Betterment?

[BosoxNelly]

Hello all, I'm relatively new to the site, and very new to the blog, but I've at least gotten motivated to move all of my old 401k/IRA/Roth's from Morgan Stanley and I was thinking about using Betterment's service.  Check it out if you have a chance, they essentially use all Vanguard funds, essentially offering rebalancing and target based fund distributions.  The overall fee structure is very low (Vanguard + small Betterment fees).  I've had my money with MS for a long time and finally did the research to determine the fees I've been paying. Ugh.  The worst part is the broker is a college friend of mine so I had to have the breakup email :).  Anyway, I thought, being a Vanguard advocate, that someone on this forum may have experience with Betterment.
Thanks!

[Beric01]

I *almost* signed up for Betterment. Then I realized I was just being lazy. It only takes a little more work to buy the funds yourself, and avoid the fees completely. And then you avoid the institutional risk of Betterment going down, and also give yourself more options for the future.

[GGNoob]

I'm a big fan of Betterment. I've been investing there for over a year now and I recommend it to new investors (I've signed up several family members at Betterment). As big of a fan as I am, I just withdrew the last of my funds from Betterment and I am moving to Vanguard. I want to be able to manage the funds myself and choose my own allocation. But I agree that their fees are pretty low and they can be hard to beat if you just want to deposit your money and forget about it. But with how much I enjoy managing the money myself, I figured I better move to Vanguard since in the long term, it will save me money.

FYI, Betterment offers a couple of sign-up bonuses that include 1-year free service (on top of the 30 days free). If you want a referral link, send me a message. It doesn't benefit me (my mom's account has the 1-year free referral, mine has $25 free), but I'm happy to help somebody out!

UPDATE: The 1 year free from the referral sign-up bonus has now been changed to just 30 days. So you get 30 days for free on top of your 30 day trial for a total of 60 days.

[Dodge]

Want to put your money somewhere and forget about it?  Here you go:

https://investor.vanguard.com/mutual-funds/lifestrategy/#/mini/overview/0122

Want it to automatically shift to bonds as you get older?  While still putting your money somewhere and forgetting about it?  Here you go:

https://investor.vanguard.com/mutual-funds/target-retirement/#/

Just want a 60/40 stock/bond portfolio, with the cheapest fee out there (0.09%). Here you go:

https://personal.vanguard.com/us/funds/snapshot?FundId=0502&FundIntExt=INT

Going with a place like Betterment/Wealthfront, who will just put your money into Vanguard anyway, will cost hundreds of thousands of dollars over your lifetime.  There's no need for it.

[GGNoob]

Good points Dodge.


Sent from my iPhone using Tapatalk

[milesdividendmd]

 
 Betterment is fantastic, particularly for taxable accounts, where tax loss harvesting should more than pay for the betterment account fee.

People have strong opinions about betterment. My bias is that they provide a great product for a fair price. I have over 50K invested with them with (about 18 % of my stock portfolio) the rest is invested in low cost self directed index funds. 

If I were you I would put 50% in betterment and 50% vanguard self directed funds and reassess after one year to see which is doing better.

Why not answer the question for yourself?

[matchewed]

I agree with Dodge, you could pay Betterment more money to do essentially the same thing you can do in 15 minutes a year. The cost doesn't match up fairly with time you'd save going with them.

[Dodge]

 Betterment is fantastic, particularly for taxable accounts, where tax loss harvesting should more than pay for the betterment account fee.

People have strong opinions about betterment. My bias is that they provide a great product for a fair price. I have over 50K invested with them with (about 18 % of my stock portfolio) the rest is invested in low cost self directed index funds. 

If I were you I would put 50% in betterment and 50% vanguard self directed funds and reassess after one year to see which is doing better.

Why not answer the question for yourself?

1 year is too short a time to know for sure, and by the time 30 years is up, it'll be too late.  I don't agree with this advice.  Would you advise giving 50% of your money to every fund manager out there who claims to be able to beat the market, to see if they really can?  If not, how do you differentiate?  There are many outfits who claim to use indexing + *magic sauce* to beat the market.

I recommend keeping it simple.

[milesdividendmd]

 Betterment is fantastic, particularly for taxable accounts, where tax loss harvesting should more than pay for the betterment account fee.

People have strong opinions about betterment. My bias is that they provide a great product for a fair price. I have over 50K invested with them with (about 18 % of my stock portfolio) the rest is invested in low cost self directed index funds. 

If I were you I would put 50% in betterment and 50% vanguard self directed funds and reassess after one year to see which is doing better.

Why not answer the question for yourself?

1 year is too short a time to know for sure, and by the time 30 years is up, it'll be too late.  I don't agree with this advice.  Would you advise giving 50% of your money to every fund manager out there who claims to be able to beat the market, to see if they really can?  If not, how do you differentiate?  There are many outfits who claim to use indexing + *magic sauce* to beat the market.

I recommend keeping it simple.

I agree that trying both for a year will not give one a statistically significant determination as to which approach is better.

The question is what is the OP comparing this option to?  Taking it on faith that Betterment is not a worthwhile service based on the  opinion of a few people on an  internet board?

I have been invested in betterment in addition to my previous Vanguard/Fidelity index funds for over a year new, and my experience has been that Betterment offers a valuable service at a reasonable price.  I recently upped my position in Betterment to take advantage of their tax loss harvesting algorithm.  In my opinion It is neither better nor worse than a self directed approach.

In the end the most important thing is that one picks an approach that they have a firm belief in so that they can stick with it through thick and thin and not deviate from their strategy when the going gets tough. 

I do believe that it is quite possible Betterment's set it and forget it approach will allow many investors not make behavioral mistakes with their portfolio because thay don't have to "do" anything at all to maintain a consistent approach to the market.

