about adjusting my allocation in a couple years, but should have some time to pencil that in. I'll probably have to spend more time remembering my password, but that's the risk of both methods!
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Okay, I have to ask. What is someone with no interest in thinking about investing at all doing hanging around the Investor Alley section of this forum?
For real. The forum that goes along with a blog about insourcing, empowering yourself by educating yourself to do things you previously paid others to do, and seeking out useless recurring expenses and cutting them! Of course we'll find paying hundreds of dollars a year to have your hand held and not have to think objectionable. That's the whole point.
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Okay, I have to ask. What is someone with no interest in thinking about investing at all doing hanging around the Investor Alley section of this forum?
For real. The forum that goes along with a blog about insourcing, empowering yourself by educating yourself to do things you previously paid others to do, and seeking out useless recurring expenses and cutting them! Of course we'll find paying hundreds of dollars a year to have your hand held and not have to think objectionable. That's the whole point[/i].
Thanks all! That is really what it comes down to, isn't it? Why pay an electrician to come and change the outlet when I can google it myself, learn something, and save some $oldiers at the same time.
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What are your thoughts on a place to put an "emergency fund" or savings account. Frankly, I'm tired of keeping my savings in a brick n' mortar bank along with my checking. Is a .85% online savings account better than throwing it in (betterment suggested) conservative investment account that can be withdrawn on anytime? How can I make the most of this sitting $ while also being able to access it quickly if I needed to?
I used Ally Bank for my emergency fund ($5k), and for depositing checks online (I run a small website and get a lot of little payments by check and this saves me from mailing in and running to the bank), and I'm happy with their rate. I think Barclay's online is slightly higher but only by about a half a percentage point. I like that I can write checks, have a debit card, and bank transfer to my credit union checking in a couple of days. The money is very accessible, and six free withdrawals a month is more than enough for me.
As for Betterment vs Vanguard, I'm just using Vanguard. I use this tool every time I have a question about what I should do with investments and extra money:
https://personal.vanguard.com/us/funds/tools/recommendation
I take the recommendation, and buy funds accordingly. It's really quite easy. I'm going to open a cash account with excess we save after maxing our Roths each year, and use the LifeStrategy Moderate Growth all-in-one fund for that -- based on the recommendation from that tool.
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It seems that I'm the resident Betterment fanboy so here we go. I'll put it in a less eloquent way then Betterment can because they would be afraid to insult their potential customers.
That .25% is money well-spent. It's protection money. Only rather than protecting you from the mafia or a local gang, it's protecting you from yourself.
"But I don't need protection from myself... I know exactly what I'm supposed to do and I'm disciplined enough to do it consistently for the next 40 years!"
If the above statement sounds like you, then chances are..... You need protection.
The service Betterment offers is not just passive index investing. You can get that from Vanguard. What Betterment offers you is the ability to just throw money into your account without having to think about anything. I mean ANYTHING. Ever. Just let that sink in.
In the past 16 months I've paid less in fees to Betterment than I paid in a single month to Sharebuilder as an active trader (back when I thought that was cool.)
If you have the time to sit down and calculate your current balances and correct percentages to allocate new funds on every deposit (I deposit weekly) then go for it. You probably won't always have the time or interest to do so, for various personal and professional reasons. (In fact, I hope you don't... Having a family and a fulfilling career is a wonderful thing.)
But if you don't have the time, if you just want to throw this extra $500 sitting in your checking account into a diversified basket of low-cost funds without having to stress AT ALL then Betterment is for you.
If you think that you're good enough, smart enough, and persistent enough to manage your investments for the next 40 years without skipping a beat then good for you!.....But you're probably wrong. :)
Interesting. I'm doing a trial for this year, to see which I like better for relatively hands-off investing, Betterment, or Sharebuilder (investing there mainly in Vanguard LifeStrat funds). I've invested $11,000 into each and we'll see what happens.
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Interesting. I'm doing a trial for this year, to see which I like better for relatively hands-off investing, Betterment, or Sharebuilder (investing there mainly in Vanguard LifeStrat funds). I've invested $11,000 into each and we'll see what happens.
Awesome. Would love to hear a six-month and one-year update.
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Interesting. I'm doing a trial for this year, to see which I like better for relatively hands-off investing, Betterment, or Sharebuilder (investing there mainly in Vanguard LifeStrat funds). I've invested $11,000 into each and we'll see what happens.
Right, I wanted to suggest the OP look into Vanguard lifestrategy funds. The fund keeps your assets automatically balanced in whichever of the four combinations you chose. So, okay, you can't choose a really specific proportion like you can with betterment (and that remaining bit of control may be why Betterment appeals to the reformed traders), and you need the $3,000 min. If you're using it as an emergency fund, I'm not honestly sure what happens if you withdraw money such that the balance is below 3k. A quick perusal of bogleheads suggests that nothing happens.
I am curious, though, monarda, if you have well over the minimum, why you're paying commissions to sharebuilder rather than just investing in the fund directly with vanguard for free. Actually, I'm not super curious because I'm sure whatever you're doing makes sense for your strategy.
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Interesting. I'm doing a trial for this year, to see which I like better for relatively hands-off investing, Betterment, or Sharebuilder (investing there mainly in Vanguard LifeStrat funds). I've invested $11,000 into each and we'll see what happens.
Awesome. Would love to hear a six-month and one-year update.
Will do, arebelspy. I've got my spreadsheet started, and I remembered a column for making a note of the S&P500. I'll check once a month or maybe quarterly or whenever I make changes and make a chart.
Sheepstache, it's mostly a matter of convenience for now - I've had my savings in ING/Cap1-360 for a long time, and they have a convenient link to sharebuilder. My experiment isn't for IRAs (I've had those in Schwab for 20 years, I just got mad at them wrt their high fees for brokerage accounts and closed 'em, harumph). This money is going to be asked (nicely) to grow and I might just buy another rental property with it if it decides to do well. That's worth $38 for the two $19.95 funds I've bought.
Serpentstooth, the Vanguard Target Date funds might be another good idea. I was deciding between them and the Vanguard Lifestrat funds that I went for. And sure, I can fund Vanguard directly if I decide I like Vanguard better than Betterment. I wasn't planning to add regularly to those funds at $19.95 a pop through Sharebuilder. I will be adding monthly to Betterment, since that's free (but I'll normalize my report to the initial investment) All being factored in to the overall preference.
Note to youngsters about my experiment. Since I'm over 50, I'm comparing one relatively conservative portfolio to another. If one of you 20-30-somethings wants to do a parallel experiment with more stocks than I have, that'd be helpful to the younger newbies who want to be hands-off.
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Betterment is great. I prefer just investing directly with Vanguard, though. I don't really need any of the services Betterment argues. But if you do, you should consider them.
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Why in the blazes would you buy Vanguard funds through Sharebuilder? I buy them directly from Vanguard, have done so for years, and pay no commissions/fees to do so.
Why not? Maybe I'm mistaken, but I didn't think there were additional fees through Sharebuilder besides the $19.95 I paid. I'll look into it. Well, thanks for your 'suggestion' (even though you could have been nicer)... I just opened an account at Vanguard. I'll add on to my experiment, putting some into Vanguard directly, and see what I think of them. I do like that my Sharebuilder total balance is posted right there next to my savings account, on a site I've been accustomed to using for 10 years.
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Note to youngsters about my experiment. Since I'm over 50, I'm comparing one relatively conservative portfolio to another. If one of you 20-30-somethings wants to do a parallel experiment with more stocks than I have, that'd be helpful to the younger newbies who want to be hands-off.
I do not think this experiment will be helpful to anybody since the portfolios in question have totally different factor loads and 1 year is a very short time horizon. The results are going to be completely driven by randomness and not any inherent qualities of the portfolios themselves.
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Note to youngsters about my experiment. Since I'm over 50, I'm comparing one relatively conservative portfolio to another. If one of you 20-30-somethings wants to do a parallel experiment with more stocks than I have, that'd be helpful to the younger newbies who want to be hands-off.
I do not think this experiment will be helpful to anybody since the portfolios in question have totally different factor loads and 1 year is a very short time horizon. The results are going to be completely driven by randomness and not any inherent qualities of the portfolios themselves.
You're right, but it's not really an experiment for yield differences, just for user preference, style, customer service, good/bad surprises/fees. Regular old comparison shopping. I just made the comment you quoted thinking a conservative investor might care about different features than a more aggressive investor. I think 1 year will be long enough for me to decide if I like Betterment or Vanguard better (+/- Sharebuilder), which is the point of this thread, right?
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I do not think this experiment will be helpful to anybody since the portfolios in question have totally different factor loads and 1 year is a very short time horizon. The results are going to be completely driven by randomness and not any inherent qualities of the portfolios themselves.
You're right, but it's not really an experiment for yield differences, just for user preference, style, customer service, good/bad surprises/fees. Regular old comparison shopping. I just made the comment you quoted thinking a conservative investor might care about different features than a more aggressive investor. I think 1 year will be long enough for me to decide if I like Betterment or Vanguard better (+/- Sharebuilder), which is the point of this thread, right?
Exactly. Hearing about other people's experience is always helpful because there may be some circumstance that relates to your own. Comparisons are especially helpful as it a. avoids people just recommending what's familiar to them and b. is usually something that interests us just because we want to know which ONE option to go with and one person making the comparison and reporting on it saves the rest of us time.
19.95, though, man, that's crazy :)
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Thanks, sheepstache.
Plus, I can't help experimenting, I'm a scientist, after all. I turn all kinds of comparisons into 'experiments'.....
n will be equal to 1, so my results will be "anecdata" (to use a non-word I love), but I'll still share hoping it might help someone to make their choice.
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I like both. My husbands 401k is at Vanguard (yay!) and we set up our daughters 529 with Vanguard. However recently, we moved most of our "extra" money to Betterment. I used a promo for a $100 bonus for a 10k investment. I figure this gives us some time with the fees "covered" by the bonus to see how we like it. So far so good! I really do like the concept and the hands off approach. I like that we can quickly adjust the ratio of stocks/bonds and that we can split money into different "bucket accounts" with different investment ratios. Happy to update after we've been using it longer.
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I also scratch my head at how Betterment can make it. Certainly Betterment is better than going to a place like Merrill Lynch or Ameritrade, or just buying whatever "Mad Money" Cramer screams about the night before.
But once any investor discovers why the Betterment portfolio is a good one (low-expense passive index funds), then you've cracked the code and now you you're knowledgeable enough to construct a comparable one-fund portfolio at Vanguard with a target retirement date or LifeStrategy fund. In other words, anyone smart enough to buy the Betterment spiel is smart enough to do it on their own for less.
I do recognize, though, that I and a lot of other people on this board are very analytical and motivated about these topics (we are, after all, reading this on a personal finance website with a disproportionate number of engineers), and not everyone else is equally so. If Betterment can save a few people from places like Edward Jones (where you'll lose 5.75% of your money off the top from commission loads, as well as getting put into expensive actively-managed funds AND pay 1% annually in management fees, plus other fees), then that's a good thing. If one of my clueless relatives asked me if they should invest at Edward Jones or Betterment, I'd tell them to go to Betterment in a heartbeat.
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I do recognize, though, that I and a lot of other people on this board are very analytical and motivated about these topics (we are, after all, reading this on a personal finance website with a disproportionate number of engineers), and not everyone else is equally so. If Betterment can save a few people from places like Edward Jones (where you'll lose 5.75% of your money off the top from commission loads, as well as getting put into expensive actively-managed funds AND pay 1% annually in management fees, plus other fees), then that's a good thing. If one of my clueless relatives asked me if they should invest at Edward Jones or Betterment, I'd tell them to go to Betterment in a heartbeat.
Just had to comment here, I finally convinced my parents to move their big nest egg out of Edward Jones to Vanguard. They are actively retired/self-employed, and I was appalled by what Edward Jones had done -- no fewer than 33 actively-managed funds, only 20% bond exposure, etc, a "money management advisory" fee to the tune of over $300/month, the fees went on and on and on. Needless to say, just making the switch should save them close to 10k this year. Anyone is welcome to msg me if they need help convincing relatives to make the switch.