Observations like this one are pertinant even for Mustachians....

http://www.businessinsider.com.au/forgetful-investors-performed-best-2014-9

Enjoy!

[BosoxNelly]

Thanks everyone, I appreciate all the advice....I'll let you know what I decide!

[Dodge]

 Betterment is fantastic, particularly for taxable accounts, where tax loss harvesting should more than pay for the betterment account fee.

People have strong opinions about betterment. My bias is that they provide a great product for a fair price. I have over 50K invested with them with (about 18 % of my stock portfolio) the rest is invested in low cost self directed index funds. 

If I were you I would put 50% in betterment and 50% vanguard self directed funds and reassess after one year to see which is doing better.

Why not answer the question for yourself?

1 year is too short a time to know for sure, and by the time 30 years is up, it'll be too late.  I don't agree with this advice.  Would you advise giving 50% of your money to every fund manager out there who claims to be able to beat the market, to see if they really can?  If not, how do you differentiate?  There are many outfits who claim to use indexing + *magic sauce* to beat the market.

I recommend keeping it simple.

I agree that trying both for a year will not give one a statistically significant determination as to which approach is better.

The question is what is the OP comparing this option to?  Taking it on faith that Betterment is not a worthwhile service based on the  opinion of a few people on an  internet board?

I have been invested in betterment in addition to my previous Vanguard/Fidelity index funds for over a year new, and my experience has been that Betterment offers a valuable service at a reasonable price.  I recently upped my position in Betterment to take advantage of their tax loss harvesting algorithm.  In my opinion It is neither better nor worse than a self directed approach.

In the end the most important thing is that one picks an approach that they have a firm belief in so that they can stick with it through thick and thin and not deviate from their strategy when the going gets tough. 

I do believe that it is quite possible Betterment's set it and forget it approach will allow many investors not make behavioral mistakes with their portfolio because thay don't have to "do" anything at all to maintain a consistent approach to the market.

Observations like this one are pertinant even for Mustachians....

http://www.businessinsider.com.au/forgetful-investors-performed-best-2014-9

Enjoy!

Not questioning your thought process directly, but since you invest with Betterment, maybe you can answer this.  How is Betterment's "Set it and forget it" approach different than Vanguard's "Set it and forget it" approach, in terms of helping the average person stay the course?  I would argue that adding additional parts/complexity to the portfolio would only reduce their ability to stay the course, as it adds more questions.

Instead of just "Oh no, maybe indexing doesn't work (despite the mountain of evidence showing it does), time to sell everything!"  They now have:

"Oh no, maybe Betterment/Wealthfront isn't for me, time to sell everything and move elsewhere!"
or
"Oh no, Betterment/Wealthfront changed their philosophy adding a new secret sauce that no longer 100%  focuses on index funds, should I trust them?"
...etc.

When prices fall 50% like in 2008, it's easy to start questioning the decisions of the people managing your money.  In my opinion, the less questions there are, the easier it is for the average person to stay the course.  There is much evidence that indexing works over the long term.  There is no equivalent long-term evidence for a wealth management firm like Betterment/Wealthfront.

I don't see that helping.

[milesdividendmd]

 Betterment is fantastic, particularly for taxable accounts, where tax loss harvesting should more than pay for the betterment account fee.

People have strong opinions about betterment. My bias is that they provide a great product for a fair price. I have over 50K invested with them with (about 18 % of my stock portfolio) the rest is invested in low cost self directed index funds. 

If I were you I would put 50% in betterment and 50% vanguard self directed funds and reassess after one year to see which is doing better.

Why not answer the question for yourself?

1 year is too short a time to know for sure, and by the time 30 years is up, it'll be too late.  I don't agree with this advice.  Would you advise giving 50% of your money to every fund manager out there who claims to be able to beat the market, to see if they really can?  If not, how do you differentiate?  There are many outfits who claim to use indexing + *magic sauce* to beat the market.

I recommend keeping it simple.

I agree that trying both for a year will not give one a statistically significant determination as to which approach is better.

The question is what is the OP comparing this option to?  Taking it on faith that Betterment is not a worthwhile service based on the  opinion of a few people on an  internet board?

I have been invested in betterment in addition to my previous Vanguard/Fidelity index funds for over a year new, and my experience has been that Betterment offers a valuable service at a reasonable price.  I recently upped my position in Betterment to take advantage of their tax loss harvesting algorithm.  In my opinion It is neither better nor worse than a self directed approach.

In the end the most important thing is that one picks an approach that they have a firm belief in so that they can stick with it through thick and thin and not deviate from their strategy when the going gets tough. 

I do believe that it is quite possible Betterment's set it and forget it approach will allow many investors not make behavioral mistakes with their portfolio because thay don't have to "do" anything at all to maintain a consistent approach to the market.

Observations like this one are pertinant even for Mustachians....

http://www.businessinsider.com.au/forgetful-investors-performed-best-2014-9

Enjoy!

Not questioning your thought process directly, but since you invest with Betterment, maybe you can answer this.  How is Betterment's "Set it and forget it" approach different than Vanguard's "Set it and forget it" approach, in terms of helping the average person stay the course?  I would argue that adding additional parts/complexity to the portfolio would only reduce their ability to stay the course, as it adds more questions.

Instead of just "Oh no, maybe indexing doesn't work (despite the mountain of evidence showing it does), time to sell everything!"  They now have:

"Oh no, maybe Betterment/Wealthfront isn't for me, time to sell everything and move elsewhere!"
or
"Oh no, Betterment/Wealthfront changed their philosophy adding a new secret sauce that no longer 100%  focuses on index funds, should I trust them?"
...etc.