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I do recognize, though, that I and a lot of other people on this board are very analytical and motivated about these topics (we are, after all, reading this on a personal finance website with a disproportionate number of engineers), and not everyone else is equally so. If Betterment can save a few people from places like Edward Jones (where you'll lose 5.75% of your money off the top from commission loads, as well as getting put into expensive actively-managed funds AND pay 1% annually in management fees, plus other fees), then that's a good thing. If one of my clueless relatives asked me if they should invest at Edward Jones or Betterment, I'd tell them to go to Betterment in a heartbeat.
Just had to comment here, I finally convinced my parents to move their big nest egg out of Edward Jones to Vanguard. They are actively retired/self-employed, and I was appalled by what Edward Jones had done -- no fewer than 33 actively-managed funds, only 20% bond exposure, etc, a "money management advisory" fee to the tune of over $300/month, the fees went on and on and on. Needless to say, just making the switch should save them close to 10k this year. Anyone is welcome to msg me if they need help convincing relatives to make the switch.
Edward Jones - EXACTLY. I would love to get some of our family off Edward Jones plans. The convincing is HARD. They have our family members convinced they investing is complex, difficult, you don't want to "make any mistakes" and Edward Jones "knows what they are doing". I hear you though - 20+ funds per account, multiple investments per month, on and on. So frustrating!
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I do recognize, though, that I and a lot of other people on this board are very analytical and motivated about these topics (we are, after all, reading this on a personal finance website with a disproportionate number of engineers), and not everyone else is equally so. If Betterment can save a few people from places like Edward Jones (where you'll lose 5.75% of your money off the top from commission loads, as well as getting put into expensive actively-managed funds AND pay 1% annually in management fees, plus other fees), then that's a good thing. If one of my clueless relatives asked me if they should invest at Edward Jones or Betterment, I'd tell them to go to Betterment in a heartbeat.
Just had to comment here, I finally convinced my parents to move their big nest egg out of Edward Jones to Vanguard. They are actively retired/self-employed, and I was appalled by what Edward Jones had done -- no fewer than 33 actively-managed funds, only 20% bond exposure, etc, a "money management advisory" fee to the tune of over $300/month, the fees went on and on and on. Needless to say, just making the switch should save them close to 10k this year. Anyone is welcome to msg me if they need help convincing relatives to make the switch.
Edward Jones - EXACTLY. I would love to get some of our family off Edward Jones plans. The convincing is HARD. They have our family members convinced they investing is complex, difficult, you don't want to "make any mistakes" and Edward Jones "knows what they are doing". I hear you though - 20+ funds per account, multiple investments per month, on and on. So frustrating!
As a financial analyst living 10 miles from their headquarters, I had someone ask me if I would apply for a job their as a financial advisor. I said no thanks on the grounds that I refuse to take part in immoral occupations, including those that steal other people's money.
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The service Betterment offers is not just passive index investing. You can get that from Vanguard. What Betterment offers you is the ability to just throw money into your account without having to think about anything. I mean ANYTHING. Ever. Just let that sink in.
As others have commented, Edward Jones provides the same 'service'. A lot of other people will provide the 'service' too, it just happens that Betterment is providing that 'service' for less of a price.
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I also scratch my head at how Betterment can make it. Certainly Betterment is better than going to a place like Merrill Lynch or Ameritrade, or just buying whatever "Mad Money" Cramer screams about the night before.
But once any investor discovers why the Betterment portfolio is a good one (low-expense passive index funds), then you've cracked the code and now you you're knowledgeable enough to construct a comparable one-fund portfolio at Vanguard with a target retirement date or LifeStrategy fund. In other words, anyone smart enough to buy the Betterment spiel is smart enough to do it on their own for less.
I do recognize, though, that I and a lot of other people on this board are very analytical and motivated about these topics (we are, after all, reading this on a personal finance website with a disproportionate number of engineers), and not everyone else is equally so. If Betterment can save a few people from places like Edward Jones (where you'll lose 5.75% of your money off the top from commission loads, as well as getting put into expensive actively-managed funds AND pay 1% annually in management fees, plus other fees), then that's a good thing. If one of my clueless relatives asked me if they should invest at Edward Jones or Betterment, I'd tell them to go to Betterment in a heartbeat.
I opened my account at TD Ameritrade to buy Vanguard index funds. I'm not a US resident and I can't use vanguard directly. Is this a mistake?
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I tend to agree with some of the points made here. I've been using Betterment for the past 2 months--thoroughly enjoy it because it's very simple and no harder than an online checking/savings account. For someone like me who's never invested before (if you don't count my 401k--more on that in a bit), this is definitely like welcoming arms into this world. Contrast that with Fidelity, where my 401k is--it took me a couple years to finally get it. I was just too scared (or uninformed) to tweak or touch it. The user interface certainly was no help. After diving into the world of MMM and ERE and YNAB, I've suddenly become very curious about this world. Betterment opened my eyes. Betterment made me understand my Fidelity account better! Now having said that, and after diving deeper and discovering Boggleheads, I'm trying to learn a lot more and will eventually start a Vanguard account--looks like that is the way to go. However, how many people are willing to invest (pun-intended) their time and effort into learning all this? Certainly everyone on this board, but maybe only about 10% of my friends. I recommend Betterment to them and hope they too get the itch to learn more.
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One thing Betterment does really nicely that would be a royal pain to do myself is super-efficient rebalancing. Basically, every deposit or dividend reinvestment goes to "top up" whichever funds are below their target in your allocation, and then the rest is deposited according to your allocation. This is really useful especially for very small deposits (I auto-deposit weekly with my paycheck). And Betterment is also good for small-dollar stuff, since for example one of my weekly deposits is under Vanguard's $50 minimum. Likewise, for some people the $1000-3000 fund minimums can be a high hurdle starting out.
I'd say it depends what you're looking for. If you want a plain vanilla target date retirement, Vanguard wins on lower fees. But especially for very small dollar stuff, Betterment has a niche worth exploring.
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nd Betterment is also good for small-dollar stuff, since for example one of my weekly deposits is under Vanguard's $50 minimum.
FYI, Vanguard's minimum is $1, not $50. I've made contributions less than $50 many times.
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nd Betterment is also good for small-dollar stuff, since for example one of my weekly deposits is under Vanguard's $50 minimum.
FYI, Vanguard's minimum is $1, not $50. I've made contributions less than $50 many times.
Hm, maybe I was misled then. Definitely said $50 here. Though that's for auto-deposit, maybe the minimum is $1 for manual deposit. https://investor.vanguard.com/mutual-funds/fees
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One thing Betterment does really nicely that would be a royal pain to do myself is super-efficient rebalancing.
But there's almost no benefit to rebalancing a lot compared to rebalancing occasionally, and Vanguard and its competitors can also do that (LifeStrategy, Target Retirement, Fidelity Four-in-One).
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nd Betterment is also good for small-dollar stuff, since for example one of my weekly deposits is under Vanguard's $50 minimum.
FYI, Vanguard's minimum is $1, not $50. I've made contributions less than $50 many times.
Hm, maybe I was misled then. Definitely said $50 here. Though that's for auto-deposit, maybe the minimum is $1 for manual deposit. https://investor.vanguard.com/mutual-funds/fees
Back when I first started investing (which was so far back I would actually mail in a check with a deposit slip), I had read somewhere to pay no attention to the minimum amount for subsequent investments, as no company would actually send your money back to you. Back then, I wouldn't always have the minimum to send in and sure enough, I never got one of my smaller checks back. I understand wanting to invest as much as possible as quickly as possible, but not having $50 every week? Personally, I'd still wait a week.
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I'm surprised nobody has mentioned the free $25 (http://bit.ly/1nnUZgd) for opening (and funding) an account :)
I had been curious about Betterment, and the $25 promotion was incentive enough for me to open an account and satisfy my curiosity.
I like Betterment: the site was easy to use (maybe too easy), and I think it would be useful to a lot of people. It might not be required or ideal (or lowest cost) for people who frequent a personal finance / investing message board, but for people less comfortable with investing, or who want a hands off experience, you could do much worse.
As for me, I probably won't keep the account open for too much longer (long enough to get my bonus I guess). I'm actually someone who wouldn't mind paying a (very) small fee if the site would actually do all my rebalancing for me with every deposit, and I could forget about updating my spreadsheet. However, cost aside, this isn't really the case, as ultimately I will have funds and investments outside of Betterment (401k, emergency fund, etc) and so I would still need a spreadsheet to keep track of my final asset allocation no matter what.
TL;DR: nice service, nice website, probably not the right choice for people here, but a good choice nonetheless.
Edited to fix link
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Here's a comment regarding Betterment.
I was learning and browsing around their web site, and after some research decided to split my original $11,000 investment in my "Build Wealth" goal in half. The new plan is to have one longer term goal with a higher percentage stocks, and one shorter term goal, with a more conservative allocation. This is the kind of thing a new customer might decide to do. In the course of adding the second goal and changing the allocation for the first goal, I found that I made an error, (newbie mistake, now I see how it works), but I found that I can't cancel the request to change allocation. I can make another request to change it back tomorrow to what I'd intended, after it first completes my wrong order.
On other sites, lets say you schedule a trade when the market is closed - you can change your mind and edit or cancel it, right? I think I've been able to edit my trade requests at Schwab in the past. I'm not seeing a way to do that on Betterment. I've asked their support team, we'll see what they email back to me in response.
If Betterment wants to be a site friendly for beginners, they should definitely include a way to edit oopsie requests....
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Google around for the $100 promo - worked for me
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Google around for the $100 promo - worked for me
Yes, you could use that $100 to pay the extra fees they will charge you.
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That's what I did! No joke. I figure it essentially pays for my fees for quite awhile, and I can try it out and see how it goes. So far I like never having to "think" about anything after it's set. I think the fees are actually very reasonable. I understand that to many people no fee is the only way to go, and I get that, but I'm at a point in my life where extra time/hassle/etc is worth a (tiny) amount of money. With young kids, never enough family time, etc the little things add up.
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Google around for the $100 promo - worked for me
Yes, you could use that $100 to pay the extra fees they will charge you.
That's what I did! No joke.
Hah. Not a bad idea.
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Vanguard seems to be more expensive at first glance
Commission of $7 for every stock/ETF purchase.
Betterment does not appear to have any buy or sell fees.
I do systematic investments out of every check so the fees could add up fast.
Am I understanding the fee structure incorrectly?
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Vanguard seems to be more expensive at first glance
Commission of $7 for every stock/ETF purchase.
Betterment does not appear to have any buy or sell fees.
I do systematic investments out of every check so the fees could add up fast.
Am I understanding the fee structure incorrectly?
You can purchase Vanguard ETFs for free. The $7 commission only applies to individual stocks and non-Vanguard ETFs. I'm not sure what your asset level is right now, but the commission drops to $2 once you have $500k invested in Vanguard funds. (See https://investor.vanguard.com/what-we-offer/personal-services/view-benefits-at-a-glance for more info).
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I have been wondering about this! I opened a betterment account late last year and have a pretty modest amount in it. Then I found this site and in the last few weeks I have been considering switching to a Vanguard account. On one hand, I already have the account with Betterment, and the UI really is LOVELY. So simple. And, ok yes, their automatic deposit confirmation emails include stuff like "The investing force is strong in this one." (Yeah yeah, marketing.) But in reality I know the slick UI shouldn't matter that much because I should be letting the thing sit there and hang out.
At this point I've been putting off switching over to Vanguard largely because I am afraid I will do it wrong. I'm so happy to have come across this thread with such great advice!
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Vanguard. Without a doubt. Why pay extra fees with betterment? They add no value for me.
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Readers of this site and other personal finance blogs who like optimizing things should of course go with Vanguard.
But I think Betterment offers real value for the general population. People who understand processes well often vastly underestimate the friction and difficulty of those same processes for the general population.
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Readers of this site and other personal finance blogs who like optimizing things should of course go with Vanguard.
But I think Betterment offers real value for the general population. People who understand processes well often vastly underestimate the friction and difficulty of those same processes for the general population.
innerscorecard, agreed. What we're trying to do at Betterment is save people from themselves, and from a system they may not be prepared to deal with. The portfolios are optimized, but perhaps more importantly, so is investor behavior. The behavioral guardrails we put in place for customers are worth the management fee we charge.
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I am actually a Vanguard fan that switched from Vanguard to Betterment. Right now, the fees don't really hurt (plus I received a $25 bonus, and get $10 anytime I refer someone) and their whole package is really nice. I love that I can auto deposit $25 a week and they'll balance it for me.
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I am not the GENERAL POPULATION*. And I want as much SET AND FORGET as possible. And so I go with.....
VANGUARD.
I keep my desired asset allocation percentages in one column in a Google Sheet. Every time I deposit a lump sum in Vanguard, I know exactly how much to put in each of three places (2 stock ETFs and BND -- this doesn't include the 5% I simply leave in CASH). If/when I rebalance overalll, it's just a matter of buying more of the slice o' pie that is undersized.
Overall I'm 75% stock / 20% BND / 5% cash.
Takes almost no time at all.
And I save $4,000 per year.
*I'm no BETTER than anyone else. I'm just different, and yes, some would say weird.
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I'm going to weigh in on Betterment.
But first my disclosures.
I have about $28,000 in a taxable Betterment account.
And Betterment once sent me a T-shirt when I wrote this complementary article on their service.
[MOD EDIT: Link removed. Please stop spamming links promoting your own site. A single link in your signature is sufficient, and will be under every post you make. Thanks.]
It is easy to write off any non-Vanguard investment company.
(And I too believe Vanguard to be the best brokerage firm there is. I love their underlying ethic. I love the shareholder owned structure. And I love their low fees.)
But Vanguard is not for everyone.
Betterment offers an alternative for a fee.
But a management fee of 0.25% for assets over $25,000 seems very fair in my book.
For that fee you get the following:
1. Tax efficient reinvestment of dividends and appreciation.
2. A near constant asset allocation regardless of market conditions due to constant micro rebalancing. Because of this your risk exposure remains constant.
3. An automatic rebalancing dividend that requires no decision on the investors part (behaviorally this is hard to pull off as an individual when you have to sell recently well performing assets and buy recently poorly performing assets.
4. Little risk of style drift as in the Vanguard Target date funds. (and better diversification in my opinion)
5. The most transparent Interface that I've seen. I Have never seen another brokerage that clearly displays exactly how much money you have invested and how much money you have made and what your percentage return is updated on a daily basis.
So in my opinion, as much as I hate paying fees, I believe you get real value for the low fees that Betterment charges.
And I would particularly recommend their services for people who are not that interested in investment theory and just want to get a well diversified low-maintenance passively managed portfolio that will take care of itself.
Alexi
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It would cost me over 5k/yr to use betterment. I find it hard to get excited about 25 dollar bonuses:) And for 5k, I am willing to spend 1 hour a month figuring out where to invest my new money. With a smaller balance, the service makes more sense as the amount of time spend remains pretty much constant.
I am actually a Vanguard fan that switched from Vanguard to Betterment. Right now, the fees don't really hurt (plus I received a $25 bonus, and get $10 anytime I refer someone) and their whole package is really nice. I love that I can auto deposit $25 a week and they'll balance it for me.
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It would cost me over 5k/yr to use betterment. I find it hard to get excited about 25 dollar bonuses:) And for 5k, I am willing to spend 1 hour a month figuring out where to invest my new money. With a smaller balance, the service makes more sense as the amount of time spend remains pretty much constant.
I am actually a Vanguard fan that switched from Vanguard to Betterment. Right now, the fees don't really hurt (plus I received a $25 bonus, and get $10 anytime I refer someone) and their whole package is really nice. I love that I can auto deposit $25 a week and they'll balance it for me.
Yes, that is pretty much what I was trying to say.
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Here's something no one ever mentions, but what if I think Betterment's portfolio is just better and will outperform Vanguard's all-in-one funds? Let me explain.
With $100,000, you're paying a total of about 30 basis points at Betterment (15 in management, 15 in underlying ETF fees). Vanguard's Growth Lifestrategy fund, in contrast, is only 17 basis points.
But what if I think Betterment's value-tilt portfolio of 12 different ETFs is going to outperform Vanguard's set of 4 ETFs by over 13 basis points? Moreover, Vanguard's allocation is set at 80/20, whereas I can maintain 90/10 at Betterment, which should outperform over the long term. Vanguard's Target Date funds take asset allocation even further out of your control, and if you prefer a stronger allocation in equities, Betterment is appealing.
I understand that you could just buy a basket of 12 ETFS in a Vanguard brokerage account that mimics Betterment's and end up saving several basis points, and if you don't mind tinkering around with rebalancing, that's probably the best option. But I do think Betterment is better than Vanguard's all-in-one funds for the reasons above - and I could also add, it has a much better interface and allows new investors with less than $1000 or $3000 (Vanguard's thresholds for all-in-ones) to get in the game and stay there, and I think that's great.
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You aren't constrained by having to choose a certain Vangaurd fund (target retirement, or whatever).
You can slice and dice to your heart's content.
You even acknowledge this:
I understand that you could just buy a basket of 12 ETFS in a Vanguard brokerage account that mimics Betterment's and end up saving several basis points
So I don't see how you'll end up with the conclusion that BM is better in that case.
How much money will the laziness of not wanting to rebalance cost you? Want to run the numbers on that? :)
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It would cost me over 5k/yr to use betterment. I find it hard to get excited about 25 dollar bonuses:) And for 5k, I am willing to spend 1 hour a month figuring out where to invest my new money. With a smaller balance, the service makes more sense as the amount of time spend remains pretty much constant.
Foobar,
From your comment I deduce that you have >330,000$ In your vanguard account.
The question, if that is the case, becomes do you get more than 15 basis points of value from a Betterment account? If you do it's worth it, and if you don't then it's not.
And the answer is that it depends.
It's possible that you do. And it's possible that you don't. It's tough to quantify how much the rebalancing bonus is worth as it changes in different market scenarios and with different investor behavior.
If you're a savvy investor, with good discipline, I probably wouldn't waste my time with Betterment. But you just wanted to put money away and forget about it and knew that it was being managed intelligently and automatically for a fair price, I think Betterment is well worth the money.
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It would cost me over 5k/yr to use betterment. I find it hard to get excited about 25 dollar bonuses:) And for 5k, I am willing to spend 1 hour a month figuring out where to invest my new money. With a smaller balance, the service makes more sense as the amount of time spend remains pretty much constant.
I am actually a Vanguard fan that switched from Vanguard to Betterment. Right now, the fees don't really hurt (plus I received a $25 bonus, and get $10 anytime I refer someone) and their whole package is really nice. I love that I can auto deposit $25 a week and they'll balance it for me.
foobar -- You are so dead on....IMHO of course. Nice!
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You aren't constrained by having to choose a certain Vangaurd fund (target retirement, or whatever).
So you concede my main point, which is that Betterment is better than Vanguard's all-in-one funds.
You even acknowledge this:
Not only do I acknowledge this, I say "that's probably the best option." Best option for investors with oodles of money and time.
However, I think you're making the whole thing way too black and white: either you use Vanguard or you're "lazy." That's just not the case, especially for new investors. First of all, you need a minimum of $3,000 to start a Vanguard brokerage account. Second, with a Vanguard brokerage you can't buy fractional shares of ETFs - the minimum purchase is 1 share. So let's say I have a really simple basket at Vanguard of, say VTI ($97 per share) and BNDX ($50 per share). Can you see how difficult it would be, with small sums of money, to maintain an asset balance on those two funds, not to mention how much more exponentially difficult it would be if I had 12 funds with 12 different prices that I'm forced to buy share by share? Betterment provides fractional share purchase, which means every $100 or whatever I invest is fully invested in a completely balanced way. If I invest $100 per month with Vanguard and buy one share of VTI, my asset allocation is out of whack and I've got 3 soldiers sitting around doing nothing.
So basically, there are all kinds of factors and individual circumstances involved in this decision, not laziness. If you're just starting out and have less than $3,000, Betterment is by far the best option out there. Even after that, it's a strong contender with a lot of real benefits.
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You aren't constrained by having to choose a certain Vangaurd fund (target retirement, or whatever).
So you concede my main point, which is that Betterment is better than Vanguard's all-in-one funds.
No, I don't, I just addressed something else that made it moot. You set up a false dichotomy between the two, and so there's no point in even addressing that.
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Since this thread is active, I thought I'd check in with a quarterly update. These comments reflect my personal preference and I'm posting mainly in case a newbie or hands-off investor might find their style similar to mine. To address the recent discussion, I think the Vanguard life strategy funds and Betterment are pretty much the same. I'm treating them the same, just commenting on my customer experience.
After taking a little time getting used to it, I'm really liking Betterment.
It's really easy to make monthly contributions, and I especially like the fact that it's organized by goals- I have three different stashes (goals) there- with different intentions (time frames for spending) for each stash. One "safety net" (60% bonds), one "conservative" (60% stocks) and one "moderate" (80% stocks, containing the bulk of my investment, for the longer term). On the grand total, so far I've made 2.5% since December 2013. To date, fees have totaled $6, or 0.04% of my total balance. I think Fees are charged quarterly? not sure, so far I've only been charged once, on April 1.
My Sharebuilder account is also ok. I'm comparing Sharebuilder to an account at Vanguard, and find the two pretty much the same. I like the Sharebuilder user interface and web site a little better (personal preference). I've also made 2.5% since December at Sharebuilder, with three similar sub-allocations to what I've set up at Betterment (VSCGX, VSMGX, MITFX). BUT I haven't made any contributions, because of fees that I'd be charged to do so. A point against Sharebuilder in that regard. But I like them because of their easy connection to my savings accounts at CapitalOne. Also a very nice web site. Vanguard may also have a user friendly web site, but so far, I'm not drawn enough by it to want to click around and see.
I predict my tendency will be to continue to make small automated monthly contributions to Betterment, and only occasional (annual?) larger contributions to Sharebuilder or Vanguard directly. We'll see if that holds in a couple of months.
I hope this helps somebody,
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Alexi/milesdiv etc
what a load of bs.
0.25% is a huge fee for basically doing nothing that you cant easily do with Vanguard. Oh, except you "microbalance", lots of trades = lots of fees there too. 'Helpers', to quote Bogle.
Snake oil for the little guy, because indeed when you actually have money, ( say >400k) the obscenity of the fees becomes apparent.
I almost expect you to try to sell me a variable annuity...
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Mr Mark ,
Easy cowboy!
I've made some specific points about the value of betterment as I see it.
If you see fit to counter those points with facts then maybe someone can learn something from our different points of view.
Ad hominem attacks and insinuating that my points are in some way analogous to my promoting variable annuities (which I would never do) have no such benefits.
As an example, in your short diatribe you made 2 errors.
1. If you have greater than 100K invested you are charged .15 not .25% by. Betterment.
2 . "Micro balancing" ( as you call it) does not lead to any additional fees for the Betterment customer. All fees are included in the 0.15 or 0.25% global fee and the fees of the underlying etfs.
Again, I love vanguard and use vanguard. But betterment provides unique benefits at a reasonable rate and I also use Betterment. Blindly assuming that any non vanguard brokerage is selling snake oil is usually right, but not always. Your critique of Betterment is one instance where such blind faith is exposed.
Alexi
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How much value is in the unique benefits compared to the costs? Do these unique benefits provide you with more growth than the costs?
No one is having blind faith on Vanguard. They have an anger towards a company charging .15 or .25 to do the same exact thing that someone could do with very little amount of education and time. That adds up. It's a pure numbers game. If you really want to pay someone else to do something that costs you very little time and you're comfortable with that fine. But don't expect a group like Mustachians to cheer you on as you piss your money away.
1. Tax efficient reinvestment of dividends and appreciation.
2. A near constant asset allocation regardless of market conditions due to constant micro rebalancing. Because of this your risk exposure remains constant.
3. An automatic rebalancing dividend that requires no decision on the investors part (behaviorally this is hard to pull off as an individual when you have to sell recently well performing assets and buy recently poorly performing assets.