When prices fall 50% like in 2008, it's easy to start questioning the decisions of the people managing your money.  In my opinion, the less questions there are, the easier it is for the average person to stay the course.  There is much evidence that indexing works over the long term.  There is no equivalent long-term evidence for a wealth management firm like Betterment/Wealthfront.

I don't see that helping.

The advantage behaviorally in terms of a "set it and forget it" approach with betterment versus creating your own portfolio  of low cost index funds, is that the fund rebalances itself.  You have to do exactly nothing to maintain your designed asset allocation/risk exposure. 

With a collection of index funds you must rebalance once a year, which is an opportunity not to rebalance if the market is doing poorly, or to change your allocation in order to performance chase if the market is doing well.  Every one thinks they are immune to irrational investing decisions, but few actually are.

The vanguard equivalent is to put all your money in a target date fund, or a life strategy fund, but these are generally just 2 fund portfolios with a mark up.  Bettement's portfolio is better diversified, with more  value and size factor exposure.  Historically exposure to these factors has improved the returns and increased the efficiency of ones portfolio by a margin greater than the delta of the expenses.  (ie the diversification pays for itself.)

Simply put, Betterment has a better portfolio than the target date or lifetyle funds, and it likely has less behavioral risk than managing your own slice and dice portfolio.

[Dodge]

 Betterment is fantastic, particularly for taxable accounts, where tax loss harvesting should more than pay for the betterment account fee.

People have strong opinions about betterment. My bias is that they provide a great product for a fair price. I have over 50K invested with them with (about 18 % of my stock portfolio) the rest is invested in low cost self directed index funds. 

If I were you I would put 50% in betterment and 50% vanguard self directed funds and reassess after one year to see which is doing better.

Why not answer the question for yourself?

1 year is too short a time to know for sure, and by the time 30 years is up, it'll be too late.  I don't agree with this advice.  Would you advise giving 50% of your money to every fund manager out there who claims to be able to beat the market, to see if they really can?  If not, how do you differentiate?  There are many outfits who claim to use indexing + *magic sauce* to beat the market.

I recommend keeping it simple.

I agree that trying both for a year will not give one a statistically significant determination as to which approach is better.

The question is what is the OP comparing this option to?  Taking it on faith that Betterment is not a worthwhile service based on the  opinion of a few people on an  internet board?

I have been invested in betterment in addition to my previous Vanguard/Fidelity index funds for over a year new, and my experience has been that Betterment offers a valuable service at a reasonable price.  I recently upped my position in Betterment to take advantage of their tax loss harvesting algorithm.  In my opinion It is neither better nor worse than a self directed approach.

In the end the most important thing is that one picks an approach that they have a firm belief in so that they can stick with it through thick and thin and not deviate from their strategy when the going gets tough. 

I do believe that it is quite possible Betterment's set it and forget it approach will allow many investors not make behavioral mistakes with their portfolio because thay don't have to "do" anything at all to maintain a consistent approach to the market.

Observations like this one are pertinant even for Mustachians....

http://www.businessinsider.com.au/forgetful-investors-performed-best-2014-9

Enjoy!

Not questioning your thought process directly, but since you invest with Betterment, maybe you can answer this.  How is Betterment's "Set it and forget it" approach different than Vanguard's "Set it and forget it" approach, in terms of helping the average person stay the course?  I would argue that adding additional parts/complexity to the portfolio would only reduce their ability to stay the course, as it adds more questions.

Instead of just "Oh no, maybe indexing doesn't work (despite the mountain of evidence showing it does), time to sell everything!"  They now have:

"Oh no, maybe Betterment/Wealthfront isn't for me, time to sell everything and move elsewhere!"
or
"Oh no, Betterment/Wealthfront changed their philosophy adding a new secret sauce that no longer 100%  focuses on index funds, should I trust them?"
...etc.

When prices fall 50% like in 2008, it's easy to start questioning the decisions of the people managing your money.  In my opinion, the less questions there are, the easier it is for the average person to stay the course.  There is much evidence that indexing works over the long term.  There is no equivalent long-term evidence for a wealth management firm like Betterment/Wealthfront.

I don't see that helping.

The advantage behaviorally in terms of a "set it and forget it" approach with betterment versus creating your own portfolio  of low cost index funds, is that the fund rebalances itself.  You have to do exactly nothing to maintain your designed asset allocation/risk exposure. 

With a collection of index funds you must rebalance once a year, which is an opportunity not to rebalance if the market is doing poorly, or to change your allocation in order to performance chase if the market is doing well.  Every one thinks they are immune to irrational investing decisions, but few actually are.

The vanguard equivalent is to put all your money in a target date fund, or a life strategy fund, but these are generally just 2 fund portfolios with a mark up.  Bettement's portfolio is better diversified, with more international, value and size exposure.  Historically exposure to these factors has improved the returns and increased the efficiency of ones portfolio by a margin greater than the delta of the expenses.  (ie the diversification pays for itself.)

Simply put, Betterment has a better portfolio than the target date or lifetyle funds, and it likely has less behavioral risk than managing your own slice and dice portfolio.

The Vanguard target date and life strategy "set it and forget it" funds, all contain at least 4 funds.

Total Stock Market: 3744 stocks
Total Bond Market:  6985 bonds
Total International Stock Market: 5673 stocks
Total International Bond Market: 2764 bonds

A total of 19166 unique assets.  Betterment portfolios have more than 19166 unique assets?

[milesdividendmd]

 Betterment is fantastic, particularly for taxable accounts, where tax loss harvesting should more than pay for the betterment account fee.

People have strong opinions about betterment. My bias is that they provide a great product for a fair price. I have over 50K invested with them with (about 18 % of my stock portfolio) the rest is invested in low cost self directed index funds. 

If I were you I would put 50% in betterment and 50% vanguard self directed funds and reassess after one year to see which is doing better.

Why not answer the question for yourself?

1 year is too short a time to know for sure, and by the time 30 years is up, it'll be too late.  I don't agree with this advice.  Would you advise giving 50% of your money to every fund manager out there who claims to be able to beat the market, to see if they really can?  If not, how do you differentiate?  There are many outfits who claim to use indexing + *magic sauce* to beat the market.

I recommend keeping it simple.

I agree that trying both for a year will not give one a statistically significant determination as to which approach is better.

The question is what is the OP comparing this option to?  Taking it on faith that Betterment is not a worthwhile service based on the  opinion of a few people on an  internet board?

I have been invested in betterment in addition to my previous Vanguard/Fidelity index funds for over a year new, and my experience has been that Betterment offers a valuable service at a reasonable price.  I recently upped my position in Betterment to take advantage of their tax loss harvesting algorithm.  In my opinion It is neither better nor worse than a self directed approach.

In the end the most important thing is that one picks an approach that they have a firm belief in so that they can stick with it through thick and thin and not deviate from their strategy when the going gets tough. 

I do believe that it is quite possible Betterment's set it and forget it approach will allow many investors not make behavioral mistakes with their portfolio because thay don't have to "do" anything at all to maintain a consistent approach to the market.

Observations like this one are pertinant even for Mustachians....

http://www.businessinsider.com.au/forgetful-investors-performed-best-2014-9

Enjoy!

Not questioning your thought process directly, but since you invest with Betterment, maybe you can answer this.  How is Betterment's "Set it and forget it" approach different than Vanguard's "Set it and forget it" approach, in terms of helping the average person stay the course?  I would argue that adding additional parts/complexity to the portfolio would only reduce their ability to stay the course, as it adds more questions.

Instead of just "Oh no, maybe indexing doesn't work (despite the mountain of evidence showing it does), time to sell everything!"  They now have:

"Oh no, maybe Betterment/Wealthfront isn't for me, time to sell everything and move elsewhere!"
or
"Oh no, Betterment/Wealthfront changed their philosophy adding a new secret sauce that no longer 100%  focuses on index funds, should I trust them?"
...etc.

When prices fall 50% like in 2008, it's easy to start questioning the decisions of the people managing your money.  In my opinion, the less questions there are, the easier it is for the average person to stay the course.  There is much evidence that indexing works over the long term.  There is no equivalent long-term evidence for a wealth management firm like Betterment/Wealthfront.

I don't see that helping.

The advantage behaviorally in terms of a "set it and forget it" approach with betterment versus creating your own portfolio  of low cost index funds, is that the fund rebalances itself.  You have to do exactly nothing to maintain your designed asset allocation/risk exposure. 

With a collection of index funds you must rebalance once a year, which is an opportunity not to rebalance if the market is doing poorly, or to change your allocation in order to performance chase if the market is doing well.  Every one thinks they are immune to irrational investing decisions, but few actually are.

The vanguard equivalent is to put all your money in a target date fund, or a life strategy fund, but these are generally just 2 fund portfolios with a mark up.  Bettement's portfolio is better diversified, with more international, value and size exposure.  Historically exposure to these factors has improved the returns and increased the efficiency of ones portfolio by a margin greater than the delta of the expenses.  (ie the diversification pays for itself.)

Simply put, Betterment has a better portfolio than the target date or lifetyle funds, and it likely has less behavioral risk than managing your own slice and dice portfolio.

The Vanguard target date and life strategy "set it and forget it" funds, all contain at least 4 funds.

Total Stock Market: 3744 stocks
Total Bond Market:  6985 bonds
Total International Stock Market: 5673 stocks
Total International Bond Market: 2764 bonds

A total of 19166 unique assets.  Betterment portfolios have more than 19166 unique assets?

The betterment portolio has exposure to the value and size factors.  The target date funds do not.  Exposure to the value, size, momentum, and quality factors have historically been associated with higher than cap weighted market returns.

They have the roughly same number of unique assets, but the weighting is different.  Overweighting value companies and small companies, (or shorting large and growth companies) are the only ways to gain exposure to those factors.

[Dodge]

The Vanguard target date and life strategy "set it and forget it" funds, all contain at least 4 funds.

Total Stock Market: 3744 stocks
Total Bond Market:  6985 bonds
Total International Stock Market: 5673 stocks
Total International Bond Market: 2764 bonds

A total of 19166 unique assets.  Betterment portfolios have more than 19166 unique assets?

The betterment portolio has exposure to the value and size factors.  The target date funds do not.  Exposure to the value, size, momentum, and quality factors have historically been associated with higher than cap weighted market returns.

They have the roughly same number of unique assets, but the weighting is different.  Overweighting value companies and small companies, (or shorting large and growth companies) are the only way to gain exposure to those factors.

Got it.  So it sounds like we're hoping the past performance of these factors, predicts future returns.  Hoping that the market doesn't know about, or act on this free lunch, since that would eliminate the price advantage.  Correct?

I'm not sure how that's any different than all the other active funds who claim to be able to beat the market based on historical performance and backtesting of this or that, then fail to beat it moving forward, but let's ignore that for now.

Imagine BosoxNelly goes with Betterment, based on these factors, and 2008 happens.  Let's also assume BosoxNelly's portfolio drops 50%, exactly as much as the all-index portfolio.  My opinion, is that BosoxNelly would have a higher chance of not staying the course in this scenario.  If he/she believed the factors you mentioned would provide a less bumpy ride with higher returns, and they didn't, he/she might bail, looking for a new safe-haven/free-lunch.