4. Little risk of style drift as in the Vanguard Target date funds. (and better diversification in my opinion)
5. The most transparent Interface that I've seen. I Have never seen another brokerage that clearly displays exactly how much money you have invested and how much money you have made and what your percentage return is updated on a daily basis.
The question isn't "do you find the above worth .15 or .25 fees?" The question is, does it actually give you more money? I doubt it.
If it's fancy interface or other things you miss out between Vanguard and Betterment then Vanguard isn't the only game in town who will provide low cost index funds.
In the end you're just going to pay more for essentially a target date fund.
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Alexi,
it's not ad hominem to disagree with your opinion. You come across, to me, like some kind of IFA pushing a product and trying to justify 'only 0.15 / 0.25%' in fees for something I can do with Vanguard, better and cheaper.
-tax
vanguard are integrated with all the big tax preparers, and gives great tax reports, handles IRAs, Roths, etc
constant "micro rebalancing" (your words) does not confer an advantage, as Grant pointed out. And it implies more trades within the fund, which by definition generates fees somewhere.
Automatic rebalancing? Again, just sounds like an excuse for lots of trades. I get auto rebalanced wrt my equity bond ratio via vanguard. My asset allocation within equities I rebalanced annually.
style drift, if youre an idiot and dont have and apply an AA, or cant even run a 3/4 type basic allocation, ok. Ill manage your money for 0.14% ;-)
A good interface... well, I find vanguard good enough for me, veryslick, full of independent advice.
So, as above, I think its a total ripoff. I want to minimise the fees I pay to invest, and I think vanguard does it, perhaps with fedelity and some others. Paying money to anyone to just help me invest is a waste of money, znd even 0.15% adds up.
Mr Mark ,
Easy cowboy!
I've made some specific points about the value of betterment as I see it.
If you see fit to counter those points with facts then maybe someone can learn something from our different points of view.
Ad hominem attacks and insinuating that my points are in some way analogous to my promoting variable annuities (which I would never do) have no such benefits.
As an example, in your short diatribe you made 2 errors.
1. If you have greater than 100K invested you are charged .15 not .25% by. Betterment.
2 . "Micro balancing" ( as you call it) does not lead to any additional fees for the Betterment customer. All fees are included in the 0.15 or 0.25% global fee and the fees of the underlying etfs.
Again, I love vanguard and use vanguard. But betterment provides unique benefits at a reasonable rate and I also use Betterment. Blindly assuming that any non vanguard brokerage is selling snake oil is usually right, but not always. Your critique of Betterment is one instance where such blind faith is exposed.
Alexi
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+1 to Mr Mark and matchewed!
Alexi, disagreement is not a personal attack, unlike referring to someone as "cowboy". %s and points add up big time in investing.
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Note the new members of the forum all very enthusiastic about betterm*nt, and especially the use of the word "we at betterment"
Astroturfing, and plugging fees to financial middlemen.erecting straw man arguments, and getting super defensive.
Spam.
Readers of this site and other personal finance blogs who like optimizing things should of course go with Vanguard.
But I think Betterment offers real value for the general population. People who understand processes well often vastly underestimate the friction and difficulty of those same processes for the general population.
innerscorecard, agreed. What we're trying to do at Betterment is save people from themselves, and from a system they may not be prepared to deal with. The portfolios are optimized, but perhaps more importantly, so is investor behavior. The behavioral guardrails we put in place for customers are worth the management fee we charge.
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+1 to Mr Mark and matchewed!
Alexi, disagreement is not a personal attack, unlike referring to someone as "cowboy". %s and points add up big time in investing.
Right, like Mr. Mark calling Alexi an "idiot" is not a personal attack. Or the mod calling me "lazy" on my first post to the forum (ironically, the same mod who marked someone else's post as a "personal attack" - because that person called someone else lazy! Don't worry, the attitude of the big mustachioed men around here sucks so bad the newbs won't stay around long. You can go back to telling each other what you want to hear.
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+1 to Mr Mark and matchewed!
Alexi, disagreement is not a personal attack, unlike referring to someone as "cowboy". %s and points add up big time in investing.
Right, like Mr. Mark calling Alexi an "idiot" is not a personal attack. Or the mod calling me "lazy" on my first post to the forum (ironically, the same mod who marked someone else's post as a "personal attack" - because that person called someone else lazy! Don't worry, the attitude of the big mustachioed men around here sucks so bad the newbs won't stay around long. You can go back to telling each other what you want to hear.
Before you start pulling the martyr card you might want to actually have someone call someone an idiot or you being called lazy. The actual quote regarding lazy was about laziness of not rebalancing. Laziness by definition is disinclination to do an activity. It is the exact correct word for not wanting to rebalance and pay someone else to do it.
Mr. Mark did not call Alexi an idiot he said that if you don't have an asset allocation and can't rebalance it you are an idiot.
That being said your post is adding nothing but butthurt. I hereby label you complainypants. Have a nice day. :)
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Mr Mark
If advocating for a product that I believe to be a good one is spam, then your advocating for Vanguard (which I also advocate for) is equally spam.
Before I wrote my first word on this thread I provided my disclosures. Which were that I have a small amount of money invested in Betterment, and after I wrote an independent review of their product on my (not for profit) blog they sent me a T-shirt.
I do not know what the term IFA is (independent financial advisor?), but have never made one penny from financial advice. Investing is a hobby for me. I make my money practicing medicine.
And your definition of "Mustachian ," seems quite narrow. I consider myself a mustachian as this blog has had a tremendous and positive effect on my life.
So if you have money invested in Vanguard, the only thing separating you and me in terms of integrity in this discussion is the T-shirt.
I'm going to pull out of the personal back and forth here because it takes away from the discussion on the thread which is actually a useful one. Feel free to land the last shot.
Back to the meat of the discussion.
1. There are no additional fees charged for any trades in Betterment above the transparent management fee that we've been discussing. If you disagree with this statement, show some evidence to the contrary. Just saying it's not true is not convincing. I have scoured my statements I have looked at my returns, and I see no evidence to the contrary here.
2. Being able to invest in fractional shares can be a big deal because it means that every penny that you invest is actually invested and not sitting on the sidelines. This effect becomes more important the less amount of money you have (because in a Traditional brokerage account more of your money will be sitting on the sidelines at any one time)
3. Probably the biggest deal though is the behavioral aspect. The more sure you are about your immunity to behavioral mistakes, the more likely you are to succumb to them. Men are more susceptible to this overconfidence than women. And I am no different. In my other accounts I do find it difficult to sell stocks and buy bonds in a bull market such as our current one. But I find it even more difficult to sell bonds and buy stocks during a severe bear markets. So the set it and forget it aspect of Betterment has the potential to deliver returns out of proportion to its cost.
Alexi
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My taxable money is in Betterment, as well as a Roth an Traditional IRA. I have spent 0 minutes this week thinking about my investments. If spending more time with my family and less time thinking about money makes me "lazy," then I am proud to be among the laziest.
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My taxable money is in Betterment, as well as a Roth an Traditional IRA. I have spent 0 minutes this week thinking about my investments. If spending more time with my family and less time thinking about money makes me "lazy," then I am proud to be among the laziest.
Many people rebalance once per year. They spend maybe 15 minutes doing so, around January.
They'd have also spent 0 minutes this week thinking about their investments.
I don't know for sure, but your family might be okay with not spending those few minutes with you once per year in order to save thousands of dollars.
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Honest Abe,
That's awesome. You are the "true" Mustachian!
Alexi
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Alexi,
if you are advertising an investment you own shares in, that imho offers nothing substantial for 0.25% fees, I call that spam, especially when its supported by others also associated with the same company who have just joined. Declaring your interest doesnt make it not spam.
Vanguard, as well as being non profit, and founded by the inventor of index investing, is a huge and well established company that gains economies of scale. If your fund trades more often, taxes and fees will be higher, even if that's hidden in the underlying fund fees. And it is indeed one reason why the company charges an extra 25 points ( I refer to the 0.25% fee because you keep saying that's who it's mainly for, small investors). There is no quantification of this magical benefit in terms of returns to justify the extra fees (about 100% higher fees than Vanguard in many cases, and a 500% increase on vanilla SP500).
what I do see is a list of so-called benefits that are either available free on Vanguard already, or are things that sound sophisticated " micro rebalancing" yet do not offer increased returns anyway.
That some vanguard/index members tend to react so forcefully to the pay for financial advice crowd is that it is such poor advice, and less sophisticated mustachians may think paying 0.25% is a good thing. It isn't, and not just in my opinion, but demonstrably.
as thankfully pointed out by matchewed, I didnt call you an idiot, unless you can't self rebalance a basic asset allocation. It is not about simply vanguards target year funds vs betterment.
The going on and on about 100 dollar asset allocation is pointless. If you have a tiny portfolio the last thing you want is wasting returns on paying betterment shareholders and management.
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Mr Mark,
You keep on making mistakes. I never claimed you called me an idiot. Do some reading.
By your definition of spam, you are spamming for vanguard and I am spamming for both vanguard and betterment. Fair enough. We're both spammers.
Alexi
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Here's something no one ever mentions, but what if I think Betterment's portfolio is just better and will outperform Vanguard's all-in-one funds? Let me explain.
With $100,000, you're paying a total of about 30 basis points at Betterment (15 in management, 15 in underlying ETF fees). Vanguard's Growth Lifestrategy fund, in contrast, is only 17 basis points.
But what if I think Betterment's value-tilt portfolio of 12 different ETFs is going to outperform Vanguard's set of 4 ETFs by over 13 basis points? Moreover, Vanguard's allocation is set at 80/20, whereas I can maintain 90/10 at Betterment, which should outperform over the long term. Vanguard's Target Date funds take asset allocation even further out of your control, and if you prefer a stronger allocation in equities, Betterment is appealing.
I understand that you could just buy a basket of 12 ETFS in a Vanguard brokerage account that mimics Betterment's and end up saving several basis points, and if you don't mind tinkering around with rebalancing, that's probably the best option. But I do think Betterment is better than Vanguard's all-in-one funds for the reasons above - and I could also add, it has a much better interface and allows new investors with less than $1000 or $3000 (Vanguard's thresholds for all-in-ones) to get in the game and stay there, and I think that's great.
jstash -- I don't understand this perspective at all. With a Vanguard brokerage account I can buy anything I want. I don't pay a fee to trade the dozens of ETFs Vanguard offers, and for folks without a balance that I can't remember right now, they'll pay $8 per STOCK trade. I pay nothing for the first 25 trades per year, and don't trade nearly that much.
Speaking for myself, the folks objecting to Betterment are not making false comparisons of funds. They're objecting to paying something for what is close to nothing.
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miles -- I was going to respond to this last night but was too lazy. And look at all the drama since then. Please see all caps below your points for my thoughts.
I'm going to weigh in on Betterment.
But first my disclosures.
I have about $28,000 in a taxable Betterment account.
SO YOU'RE PAYING THEM ABOUT $40 PER YEAR AT THIS LEVEL. I COULD SEE WHY YOU WOULDN'T HAVE AN ISSUE WITH THIS. WHAT ABOUT WHEN YOU HAVE $280,000? WHAT ABOUT WHEN YOU HAVE $2.8 MILLION? DEPENDING UPON YOUR AGE, THIS FIRST MILESTONE IS CERTAINLY ATTAINABLE, AND THE SECOND ONE COULD BE AS WELL. IF YOU WANT TO SADDLE UP TO PAY BETTERMENT $4,000 PER YEAR, HAVE AT IT.
And Betterment once sent me a T-shirt when I wrote this complementary article on their service.
MILDLY AMUSING, EXCEPT YOU SPELLED 'COMPLEMENTARY' INCORRECTLY IN THIS CONTEXT. PEANUT BUTTER IS 'COMPLEMENTARY' WITH JELLY. PEANUT BUTTER PAYS JELLY A 'COMPLIMENT' -- "DAMN, YOU SO SWEET.'
(http://www.milesdividendmd.com/do-i-bore-you-with-my-investment-talk/)
It is easy to write off any non-Vanguard investment company.