In my opinion, the whole free-lunch mindset is toxic to the average investor.  If they think they've found a magic bullet, and it ends up not being true, they might exit the market all-together.  Maybe I'm biased, because I personally know people who thought they were positioned to beat the market, then bailed in early 2009, and I know other people who were indexed and said "Scared?  This happens all the time, give it a few years", but's just my experience.

[Kevin Aster Tin Obin]

Want to put your money somewhere and forget about it?  Here you go:

https://investor.vanguard.com/mutual-funds/lifestrategy/#/mini/overview/0122

Want it to automatically shift to bonds as you get older?  While still putting your money somewhere and forgetting about it?  Here you go:

https://investor.vanguard.com/mutual-funds/target-retirement/#/

Just want a 60/40 stock/bond portfolio, with the cheapest fee out there (0.09%). Here you go:

https://personal.vanguard.com/us/funds/snapshot?FundId=0502&FundIntExt=INT

Going with a place like Betterment/Wealthfront, who will just put your money into Vanguard anyway, will cost hundreds of thousands of dollars over your lifetime.  There's no need for it.

Are there any vanguard funds (or simple combination of funds) that replicate Betterment's value tilt? 

[GGNoob]

Want to put your money somewhere and forget about it?  Here you go:

https://investor.vanguard.com/mutual-funds/lifestrategy/#/mini/overview/0122

Want it to automatically shift to bonds as you get older?  While still putting your money somewhere and forgetting about it?  Here you go:

https://investor.vanguard.com/mutual-funds/target-retirement/#/

Just want a 60/40 stock/bond portfolio, with the cheapest fee out there (0.09%). Here you go:

https://personal.vanguard.com/us/funds/snapshot?FundId=0502&FundIntExt=INT

Going with a place like Betterment/Wealthfront, who will just put your money into Vanguard anyway, will cost hundreds of thousands of dollars over your lifetime.  There's no need for it.

Are there any vanguard funds (or simple combination of funds) that replicate Betterment's value tilt?

Betterment uses Vanguard ETFs, so the entire portfolio can be replicated with ETFs or mutual funds if you wanted to.

[milesdividendmd]

Want to put your money somewhere and forget about it?  Here you go:

https://investor.vanguard.com/mutual-funds/lifestrategy/#/mini/overview/0122

Want it to automatically shift to bonds as you get older?  While still putting your money somewhere and forgetting about it?  Here you go:

https://investor.vanguard.com/mutual-funds/target-retirement/#/

Just want a 60/40 stock/bond portfolio, with the cheapest fee out there (0.09%). Here you go:

https://personal.vanguard.com/us/funds/snapshot?FundId=0502&FundIntExt=INT

Going with a place like Betterment/Wealthfront, who will just put your money into Vanguard anyway, will cost hundreds of thousands of dollars over your lifetime.  There's no need for it.

Are there any vanguard funds (or simple combination of funds) that replicate Betterment's value tilt?

Betterment uses Vanguard ETFs, so the entire portfolio can be replicated with ETFs or mutual funds if you wanted to.

Betterment also uses ishares, but I agree you can easily clone a close approximation of their portfolio using vanguard ETFs.

[GGNoob]

Betterment also uses ishares, but I agree you can easily clone a close approximation of their portfolio using vanguard ETFs.

Yes, was just going to edit my post. I was 100% stock in Betterment, so mine was all Vanguard. Some of the bond funds are iShares.

[milesdividendmd]

The Vanguard target date and life strategy "set it and forget it" funds, all contain at least 4 funds.

Total Stock Market: 3744 stocks
Total Bond Market:  6985 bonds
Total International Stock Market: 5673 stocks
Total International Bond Market: 2764 bonds

A total of 19166 unique assets.  Betterment portfolios have more than 19166 unique assets?

The betterment portolio has exposure to the value and size factors.  The target date funds do not.  Exposure to the value, size, momentum, and quality factors have historically been associated with higher than cap weighted market returns.

They have the roughly same number of unique assets, but the weighting is different.  Overweighting value companies and small companies, (or shorting large and growth companies) are the only way to gain exposure to those factors.

Got it.  So it sounds like we're hoping the past performance of these factors, predicts future returns.  Hoping that the market doesn't know about, or act on this free lunch, since that would eliminate the price advantage.  Correct?

I'm not sure how that's any different than all the other active funds who claim to be able to beat the market based on historical performance and backtesting of this or that, then fail to beat it moving forward, but let's ignore that for now.

Imagine BosoxNelly goes with Betterment, based on these factors, and 2008 happens.  Let's also assume BosoxNelly's portfolio drops 50%, exactly as much as the all-index portfolio.  My opinion, is that BosoxNelly would have a higher chance of not staying the course in this scenario.  If he/she believed the factors you mentioned would provide a less bumpy ride with higher returns, and they didn't, he/she might bail, looking for a new safe-haven/free-lunch.

In my opinion, the whole free-lunch mindset is toxic to the average investor.  If they think they've found a magic bullet, and it ends up not being true, they might exit the market all-together.  Maybe I'm biased, because I personally know people who thought they were positioned to beat the market, then bailed in early 2009, and I know other people who were indexed and said "Scared?  This happens all the time, give it a few years", but's just my experience.

Dodge,

 It seems to me that Your definition of "active" leaves much to be desired, including....

1.  The market, value, size, momentum, and quality factors have been rigorously studied over hundreds of years of investment history in in and out of sample testing by the most rigorous academic economists of the modern era in a peer reviewed fashion.  Eugene Fama, co-author of the 3  factor model, in fact, split a nobel prize with Robert Schiller last year for this research.  Betting against the persistence of these factors is a far more "active" stance to take than betting on their persistence.  The efficient market hypothesis (which you seem to advocate) in fact depends on risk based explanations for all of these factors and on the persistence of these premia in order to test its hypotheses.

2.  By your definition Rick Ferri, Larry Swedroe, William Bernstein are all "active" investors since they all advocate small and value tilts.

3.  By your definition even Jack Bogle is an "active" investor since he chooses to overweight US equities, and underweight international equities, commodities, alternative investments, and Real estate compared to the actual capitalization of the world economy.

4.  To claim that your way of investing is "passive" and all other ways are "active" seems completely illogical by any metric.

As to your behavioral argument, I fail to see why someone would preferentially pull their money out of Betterment during a crisis when they literally never need to look at their account to mantain a consistent asset allocation.  Alternatively, If you have a Vanguard slice and dice portfolio you must choose to sell your safe bonds and buy more toxic equities come rebalancing time in order to be effective, which isn't easy. 

Your argument seems to be that since you have a gestault negative impression of Betterment, you would be more likely to pull your money out in a crisis which, while probably true,  tells us exactly nothing about its value to anyone but you as an individual.

[milesdividendmd]

Betterment also uses ishares, but I agree you can easily clone a close approximation of their portfolio using vanguard ETFs.

Yes, was just going to edit my post. I was 100% stock in Betterment, so mine was all Vanguard. Some of the bond funds are iShares.

Betterment actually also holds non vanguard stock etfs like IWN, IVE, and IWS, but there are vanguard equivalents to these funds.

[Petunia 100]

 Betterment is fantastic, particularly for taxable accounts, where tax loss harvesting should more than pay for the betterment account fee.

People have strong opinions about betterment. My bias is that they provide a great product for a fair price. I have over 50K invested with them with (about 18 % of my stock portfolio) the rest is invested in low cost self directed index funds. 

If I were you I would put 50% in betterment and 50% vanguard self directed funds and reassess after one year to see which is doing better.

Why not answer the question for yourself?

1 year is too short a time to know for sure, and by the time 30 years is up, it'll be too late.  I don't agree with this advice.  Would you advise giving 50% of your money to every fund manager out there who claims to be able to beat the market, to see if they really can?  If not, how do you differentiate?  There are many outfits who claim to use indexing + *magic sauce* to beat the market.

I recommend keeping it simple.

I agree that trying both for a year will not give one a statistically significant determination as to which approach is better.

The question is what is the OP comparing this option to?  Taking it on faith that Betterment is not a worthwhile service based on the  opinion of a few people on an  internet board?

I have been invested in betterment in addition to my previous Vanguard/Fidelity index funds for over a year new, and my experience has been that Betterment offers a valuable service at a reasonable price.  I recently upped my position in Betterment to take advantage of their tax loss harvesting algorithm.  In my opinion It is neither better nor worse than a self directed approach.

In the end the most important thing is that one picks an approach that they have a firm belief in so that they can stick with it through thick and thin and not deviate from their strategy when the going gets tough. 

I do believe that it is quite possible Betterment's set it and forget it approach will allow many investors not make behavioral mistakes with their portfolio because thay don't have to "do" anything at all to maintain a consistent approach to the market.

Observations like this one are pertinant even for Mustachians....

http://www.businessinsider.com.au/forgetful-investors-performed-best-2014-9

Enjoy!

Since the OP plans to move old 401k, IRA, and Roth IRA monies, how will a tax loss harvesting algorithm be of any benefit?

[milesdividendmd]

 Betterment is fantastic, particularly for taxable accounts, where tax loss harvesting should more than pay for the betterment account fee.

People have strong opinions about betterment. My bias is that they provide a great product for a fair price. I have over 50K invested with them with (about 18 % of my stock portfolio) the rest is invested in low cost self directed index funds. 

If I were you I would put 50% in betterment and 50% vanguard self directed funds and reassess after one year to see which is doing better.

Why not answer the question for yourself?

1 year is too short a time to know for sure, and by the time 30 years is up, it'll be too late.  I don't agree with this advice.  Would you advise giving 50% of your money to every fund manager out there who claims to be able to beat the market, to see if they really can?  If not, how do you differentiate?  There are many outfits who claim to use indexing + *magic sauce* to beat the market.

I recommend keeping it simple.

I agree that trying both for a year will not give one a statistically significant determination as to which approach is better.

The question is what is the OP comparing this option to?  Taking it on faith that Betterment is not a worthwhile service based on the  opinion of a few people on an  internet board?

I have been invested in betterment in addition to my previous Vanguard/Fidelity index funds for over a year new, and my experience has been that Betterment offers a valuable service at a reasonable price.  I recently upped my position in Betterment to take advantage of their tax loss harvesting algorithm.  In my opinion It is neither better nor worse than a self directed approach.

In the end the most important thing is that one picks an approach that they have a firm belief in so that they can stick with it through thick and thin and not deviate from their strategy when the going gets tough. 

I do believe that it is quite possible Betterment's set it and forget it approach will allow many investors not make behavioral mistakes with their portfolio because thay don't have to "do" anything at all to maintain a consistent approach to the market.

Observations like this one are pertinant even for Mustachians....

http://www.businessinsider.com.au/forgetful-investors-performed-best-2014-9

Enjoy!

Since the OP plans to move old 401k, IRA, and Roth IRA monies, how will a tax loss harvesting algorithm be of any benefit?

It won't.  Did someone claim that it would be?

[Dodge]

The Vanguard target date and life strategy "set it and forget it" funds, all contain at least 4 funds.

Total Stock Market: 3744 stocks
Total Bond Market:  6985 bonds
Total International Stock Market: 5673 stocks
Total International Bond Market: 2764 bonds

A total of 19166 unique assets.  Betterment portfolios have more than 19166 unique assets?

The betterment portolio has exposure to the value and size factors.  The target date funds do not.  Exposure to the value, size, momentum, and quality factors have historically been associated with higher than cap weighted market returns.