(And I too believe Vanguard to be the best brokerage firm there is. I love their underlying ethic. I love the shareholder owned structure. And I love their low fees.)
But Vanguard is not for everyone.
Betterment offers an alternative for a fee.
But a management fee of 0.25% for assets over $25,000 seems very fair in my book.
I DON'T UNDERSTAND THE CONCEPT OF 'FAIR.' THAT'S WAY TOO ABSTRACT FOR ME. THE CURRENT EGYPTIAN LEADERSHIP THINKS IT'S FAIR TO ASSASSINATE 600 PEOPLE. IS THAT 'FAIR?' LIKE I SAID EARLIER, PAYING $4,000 ON A $2.8 MILLION PORTFOLIO IS A SUBSTANTIVE COST.
For that fee you get the following:
1. Tax efficient reinvestment of dividends and appreciation.
I DON'T EVEN UNDERSTAND WHAT THIS MEANS. AND I CAN ASSURE YOU THAT WITH A PORTFOLIO OF $28,OOO THE LAST THING YOU NEED TO WORRRY ABOUT IS TAX EFFICIENT RE-INVESTMENT.
2. A near constant asset allocation regardless of market conditions due to constant micro rebalancing. Because of this your risk exposure remains constant.
THIS SOUNDS VERY BUZZ WORDY AND UNNECESSARY. MOST 'EXPERTS' CITE THAT ONCE PER YEAR REBALANCING IS SUFFICIENT. BUT THERE'S EVEN DISAGREEMENT ON THAT FRONT. MANY FOLKS CAN ANALYTICALLY PROVE THAT ASSET ALLOCATING INFLOWS IS ALL YOU REALLY NEED TO DO. BUT ONCE PER YEAR IS WHAT THE CONSENSUS SAYS.
3. An automatic rebalancing dividend that requires no decision on the investors part (behaviorally this is hard to pull off as an individual when you have to sell recently well performing assets and buy recently poorly performing assets.
THIS WOULD BE THE LAST THING I'D WANT. FOR EXAMPLE, MY WIFE'S 401K, MY 401K, MY ROTH IRA -- ARE ALL WITH FIDELITY. THE REST (AND THE MOST) OF OUR MONEY IS IN VANGUARD TAXABLE ACCOUNTS. I WANT THE FLEXIBILITY WHEN REBALANCING TO DETERMINE WHERE I'LL DO THAT. MYSELF. MANUALLY. BETWEEN FOUR DIFFERENT ACCOUNTS WE OWN THREE DIFFERENT TYPES OF INVESTMENTS. SO THIS IS PRETTY EASY.
4. Little risk of style drift as in the Vanguard Target date funds. (and better diversification in my opinion)
I'VE HAD MY MONEY WITH VANGUARD FOR MORE THAN 20 YEARS. I'VE NEVER ONCE CONSIDERED INVESTING IN ONE OF THESE FUNDS. SO FOR ME THIS POINT IS MOOT.
5. The most transparent Interface that I've seen. I Have never seen another brokerage that clearly displays exactly how much money you have invested and how much money you have made and what your percentage return is updated on a daily basis.
VANGUARD'S USER INTERFACE SUCKS. BUT YOU CAN EASILY FIND ALL THIS INFO. I CAN ALSO GET A CLEAR AND EASY VIEW, ON ONE PAGE, OF ALL MY INVESTMENTS...INCLUDING THOSE IN NON-VANGUARD ACCOUNTS. AND I'D ALSO SAY THAT VANGUARD APPEARS TO BE DOUBLING DOWN ON IMPROVING ITS MOBILE APPS, AS IT SHOULD. THEY'VE GONE FROM SUCKING TO BEING AVERAGE.
So in my opinion, as much as I hate paying fees, I believe you get real value for the low fees that Betterment charges.
ONE OF THE THINGS THAT PISSES ME OFF ABOUT BETTERMENT AND ITS ILK IS THAT I THINK THEY PROVIDE LITTLE TO NO VALUE. I THINK THEY'RE SKIMMING AND FEEDING OFF THE NAIVETE OF YOUNG INVESTORS, PARTICULARLY THE SF BAY AREA TECH CROWD THAT IS FOOLED BY ALL THE THINGS -- LIKE A SLICK INTERFACE AND THE OVERINFLATED IMPORTANCE OF CONSTANT ASSET RE-ALLOCATION -- THAT YOU ARE.
AND SO NOW, LET'S INTRODUCE A THIRD OPTION BEYOND VANGUARD AND BETTERMENT -- TD AMERITRADE. IT COSTS VIRTUALLY NOTHING TO TRADE THERE. WITH TD AMERITRADE YOU CAN PURCHASE ANY ETF YOU WANT TO (MUTUAL FUNDS ARE SO 80S -- TOO EXPENSIVE, BABY). SO YOU CAN ASSET ALLOCATE AMONG A FEW ETF'S, AND REBALANCE ONCE PER YEAR. EASY PEASY. AND WAY LESS THAN 0.15%. THE ONLY REASON I RECENTLY CLOSED OUR TDAMERITRADE ACCOUNT IS THAT I'M JONESIN' FOR AS MUCH SIMPLICITY AS POSSIBLE. BUT I AM DEFINITELY A TD AMERITRADE FAN.
SO COME ON EVERYONE. LET'S GET IN A SHIT MATCH -- TD AMERITRADE!!!
And I would particularly recommend their services for people who are not that interested in investment theory and just want to get a well diversified low-maintenance passively managed portfolio that will take care of itself.
Alexi
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+1 to Mr Mark and matchewed!
Alexi, disagreement is not a personal attack, unlike referring to someone as "cowboy". %s and points add up big time in investing.
Right, like Mr. Mark calling Alexi an "idiot" is not a personal attack. Or the mod calling me "lazy" on my first post to the forum (ironically, the same mod who marked someone else's post as a "personal attack" - because that person called someone else lazy! Don't worry, the attitude of the big mustachioed men around here sucks so bad the newbs won't stay around long. You can go back to telling each other what you want to hear.
Before you start pulling the martyr card you might want to actually have someone call someone an idiot or you being called lazy. The actual quote regarding lazy was about laziness of not rebalancing. Laziness by definition is disinclination to do an activity. It is the exact correct word for not wanting to rebalance and pay someone else to do it.
Mr. Mark did not call Alexi an idiot he said that if you don't have an asset allocation and can't rebalance it you are an idiot.
That being said your post is adding nothing but butthurt. I hereby label you complainypants. Have a nice day. :)
matchewed,
Name calling is not very educational but I'll admit it, it can be can be fun...
If AJ Yooper is a "complainy pants" that makes you and your ilk card carrying members of the "mustache police."
Alexi
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If wanting people to take charge of their life instead of hand it over to someone else - and consequently cautioning them to marketing bullshit and trying to educate them - makes me a member of the "mustache police," I'll gladly take that title.
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Rapmaster,
Thank you for giving me an education on the meaning of "complementary/complimentary"based on an iPhone typo.
You've exposed that I'm not good at typing with my thumbs. Bravo.
As to the definition of "fair" , it is of course entirely subjective.
Here are the reasons why I think Betterment is charging a fair price at 0.15 -.25% for their services on amounts greater than 25K.
1. For investors just want to put their money into a rational evidence based well diversified passive portfolio, that consistently keeps the same risk profile, and an annual fee of less than 0.5% all in, Betterment checks all the boxes. I believe it to be superior to the target date funds of Vanguard do to better diversification, no risk of style drift. Buying a bunch of ETFs and periodically rebalancing requires some effort and execution. I enjoy it. But others don't.
2. There is the potential for better risk-adjusted returns with Betterment due to the constant rebalancing. As an example if you rebalance is 70% VTI 30% SHY portfolio once a year in January, then by December of last year you would've been very overweight and Stocks, and very underweight in bonds. For the sake of simplicity let's say you became 80/20 by the end of the year. If the stockmarket crashes 50% in December, then you would lose a significant amount of value in your portfolio, (about 5% of your overall portfolio value) that the Betterment customer would not because he would still be at a 70/30 allocation. This is by no means a guarantee, and it is true that on some years you will make a little more by not rebalancing. The problem is that you're taking on more risk than you originally intended in your investment policy statement.
3. Betterment has a slick interface that is very transparent. I've never seen another brokerage that tells you exactly the amount of money that was invested and exactly the amount of money you have returned. And exactly how much you have been charged in fees.
Now your response tells me that these factors are not important to you. Fair enough. I have no problem with that.
But I can think of no better service to recommend to a low knowledge, motivated saver who just wants to save his money in an intelligent way and get on with his life.
Hell, I love investing, and have multiple brokerage accounts, and I keep my sliver of money in Betterment because it has been such a positive experience.
Alexi
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+1 to Mr Mark and matchewed!
Alexi, disagreement is not a personal attack, unlike referring to someone as "cowboy". %s and points add up big time in investing.
Right, like Mr. Mark calling Alexi an "idiot" is not a personal attack. Or the mod calling me "lazy" on my first post to the forum (ironically, the same mod who marked someone else's post as a "personal attack" - because that person called someone else lazy! Don't worry, the attitude of the big mustachioed men around here sucks so bad the newbs won't stay around long. You can go back to telling each other what you want to hear.
Before you start pulling the martyr card you might want to actually have someone call someone an idiot or you being called lazy. The actual quote regarding lazy was about laziness of not rebalancing. Laziness by definition is disinclination to do an activity. It is the exact correct word for not wanting to rebalance and pay someone else to do it.
Mr. Mark did not call Alexi an idiot he said that if you don't have an asset allocation and can't rebalance it you are an idiot.
That being said your post is adding nothing but butthurt. I hereby label you complainypants. Have a nice day. :)
matchewed,
Name calling is not very educational but I'll admit it, it can be can be fun...
If AJ Yooper is a "complainy pants" that makes you and your ilk card carrying members of the "mustache police."
Alexi
For the record I'm not calling AJ a complainypants. I'm calling jstash one. :)
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This is getting ridiculous.
Do betterment farm out social media astroturfing?
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Rapmaster,
Thank you for giving me an education on the meaning of "complementary/complimentary"based on an iPhone typo.
You've exposed that I'm not good at typing with my thumbs. Bravo.
As to the definition of "fair" , it is of course entirely subjective.
Here are the reasons why I think Betterment is charging a fair price at 0.15 -.25% for their services on amounts greater than 25K.
1. For investors just want to put their money into a rational evidence based well diversified passive portfolio, that consistently keeps the same risk profile, and an annual fee of less than 0.5% all in, Betterment checks all the boxes. I believe it to be superior to the target date funds of Vanguard do to better diversification, no risk of style drift. Buying a bunch of ETFs and periodically rebalancing requires some effort and execution. I enjoy it. But others don't.
2. There is the potential for better risk-adjusted returns with Betterment due to the constant rebalancing. As an example if you rebalance is 70% VTI 30% SHY portfolio once a year in January, then by December of last year you would've been very overweight and Stocks, and very underweight in bonds. For the sake of simplicity let's say you became 80/20 by the end of the year. If the stockmarket crashes 50% in December, then you would lose a significant amount of value in your portfolio, (about 5% of your overall portfolio value) that the Betterment customer would not because he would still be at a 70/30 allocation. This is by no means a guarantee, and it is true that on some years you will make a little more by not rebalancing. The problem is that you're taking on more risk than you originally intended in your investment policy statement.
3. Betterment has a slick interface that is very transparent. I've never seen another brokerage that tells you exactly the amount of money that was invested and exactly the amount of money you have returned. And exactly how much you have been charged in fees.
Now your response tells me that these factors are not important to you. Fair enough. I have no problem with that.
But I can think of no better service to recommend to a low knowledge, motivated saver who just wants to save his money in an intelligent way and get on with his life.
Hell, I love investing, and have multiple brokerage accounts, and I keep my sliver of money in Betterment because it has been such a positive experience.
Alexi
This response is poorly written and inane. Quit while you're behind. And again, I invest in three ETFs total: SPY, VIOV, and BND.
--This is not "a bunch of ETFs."