They have the roughly same number of unique assets, but the weighting is different.  Overweighting value companies and small companies, (or shorting large and growth companies) are the only way to gain exposure to those factors.

Got it.  So it sounds like we're hoping the past performance of these factors, predicts future returns.  Hoping that the market doesn't know about, or act on this free lunch, since that would eliminate the price advantage.  Correct?

I'm not sure how that's any different than all the other active funds who claim to be able to beat the market based on historical performance and backtesting of this or that, then fail to beat it moving forward, but let's ignore that for now.

Imagine BosoxNelly goes with Betterment, based on these factors, and 2008 happens.  Let's also assume BosoxNelly's portfolio drops 50%, exactly as much as the all-index portfolio.  My opinion, is that BosoxNelly would have a higher chance of not staying the course in this scenario.  If he/she believed the factors you mentioned would provide a less bumpy ride with higher returns, and they didn't, he/she might bail, looking for a new safe-haven/free-lunch.

In my opinion, the whole free-lunch mindset is toxic to the average investor.  If they think they've found a magic bullet, and it ends up not being true, they might exit the market all-together.  Maybe I'm biased, because I personally know people who thought they were positioned to beat the market, then bailed in early 2009, and I know other people who were indexed and said "Scared?  This happens all the time, give it a few years", but's just my experience.

Dodge,

 It seems to me that Your definition of "active" leaves much to be desired, including....

1.  The market, value, size, momentum, and quality factors have been rigorously studied over hundreds of years of investment history in in and out of sample testing by the most rigorous academic economists of the modern era in a peer reviewed fashion.  Eugene Fama, co-author of the 3  factor model, in fact, split a nobel prize with Robert Schiller last year for this research.  Betting against the persistence of these factors is a far more "active" stance to take than betting on their persistence.  The efficient market hypothesis (which you seem to advocate) in fact depends on risk based explanations for all of these factors and on the persistence of these premia in order to test its hypotheses.

2.  By your definition Rick Ferri, Larry Swedroe, William Bernstein are all "active" investors since they all advocate small and value tilts.

3.  By your definition even Jack Bogle is an "active" investor since he chooses to overweight US equities, and underweight international equities, commodities, alternative investments, and Real estate compared to the actual capitalization of the world economy.

4.  To claim that your way of investing is "passive" and all other ways are "active" seems completely illogical by any metric.

As to your behavioral argument, I fail to see why someone would preferentially pull their money out of Betterment during a crisis when they literally never need to look at their account to mantain a consistent asset allocation.  Alternatively, If you have a Vanguard slice and dice portfolio you must choose to sell your safe bonds and buy more toxic equities come rebalancing time in order to be effective, which isn't easy. 

Your argument seems to be that since you have a gestault negative impression of Betterment, you would be more likely to pull your money out in a crisis which, while probably true,  tells us exactly nothing about its value to anyone but you as an individual.

Wow.  I completely disagree, but it's not worth going back and forth on each point.  If you believe tilting in any particular direction represents a free lunch, let's just leave it at that.  I wish you, and your portfolio, luck!

I gave my opinion on the behavioral side based on personal observations of people's reactions during market downturns.  In my experience, people who look for and expect a free lunch in their investing, tend to bail when it's shown the free lunch did not exist.  If someone chooses Betterment over a Vanguard "set it and forget it" fund, it seems they might be expecting a free lunch, so I recommend against it.

[milesdividendmd]

The only free lunch in the Betterment strategy is improved diversification across imperfectly correlated asset classes.

Exposure to the size and value factors represents increased risk and an increased reward.  These asset classes are more volatile than the broad market.  There is nothing free about it, (although some do claim that the value factor is in part behaviorally based because investors prefer owning "good" companies to cheap or "bad," companies.  As an example people are more excited to own amazon stock than Kmart stock which perhaps creates a market inefficiency.)

[Petunia 100]

 Betterment is fantastic, particularly for taxable accounts, where tax loss harvesting should more than pay for the betterment account fee.

People have strong opinions about betterment. My bias is that they provide a great product for a fair price. I have over 50K invested with them with (about 18 % of my stock portfolio) the rest is invested in low cost self directed index funds. 

If I were you I would put 50% in betterment and 50% vanguard self directed funds and reassess after one year to see which is doing better.

Why not answer the question for yourself?

1 year is too short a time to know for sure, and by the time 30 years is up, it'll be too late.  I don't agree with this advice.  Would you advise giving 50% of your money to every fund manager out there who claims to be able to beat the market, to see if they really can?  If not, how do you differentiate?  There are many outfits who claim to use indexing + *magic sauce* to beat the market.

I recommend keeping it simple.

I agree that trying both for a year will not give one a statistically significant determination as to which approach is better.

The question is what is the OP comparing this option to?  Taking it on faith that Betterment is not a worthwhile service based on the  opinion of a few people on an  internet board?

I have been invested in betterment in addition to my previous Vanguard/Fidelity index funds for over a year new, and my experience has been that Betterment offers a valuable service at a reasonable price.  I recently upped my position in Betterment to take advantage of their tax loss harvesting algorithm.  In my opinion It is neither better nor worse than a self directed approach.

In the end the most important thing is that one picks an approach that they have a firm belief in so that they can stick with it through thick and thin and not deviate from their strategy when the going gets tough. 

I do believe that it is quite possible Betterment's set it and forget it approach will allow many investors not make behavioral mistakes with their portfolio because thay don't have to "do" anything at all to maintain a consistent approach to the market.

Observations like this one are pertinant even for Mustachians....

http://www.businessinsider.com.au/forgetful-investors-performed-best-2014-9

Enjoy!

Since the OP plans to move old 401k, IRA, and Roth IRA monies, how will a tax loss harvesting algorithm be of any benefit?