--Again, you keep talking about "target date funds." Not interested...or interesting.
--You talk about a 50% market crash like they are a matter of fact. They are not. They happen, but not very often.
For me to put my Vanguard holdings into Betterment would increase my fees by $3,300 this year. Your rationale has only increased my conviction of the stupid decision I'd be making if I were to follow this course of action.
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Uh oh,
The "mustache police" has entered the field of literary criticism.
To any one who disagrees with common wisdom of the board:
Make sure to have your post proof read by a literary expert (like the well published rapmaster***) prior to disagreeing with a senior Mustachian.
Alexi
***if you're an obedient pupil he may teach you how to write "BUZZ-WORDY" in all caps bold!
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Please stop, miles.
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I will gladly stop.
Please ask those who initiate conflict to stop as well.
If you reread the thread, I think you'll find that every such comment that I wrote was preceded by an ad hominem attack from the other side.
I honestly prefer a genteel exchange of ideas, but I am no fan of bullying, and can dish it out as well as I can take it.
If a poor writer sees fit to critique my writing style he has declared himself "fair game" in my book.
Alexi
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Miles,
several commenters have specifically disagreed with all your points, listing evidence and/or requesting justifications, when you try to make the case for betterment. Then you just repeated the same arguments over and over again, but did not indeed participate in actually an 'exchange of ideas'.
on top of that, some things don't make sense, or rely on an extreme strawman argument. To say you said something that we disagree with on fact, or on logic, or that it differs to our opinion, is not an ad hominem attack either, btw.
Getting all pedantic with your English grammar, especially if English is not your first language, is a bit below the belt perhaps.
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I just don't care for the negativity, personally, from people on both sides of the discussion. (I am not immune to this criticism myself, but I have tried to stop posting in this thread due to that.)
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Arebelspy,
I think it's better thought of as passion, perhaps?
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If I thought a 2/20 hedge fund manager would get me an extra 1% of return, I would sign up:) The problem with betterment (and most of their competitors) is that they publish zero data on how their portfolio would have performed over the long term. If your lucky you get some 10 year graph (it is trivial to back optimize a portfolio for a 10 year span). You never see the 40-50 years that you really want to to answer questions like a) how did it perform during a 20 year stock market bull market b) how did it perform during a 30 year bond bull market c) how did it perform when inflation went to 10% d) how did it do when value was in(or out) of value e) small was in/out of favor f) rest of world outperformed us g) emerging markets crashed, and so on. You get one period of the last 10 years where owning a lot of bonds, real estate, and small caps paid off. I am guessing the big reason that no one goes back to the 90s is because the S&P 500 pretty much destroyed most other portfolios. All those tilts to small, value, reits, and so were just drags on performance compared to the S&P returning 18% for the decade.
For what it is worth, I am not a huge life strategy fan. It is just too pricey for what you get. But I also have to think that Vanguard has a dozen people thinking about why REITs, Small caps, and so on should or shouldn't be included in that fund. I wouldn't be surprised if they are right over a 30 year period.
Here's something no one ever mentions, but what if I think Betterment's portfolio is just better and will outperform Vanguard's all-in-one funds? Let me explain.
With $100,000, you're paying a total of about 30 basis points at Betterment (15 in management, 15 in underlying ETF fees). Vanguard's Growth Lifestrategy fund, in contrast, is only 17 basis points.
But what if I think Betterment's value-tilt portfolio of 12 different ETFs is going to outperform Vanguard's set of 4 ETFs by over 13 basis points? Moreover, Vanguard's allocation is set at 80/20, whereas I can maintain 90/10 at Betterment, which should outperform over the long term. Vanguard's Target Date funds take asset allocation even further out of your control, and if you prefer a stronger allocation in equities, Betterment is appealing.
I understand that you could just buy a basket of 12 ETFS in a Vanguard brokerage account that mimics Betterment's and end up saving several basis points, and if you don't mind tinkering around with rebalancing, that's probably the best option. But I do think Betterment is better than Vanguard's all-in-one funds for the reasons above - and I could also add, it has a much better interface and allows new investors with less than $1000 or $3000 (Vanguard's thresholds for all-in-ones) to get in the game and stay there, and I think that's great.
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Miles,
several commenters have specifically disagreed with all your points, listing evidence and/or requesting justifications, when you try to make the case for betterment. Then you just repeated the same arguments over and over again, but did not indeed participate in actually an 'exchange of ideas'.
on top of that, some things don't make sense, or rely on an extreme strawman argument. To say you said something that we disagree with on fact, or on logic, or that it differs to our opinion, is not an ad hominem attack either, btw.
Getting all pedantic with your English grammar, especially if English is not your first language, is a bit below the belt perhaps.
Mr Mark,
I have no problem with anyone disagreeing with any of my points. The fact is we probably agree on much more than we disagree on when it comes to saving and investing. That being said, little is lost if we are able to share our honest opinions about an non-Vangard product without being labelled a "shill."
If I have restated my arguments, it is merely because those specific points weren't addressed, in my view.
I truly dislike ad hominem attacks, and avoid them categorically when I am not provoked first. On the other hand, when someone comes at me I feel it is best to answer in kind.
These are what I percieved as ad hominem attacks, that prompted my responses in kind. Please tell me which of these you do not percieve as personal, and feel represent a mere intellectual disagreement with my points...
1. "I almost expect you to try to sell me a variable annuity..."
2. "Note the new members of the forum all very enthusiastic about betterm*nt, and especially the use of the word "we at betterment""
Astroturfing, and plugging fees to financial middlemen.erecting straw man arguments, and getting super defensive.
Spam."
3. "That being said your post is adding nothing but butthurt. I hereby label you complainypants."
4. "This response is poorly written and inane. Quit while you're behind."
I regard these all as personal attacks, not attacks on ideas. If you disagree with that assessment please share which statement above refuted an idea.
Alexi
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Please stop, miles.
EDIT: Take it to PM if you still feel the need to keep going back and forth about things irrelevant to Bettermint's products or services. This is pretty embarrassing.
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Mr Mark,
I have no problem with anyone disagreeing with any of my points.
-yes you do. And then instead of addressing them, focus on these imagined ad hominem attacks.
The fact is we probably agree on much more than we disagree on when it comes to saving and investing.
- I doubt that. But that is not the issue, or even relevant.
That being said, little is lost if we are able to share our honest opinions about an non-Vangard product without being labelled a "shill."
- If a lot of the people out there who indeed do not know much about investing, and they all end up paying more and being less succussful, that's potentially quite a lot.
If I have restated my arguments, it is merely because those specific points weren't addressed, in my view.
I truly dislike ad hominem attacks, and avoid them categorically when I am not provoked first. On the other hand, when someone comes at me I feel it is best to answer in kind.
- well, ok, but no- one's throwing a punch at you, just your argument.
These are what I percieved as ad hominem attacks, that prompted my responses in kind. Please tell me which of these you do not percieve as personal, and feel represent a mere intellectual disagreement with my points...
1. "I almost expect you to try to sell me a variable annuity..."
- you persistent endorsement of paying a fee for something illusory, ie the micro rebalancing, etal., reminded me of the fact that peoplecplugging variable and whole life annuities make similar claims in a similar way. It was an insult to your argument, and your style, not you personally.
2. "Note the new members of the forum all very enthusiastic about betterm*nt, and especially the use of the word "we at betterment""
Astroturfing, and plugging fees to financial middlemen.erecting straw man arguments, and getting super defensive.
Spam."
-well, that's what it looked like, when several new members all recommend paying fees, while the best argument is a slick interface. And someone, not you I accept, spoke about being from betterment, and plugged the thing too. This is a popular site. I don't accept this is ad hominem.
3. "That being said your post is adding nothing but butthurt. I hereby label you complainypants."
- this wasn't me, but he's speaking in code. He means your argument was ineffectual, and now you are focusing on some minutiae. And then complaining about it, which you were.
4. "This response is poorly written and inane. Quit while you're behind."
- again, not me, but again, more an opinion, and could do with being a lot more specific, fully agree.
I regard these all as personal attacks, not attacks on ideas.
- again, it seems people often disagree about things. Telling you so is not ad hominem.
If you disagree with that assessment please share which statement above refuted an idea.
- see above. So, relax, and if you want, relook at the main objections.
Alexi
Alexi,
tried to comment as best above. If you, personally, want to pay betterment 0.25% just to look after your money ( IMHO likely at worse than average performance), thats fine.
Could we come up with scenarios where a certain investment works? Yes.
But I can't, just can't, agree that it's a good idea for someone else, based on what youve described are the advantages.
To put it into perspective. For the standard 1mill 30 yr 80/20 balanced 4% withdrawal rate, . For an increase in fees of 0.25%, CFIREcalc shows an increase in failure years from 8 to 10 (25% increase in fail rate) and a loss to average portfolio of 200,000 dollars at year 30, from 1.78 mill to 1.58 mill., a loss of over 11%.
If you think micro rebalancing, etc, are worth that, ok. I don't. This is just some internet site. You can think betterment is great, ok with me. Just don't ask me to agree with your argument as presented. I'm sure you are a wonderful person.
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MOD EDIT: Post deleted.
Miles, you were asked multiple times to stop, or to take it to PM. Please take a one week break from the forums, and when you come back, please directly address people's comments about the service in question if you still feel the need to comment, and refrain from commenting on previous issues whom both sides have been asked to drop. You can, again, bring it up with them via PM if necessary.
Thank you.
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Fair enough Alexi.
sorry Arebelspy.
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If I thought a 2/20 hedge fund manager would get me an extra 1% of return, I would sign up:) The problem with betterment (and most of their competitors) is that they publish zero data on how their portfolio would have performed over the long term. If your lucky you get some 10 year graph (it is trivial to back optimize a portfolio for a 10 year span). You never see the 40-50 years that you really want to to answer questions like a) how did it perform during a 20 year stock market bull market b) how did it perform during a 30 year bond bull market c) how did it perform when inflation went to 10% d) how did it do when value was in(or out) of value e) small was in/out of favor f) rest of world outperformed us g) emerging markets crashed, and so on. You get one period of the last 10 years where owning a lot of bonds, real estate, and small caps paid off. I am guessing the big reason that no one goes back to the 90s is because the S&P 500 pretty much destroyed most other portfolios. All those tilts to small, value, reits, and so were just drags on performance compared to the S&P returning 18% for the decade.
For what it is worth, I am not a huge life strategy fan. It is just too pricey for what you get. But I also have to think that Vanguard has a dozen people thinking about why REITs, Small caps, and so on should or shouldn't be included in that fund. I wouldn't be surprised if they are right over a 30 year period.
Here's something no one ever mentions, but what if I think Betterment's portfolio is just better and will outperform Vanguard's all-in-one funds? Let me explain.
With $100,000, you're paying a total of about 30 basis points at Betterment (15 in management, 15 in underlying ETF fees). Vanguard's Growth Lifestrategy fund, in contrast, is only 17 basis points.
But what if I think Betterment's value-tilt portfolio of 12 different ETFs is going to outperform Vanguard's set of 4 ETFs by over 13 basis points? Moreover, Vanguard's allocation is set at 80/20, whereas I can maintain 90/10 at Betterment, which should outperform over the long term. Vanguard's Target Date funds take asset allocation even further out of your control, and if you prefer a stronger allocation in equities, Betterment is appealing.
I understand that you could just buy a basket of 12 ETFS in a Vanguard brokerage account that mimics Betterment's and end up saving several basis points, and if you don't mind tinkering around with rebalancing, that's probably the best option. But I do think Betterment is better than Vanguard's all-in-one funds for the reasons above - and I could also add, it has a much better interface and allows new investors with less than $1000 or $3000 (Vanguard's thresholds for all-in-ones) to get in the game and stay there, and I think that's great.
Thanks for the thoughtful response. I'm definitely considering moving into a Vanguard brokerage and DIY. I agree with you also, not a big fan of Lifestrategy.
One thing, though, I think there have been a lot of studies showing that value tilting outperforms, historically, and probably over all the different contexts you mention. Obviously we don't know if that will hold true for the future.
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But I can't, just can't, agree that it's a good idea for someone else, based on what youve described are the advantages.
To put it into perspective. For the standard 1mill 30 yr 80/20 balanced 4% withdrawal rate, . For an increase in fees of 0.25%, CFIREcalc shows an increase in failure years from 8 to 10 (25% increase in fail rate) and a loss to average portfolio of 200,000 dollars at year 30, from 1.78 mill to 1.58 mill., a loss of over 11%.
That's some pretty powerful data. Thanks for sharing Mark.
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There is a ton of historical evidence for small and value tilting. The problem is figuring out what is going to happen going forward. For example from 1982-2013 (call it the last 30 years), large value returned 11.6% and large blend returned 11.5%. In small caps value returned 15.6% and blend returned 15.9%. Does that mean the value premium is gone or does it mean that we are about to go on a huge run of value outperformance? There are two mistakes everyone makes in investing: a) History is going to repeat and B) This time is different :)
For what it is worth, I have about half of my US allocation split between REITs and small/mid caps. I don't expect to out perform total market by much (if I am lucky I hope to get an extra 1%) but the assets have slightly different correlations. Worked great over the past 15 years but there are still another 40 or so before I can tell you if I made the right call.
Thanks for the thoughtful response. I'm definitely considering moving into a Vanguard brokerage and DIY. I agree with you also, not a big fan of Lifestrategy.
One thing, though, I think there have been a lot of studies showing that value tilting outperforms, historically, and probably over all the different contexts you mention. Obviously we don't know if that will hold true for the future.
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Fair enough Alexi.
sorry Arebelspy.
Your post (above the deleted post) was fine - directly addressing the Bettermint service advantages and/or disadvantages is on topic. Talking about previous straw men, ad hominem, etc. arguments when asked to drop it or take it to PM is not.
I'm more than happy to let either side present their arguments, but the bickering is below us, and crossed the line.
Hope that clears it up!
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There is a ton of historical evidence for small and value tilting. The problem is figuring out what is going to happen going forward. For example from 1982-2013 (call it the last 30 years), large value returned 11.6% and large blend returned 11.5%. In small caps value returned 15.6% and blend returned 15.9%. Does that mean the value premium is gone or does it mean that we are about to go on a huge run of value outperformance? There are two mistakes everyone makes in investing: a) History is going to repeat and B) This time is different :)
For what it is worth, I have about half of my US allocation split between REITs and small/mid caps. I don't expect to out perform total market by much (if I am lucky I hope to get an extra 1%) but the assets have slightly different correlations. Worked great over the past 15 years but there are still another 40 or so before I can tell you if I made the right call.
And everyone has to make that decision for themselves, which they believe. But it's not an advantage for BM, that I see, because you can create whatever portfolio you want via something like Vanguard, Fidelity, etc.
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Yep. If you take 10 mins to google around you will be able to find all sort of lazy portfolios that matched the numbers that Betterment posted. For example: http://www.bogleheads.org/blog/the-coffeehouse-portfolio/ return 7.5% to 7.4% (slightly different time periods). What did the simple 3 fund solution return over the past 10 years? 7.1%.
They are not doing anything magical. You are basically giving them money to save you a bit of time. Nothing wrong with that. But it is like paying someone to cut your grass. Its convenient but not very frugal. On the other hand if you are likely to chop a leg off when mowing the crash, paying someone else to do it makes a lot of sense:)
There is a ton of historical evidence for small and value tilting. The problem is figuring out what is going to happen going forward. For example from 1982-2013 (call it the last 30 years), large value returned 11.6% and large blend returned 11.5%. In small caps value returned 15.6% and blend returned 15.9%. Does that mean the value premium is gone or does it mean that we are about to go on a huge run of value outperformance? There are two mistakes everyone makes in investing: a) History is going to repeat and B) This time is different :)
For what it is worth, I have about half of my US allocation split between REITs and small/mid caps. I don't expect to out perform total market by much (if I am lucky I hope to get an extra 1%) but the assets have slightly different correlations. Worked great over the past 15 years but there are still another 40 or so before I can tell you if I made the right call.
And everyone has to make that decision for themselves, which they believe. But it's not an advantage for BM, that I see, because you can create whatever portfolio you want via something like Vanguard, Fidelity, etc.
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Ok I'll add my 2 cents before this thread gets locked.
Both Vanguard and Betterment are good brokerages for different kinds of people. For finance geeks like myself and most of the people on this forum who are capable of managing their own investments, Betterment provides no value-add. However our types are only a tiny minority of the general population. Betterment's target audience though is the average Joe that's clueless about how the market works and vulnerable to making bad investment decisions. It's a godsend for people that might otherwise fall prey to professional money managers. I think Betterment can be a starting point for the neophyte investor. For those that are inclined, they can later graduate to Vanguard and manage their own money. For others who don't want to get their hands dirty, the convenience may be well worth it.
I personally use Vanguard for my Roth and taxable investments and have no plans to invest elsewhere. However you have to admit their site isn't exactly intuitive to the lay person. You still need to be have some know-how to find your way around their site and understand even supposedly simple things like the 3-fund portfolio.
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Ok I'll add my 2 cents before this thread gets locked.
Both Vanguard and Betterment are good brokerages for different kinds of people. For finance geeks like myself and most of the people on this forum who are capable of managing their own investments, Betterment provides no value-add. However our types are only a tiny minority of the general population. Betterment's target audience though is the average Joe that's clueless about how the market works and vulnerable to making bad investment decisions. It's a godsend for people that might otherwise fall prey to professional money managers. I think Betterment can be a starting point for the neophyte investor. For those that are inclined, they can later graduate to Vanguard and manage their own money. For others who don't want to get their hands dirty, the convenience may be well worth it.
I personally use Vanguard for my Roth and taxable investments and have no plans to invest elsewhere. However you have to admit their site isn't exactly intuitive to the lay person. You still need to be have some know-how to find your way around their site and understand even supposedly simple things like the 3-fund portfolio.
exactly.
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I disagree. Putting up a false dichotomy that Vanguard is for veteran and truly knowledgeable investors who understand a great deal of nuance in the market while Betterment is for people just beginning and don't understand investing is wrong. Vanguard can be and is easy for the neophyte just as much as Betterment is. We've stated it repeatedly in this thread. There are target date funds for people who don't know what the hell they want or don't understand investing and need to buy time but don't want to waste their soldiers.
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I think LuckyMe offers an interesting perspective. And with that, let's really say bon voyage to this thread. Peace and happiness, people. And stay classy, Longmont!
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Thanks, sheepstache.
Plus, I can't help experimenting, I'm a scientist, after all. I turn all kinds of comparisons into 'experiments'.....
n will be equal to 1, so my results will be "anecdata" (to use a non-word I love), but I'll still share hoping it might help someone to make their choice.
MONARDA - Care to give us an update of your experiment?
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Well...
With regard to my personal web site usage, it's turned out that I visit the Capital One Sharebuilder site the most often, Betterment second, Vanguard a distant third. And Charles Schwab, an even more distant fourth.
This is not necessarily my preference for the products, but rather just how often it's turned out that I logged in to each of the sites over the past 10 months.
This could be for several reasons, which I'll expand upon next week when I'll have time to write a more complete response.
Topics I've been thinking about to help me (or others) decide which to settle on include-
-how much of a beginner investor you are,
-how hands-off you are or want to be,
-how much you care about learning about the markets,
-how often you plan to make contributions (whether automatically or manually)
-tax consequences (if any) of all the rebalancing (which I won't know until the spring when it's tax time, because I'm too lazy to go dig and figure it out now)
All of these places have products designed for the gamut of customers, ranging from the hands-off beginner to the true market nerd.
more later...
cheers!
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I would like to use Betterment as a specific savings bucket for me and my wife. Picture a joint savings situation with buckets earmarked for different goals: house downpayment, vacation, emergecy, home improvement, wealth building, etc. Betterment would be perfect for this except they don't offer joint accounts. I'd really like them to offer this so we can switch from CapitalOne 360/Sharebuilder to Betterment.
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Wait until next year, Schwab is launching their own robo investment service with no fees and Tax Loss Harvesting.
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Forgive me if this is a newB investor comment...
But it seems like frequent balancing of your portfolio has the same chance of negatively impacting your portfolio as positively impacting your portfolio. If the stock market fluctuates its possible your 83/17 portfolio would of out performed your 80/20 portfolio and vice versa Because of the unpredictable nature of the stock market it seems kind of silly to feel like your consistently perfectly balanced portfolio is going to outperform a portfolio that will be similarly but not perfectly balanced.
Risk management seems like the best argument for betterment. I wonder if betterment might be worth its fees for some of the older investors that are looking for relatively cheap risk management. I am relatively young and would not pay 0.25 for peace of mind. I do not care if my risk goes up by 10 percent and chances are I wouldn't even know if it did. An old person who wants to maintain 40% bonds might feel differently.
I can also see betterment being beneficial for the investor that has trouble meeting the minimum buy ins for vanguard. I myself am considering Vanguard and cannot afford the minimum for the small cap fund that I want for my IRA. Instead I will need to start with either the STAR fund or one of the set date retirement funds with a buy in of $1,000 or $3,000. That means up to $3,000 can be sitting around for a while not earning interest. My guess is investing in IRAs with lower minimums might result in overall lower fees, but I have not done research. That brings me to the question:
What does Betterment charge to move my theoretical account from Betterment to Vanguard once I meet my minimum?
Since I am neither a boglehead or a person considering betterment I thought I would share my thoughts.
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I am a Schwab fan because of their fee structure. For at least IRAs, no account fee, annual or otherwise. I bought Schwab ETFs (index or otherwise) with super low management fees and NO COMMISSIONS. Dollar cost average my investments, and buy buy buy. Rebalance every (3-6-12) months.
Unfortunately, wife's new job forced us to leave Schwab and move to Merrill Edge. It's ok, but boy do I miss Schwab.
Oh, and low starups. $100 opens you a Schwab IRA and you can start buying EFTs. No $2K to $5K minimum investments.
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I am a Schwab fan because of their fee structure. For at least IRAs, no account fee, annual or otherwise. I bought Schwab ETFs (index or otherwise) with super low management fees and NO COMMISSIONS.
I have my Roth IRA at Schwab. But I quit their brokerage accts because of their fee structure. I haven't gone back to compare their fees to Betterment.
As promised:
Betterment fees so far for three quarters of 2014: total $23.25 on a total portfolio of $14,150 (invested $13,550, gain 4.6%) allocation 62% stocks, 38% bonds. I have that divided into three goals with varying allocation, based on when I expect to use the money. Tax loss harvesting can't be applied until I get up to a $50K minimum balance. I like Betterment because it's easy to make contributions without transaction fees.
My Vanguard life strategy conservative fund (VSCGX 40-60 bonds-stocks), has made 5.6%. No fees, I could add to it just as easily. I have this same fund in Sharebuilder, and also the moderate lifestrat VSMGX. I bought on different dates, so that's the only reason why the yield varies from 4.3% to 5.7%. Just noise. Everything (Vanguard/Sharebuilder/Betterment) has made ~5% since January 1. I'll take another look later on, maybe in another year.
I guess I would sum up my feeling at this point as follows:
I like Betterment. Even though I don't have specific plans to use $, I have different pools of funds for varying target dates. I'd rather think about savings goals than choose what fund is most aligned with my goals. I know it amounts to the same thing. I do not want to spend time to learn about the market.
I keep my cash savings account at CapOne360 because it earns more interest (0.75%) than at my credit union- which earns next to nothing. I only keep enough in my checking account at my credit union to pay bills all else makes a first stop at CapOne360. Maybe there are other places for cash I don't know about.
It's quite convenient to have the Sharebuilder account information on the same web page as my savings account information, but I haven't fed the Sharebuilder account at all since January. I've ended up feeding the Betterment Account with some regularity. Although I monitor Sharebuilder most frequently, the Sharebuilder transaction fees keep me from making regular contributions there. If Vanguard has some kind of interest bearing savings account, I probably would use their site more, and make contributions to my Vanguard fund there. But I haven't been attracted by the Vanguard web site enough to try and find it if such a thing exists.
This 'experiment' has shown me that my goal is not necessarily to maximize returns, just rather to know that my funds are doing better than just sitting in savings. I like that contributing to Betterment is as easy as putting money in a savings account. No research to do, there's no large list of funds to decide which mixture matches my goals. For me, the answer to Betterment or Vanguard is, it doesn't matter. Whichever web interface you like better, and whichever links to your checking/savings account better. That's my take.
on edit: I just read your blog, Bbq, on Roth IRAs. I knew about the 59 1/2, but I didn't know about the 5 years. I should change ALL my funds in longer term Betterment goals to Roth IRAs immediately. With the funds in Sharebuilder and Vanguard, too. In 5 years, I'll be 59 1/2. huh. When I opened my Roth IRA at Schwab, 59.5 seemed so far away...
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Be super careful if you are changing funds from a traditional IRA to a Roth IRA. That is a taxable event, and every penny of your growth may be taxed at your regular income tax rate PLUS a 10% penalty! And look this up at the IRS website: The five year rule starts when you open the Roth IRA account, you can continue contributing and remove funds that you put in just last year (once you are both 59 1/2" and the account is at least 5 years old).
I have heard of this extreme Roth IRA conversion: Wait until you retire, your income sinks, and then convert your IRAs into Roth IRAs a bit every year, never converting enough to trigger income taxes! (Might require a significant drop in income and the help of an accountant).
Schwab fees for trading non-Schwab investments can be beaten, that is true. I choose non-managed index funds and ETFs, so buying commission free Schwab branded investments fits my investment goals nicely.
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Thanks, bbq. Sorry I wasn't clear.
I did the conversion from my traditional IRA to Roth in the 1990s when Roths were pretty new. I spread the tax over three years. I now have both Roth and traditional IRAs. The funds in the traditional IRA haven't been there more than 15 years or so- since the conversion.
What I meant to say above is that I now realize that I should be maxing my Roth IRA contribution (I hadn't, I'd been taking the tax deduction with traditional IRA contributions lately, also not max) for as many long-term investments currently in brokerage accounts as possible ... that's $6500 per year- pretty much my whole Betterment 'experiment' in 2 years worth of contributions... For me it makes no sense to have ANY taxable 'long-term' (> 5 years) goal at Betterment (or anywhere) because 5 years/59.5 is not that far away. If I start a new Roth acct at Betterment that might be the simplest. I'll ask my tax person about the extreme conversion you mention, but my income isn't that high before retirement, so it won't actually sink much.
The only money I need to keep liquid is what I think I'll spend between now and 2019. I should have plenty left even if I contribute 6500 every year.
59.5 seemed so far away when I last thought a lot about Roth IRAs. (doh- maybe it's denial. I feel much younger than 55. where's the "get a clue bat"- whomp)
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Thanks monarda for the awesome followup!
I'm a new investor (just graduated college, finished paying off debt, annnd I'm contributing enough to my 401k to get the match). After (painfully) reading through all of the negativity in this thread, I wanted to add my two cents. I have $8,000 in savings. That's it. No investments, no piles of gold in my basement that I can swim in. I figured I'd add my perspective since there didn't seem to be many people with very little money commenting.
When I can only put away a couple hundred dollars a month, saving up $1,000 and putting it all in an account (12.5%) is a pretty big hit. Not to mention the $3,000 or $10,000 minimums for other funds at Vanguard. Yes, I know that after that you can add in increments $100+. Betterment lets me put in as little as $100 a month to invest, without the large upfront deposit.
Betterment is not going to be an investment account for me. I'm planning on using this as a "hopefully higher than 1% APY savings account", in the long run. Which it better be @ 35/65 stocks/bonds, haha. There are no fees with Betterment and withdrawing (also free) only takes 4-5 business days.
One poster was complaining that their $2,800,000 would have outrageous fees with Betterment. It must be nice to have that much money, and I think it's important to recognize that not everyone has that luxury. I TOTALLY agree with them that, if I were in their situation, I would DEFINITELY put all (or most) of my money in Vanguard using a three fund portfolio, coffee house portfolio, whatever. It's a no brainer. (I'm ignoring Tax Loss Harvesting. I don't qualify and don't know what it is... and probably won't have to figure it out until after I max out my HSA, IRA, and 401k contributions.)
For me, starting out, Vanguard is pretty hard to navigate. I bit the bullet a few days ago and dropped $1,000 to open a Vanguard IRA. It might not sound like a lot to you older folks. For me, it's a lot to invest. (12.5% of my total savings) In order to invest in larger stocks/more popular stocks (VTSAX, VFIAX, VBTLX) I'd need $10k a piece... and that's before balancing. I'm sure there are others in my situation reading this, this was one of the top searches in Google for "Betterment vs Vanguard".
The only way Betterment makes sense, at least to me, is to use it as a type of savings account/emergency fund with returns that will hopefully keep up with inflation. Comparing Betterment to getting left in the dust like you would in many (all?) other savings/checking/money market accounts, makes it look a little more appealing... in the long run. There's a chance it will underperform in the short run (as you all know). As I've mentioned, I also believe that the liquidity is greater than it would be at Vanguard. I click a button and get however much money I designate within the next week. I don't have to worry about minimums.
I fully plan on having my IRAs (and maybe investment accounts, if I'm lucky) at Vanguard once I start getting settled in the "real world". I've looked at a TON of other funds with my friend's Scottrade account, and, well, I guess the Bogleheads have gotten to me. While I'm still building up emergency savings and rainy day funds, I think Betterment trumps Vanguard. I might be missing something, I'm new at this.
If anyone disagrees or has a comment, please let me know.
Since it seems like some people here might think this since I'm new, I'll clear it up: I am in no way affiliated with Betterment or Vanguard.
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If you're just starting out having an emergency fund in a taxable account is a terrible idea, you have to pay taxes on it. This is regardless of Betterment or Vanguard. When you're starting leave your emergency fund in a savings account where it is liquid. Inflation is not high enough right now to warrant a short term position in a taxable account for fear of inflation. If this is other money that is not emergency fund related but for long term investing/goals then anything outside of a savings account is fine.
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snoggish,
Following up on matchewed's post, here's an important note about Roth IRAs you might not realize...
Once your Roth IRA account has been opened for five years, you can withdraw your contributions without penalty if you need them for funding an emergency or whatever. You'd just have to leave your gains behind in the Roth account.
So, after 5 years your contributions are essentially liquid.
(and... you can set up a Roth IRA at Betterment if you want)
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monarda,
An investor can withdraw his or her contributions to a Roth IRA at any time without tax or penalty. But, that is not the same case for any earnings or interest that you have earned on your Roth IRA investment. In order to withdraw your earnings from a Roth IRA tax and penalty free, not only must you be over 59 ˝ years-old but your initial contributions must also have been made to your Roth IRA five years before the date when you start withdrawing funds.
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For me, starting out, Vanguard is pretty hard to navigate. I bit the bullet a few days ago and dropped $1,000 to open a Vanguard IRA. It might not sound like a lot to you older folks. For me, it's a lot to invest. (12.5% of my total savings) In order to invest in larger stocks/more popular stocks (VTSAX, VFIAX, VBTLX) I'd need $10k a piece... and that's before balancing. I'm sure there are others in my situation reading this, this was one of the top searches in Google for "Betterment vs Vanguard".
Why would you need 10k per fund unless you're talking about the admiral share versions? You can get the investor share versions which have a 3k minimum.
Also, since you opened a Roth IRA with 1k then I'm assuming you went with a target retirement fund. If you're already invested in that then why not continue contributing to it? You could easily add $100 a month to it.
One poster was complaining that their $2,800,000 would have outrageous fees with Betterment. It must be nice to have that much money, and I think it's important to recognize that not everyone has that luxury. I TOTALLY agree with them that, if I were in their situation, I would DEFINITELY put all (or most) of my money in Vanguard using a three fund portfolio, coffee house portfolio, whatever. It's a no brainer.
If you're invested in a target retirement fund then you already have a well diversified 4 fund portfolio.
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Oh wow, thanks for the responses! I looked into Roth IRAs right away, and they look like a great option.
If you're just starting out having an emergency fund in a taxable account is a terrible idea, you have to pay taxes on it. This is regardless of Betterment or Vanguard. When you're starting leave your emergency fund in a savings account where it is liquid. Inflation is not high enough right now to warrant a short term position in a taxable account for fear of inflation. If this is other money that is not emergency fund related but for long term investing/goals then anything outside of a savings account is fine.
Ok, that makes sense. It seems like the consensus is that I should be contributing fully to a Roth IRA before doing this type of investment. Especially because I can withdraw from it (thanks monarda and neogodless!), and it looks like I can put that money back in as a current year contribution as long as it's within the window for the same year in which I withdrew it.
Now, if we assume that if Person X is maxing his employer's 401k match and is maxing out IRA contributions of $5,500 and still has some left over cash that they want to use to beef up their existing savings (in a bank account)... Wouldn't they only have to pay short/long term capital gains when/if they withdraw from the Betterment account? They are planning on having ~$2k in here for the time being, and $8k in a regular bank account.
Do you think it would be better to keep the $2,000 in a regular bank account, instead of in Betterment? Even with taxes, the Betterment account would, on average, easily beat a savings account with 1% return (My understanding is that the 1% of interest in a bank account would have to be reported to the IRS as interest income anyway). Even an additional 1% return (2% total) is better than nothing at all. The only issue I can see is a risk that you could lose money in the short term?
Why would you need 10k per fund unless you're talking about the admiral share versions? You can get the investor share versions which have a 3k minimum.
Also, since you opened a Roth IRA with 1k then I'm assuming you went with a target retirement fund. If you're already invested in that then why not continue contributing to it? You could easily add $100 a month to it.
Yup, your assumption is correct. The 10k per fund was regarding the admiral shares version for the lower expense ratios they offer. It is a VERY long term goal, and right now I'm planning on contributing ~$100 a month to the Vanguard IRA (hopefully more, shortly) in the target date retirement fund, like you suggest.
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Do you think it would be better to keep the $2,000 in a regular bank account, instead of in Betterment? Even with taxes, the Betterment account would, on average, easily beat a savings account with 1% return (My understanding is that the 1% of interest in a bank account would have to be reported to the IRS as interest income anyway). Even an additional 1% return (2% total) is better than nothing at all. The only issue I can see is a risk that you could lose money in the short term?
That is the "only issue" but it's a big one. When will you need the $2000? At any moment, the market could start a three year downward slide losing 5, 10, 15% - just as an example. This happens and no one is good at predicting when it happens. Will you be OK with your $2000 quickly becoming $1400? Of course, if you're going to put it in Betterment, but know you'll need it soon, it might be a very cautious blend of mostly bonds, which should be a lot better (as far as risk goes.)
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Had a bit of a scan through this older thread and couldn't help but chuckle (at least, from an Australian perspective)
Reason being, Vanguard charges 0.37 MER on its Lifestyle Strategy fund in Australia. So Vanguard in Australia is already higher than whatever Betterment is charging in the US. Also, any interest earned on savings in Australia that you keep in a bank account is taxed - so you are being doubly punished if you are complacent or tend towards procrastination.
Of course, many other factors to consider. Australia supposedly has a higher median wage, and also Universal Health care is priceless (i had my appendix out when I was 20 - it cost me $90 which was the specialist's fee for taking my stitches out). So maybe it balances out.
Anyway, I would kill for a 0.17% MER on a Vanguard diversified life strategy fund!
At the moment I'm tossing up paying the 0.37% of a lifestrategy fund, or going it alone and cheaper by buying ETFs and rebalancing manually. As was mentioned above however, I may need to be protected from myself in not having the discipline, resolve etc to actually do it when the time comes.
I think I'm being guilty of a bit of moustachian over optimising tho, as can happen. I mean, the hard yards are in saving a stash to invest. Whether you pay a fee of 0.17 or 0.37 does make a difference in the long term, but the biggest difference is saving the money in the first place to invest, no?
Didn't want to derail what seems to be a spent thread - but thought a bit of outside perspective would be interesting a swell.
Cheers