It won't.  Did someone claim that it would be?

It it won't be of any benefit, then why should OP pay more for this valuable service?  Makes no sense to me.

[milesdividendmd]

Isn't that what we've been discussing?  Value tilt?  Size tilt?  evidence based portfolio design? ease of use?  behavioral advantages?

TLH is a wonderful added benefit for taxable accounts which should more than pay for Betterments expense ratio.  But its lack of utility in tax sheltered accounts doesn't negate Betterment's other benefits.

[Petunia 100]

Isn't that what we've been discussing?  Value tilt?  Size tilt?  evidence based portfolio design? ease of use?  behavioral advantages?

TLH is a wonderful added benefit for taxable accounts which should more than pay for Betterments expense ratio.  But its lack of utility in tax sheltered accounts doesn't negate Betterment's other benefits.

Tilting for small and value may offer better results than total market investing going forward.  Or, it may not.   

Ease of use and behavioral advantages are equally available at both Vanguard and Betterment.

Betterment has no minimums, so is readily accessible to someone who is just getting started with investing. That is the only
clear advantage I see, and not applicable to OP.

OP, unless you really prefer to slice & dice, I suggest you roll your monies to Vanguard and choose a Target Retirement or Lifestrategy fund.    Congrats on leaving Morgan Stanley. :)

[milesdividendmd]

Isn't that what we've been discussing?  Value tilt?  Size tilt?  evidence based portfolio design? ease of use?  behavioral advantages?

TLH is a wonderful added benefit for taxable accounts which should more than pay for Betterments expense ratio.  But its lack of utility in tax sheltered accounts doesn't negate Betterment's other benefits.

Tilting for small and value may offer better results than total market investing going forward.  Or, it may not.   

Ease of use and behavioral advantages are equally available at both Vanguard and Betterment.

Betterment has no minimums, so is readily accessible to someone who is just getting started with investing. That is the only
clear advantage I see, and not applicable to OP.

OP, unless you really prefer to slice & dice, I suggest you roll your monies to Vanguard and choose a Target Retirement or Lifestrategy fund.    Congrats on leaving Morgan Stanley. :)

"Tilting for small and value may offer better results than total market investing going forward.  Or, it may not. "

This is a true and incomplete statement.  Either may offer better results, but based on all available academic research tilting towards small and value is more likely to offer better results.

One could also easily say "total stock market may offer better results than cash going forward .  Or it may not." 

It's just a question of probablility.  Either you choose to play the probabilities or you don't.

"Ease of use and behavioral advantages are equally available at both Vanguard and Betterment."

This is true.  Unfortunately at vanguard you can not have both a well diversified value and size tilted portfolio and ease of use.

That combination is a unique feature Betterment offers in tax sheltered accounts for a fair price.  For taxable accounts they also offer automated tax loss harvesting which I feel is a major value.

It should be noted that 80% of my portfolio is invested in self directed low cost index funds.  I enjoy designing my own strategy and implementing it, and I am not arguing against using vanguard index funds. 

It just seems to me that Betterment is a very reasonable option, and I have been nothing but impressed with their product which I have used and continue to use personally.

[Dodge]

The only free lunch in the Betterment strategy is improved diversification across imperfectly correlated asset classes.

Value is not an asset class.  Even if you believe it is, there is no improved diversification from weighing differently across the same number of stocks.

Betterment only offers 2329 international stocks, whereas the Vanguard "Set it and forget it" funds all have 5673 international stocks.

It cannot be stated that Betterment offers more diversification.

Exposure to the size and value factors represents increased risk and an increased reward.  These asset classes are more volatile than the broad market.  There is nothing free about it, (although some do claim that the value factor is in part behaviorally based because investors prefer owning "good" companies to cheap or "bad," companies.  As an example people are more excited to own amazon stock than Kmart stock which perhaps creates a market inefficiency.)

If it's not free, and the portfolio has less diversification, there is no benefit.

[Dodge]

"Tilting for small and value may offer better results than total market investing going forward.  Or, it may not. "

This is a true and incomplete statement.  Either may offer better results, but based on all available academic research tilting towards small and value is more likely to offer better results.

Past performance does not predict future returns.

[Petunia 100]

"This is a true and incomplete statement.  Either may offer better results, but based on all available academic research tilting towards small and value is more likely to offer better results."

Yes, because it increases risk.   Something not everyone wishes to do.   Regards.

[milesdividendmd]

The only free lunch in the Betterment strategy is improved diversification across imperfectly correlated asset classes.

Value is not an asset class.  Even if you believe it is, there is no improved diversification from weighing differently across the same number of stocks.

Betterment only offers 2329 international stocks, whereas the Vanguard "Set it and forget it" funds all have 5673 international stocks.

It cannot be stated that Betterment offers more diversification.

Exposure to the size and value factors represents increased risk and an increased reward.  These asset classes are more volatile than the broad market.  There is nothing free about it, (although some do claim that the value factor is in part behaviorally based because investors prefer owning "good" companies to cheap or "bad," companies.  As an example people are more excited to own amazon stock than Kmart stock which perhaps creates a market inefficiency.)

If it's not free, and the portfolio has less diversification, there is no benefit.

What a ridiculous statement.

Berkshire Hathaway is not free and it has less diversification than the total stock market.

By your logic warren buffet has provided no "benefit" to his investors.

[milesdividendmd]

"Tilting for small and value may offer better results than total market investing going forward.  Or, it may not. "

This is a true and incomplete statement.  Either may offer better results, but based on all available academic research tilting towards small and value is more likely to offer better results.

Past performance does not predict future returns.

Of course.  But past performance over long periods of time does make some future outcomes more probable than others.

If you don't believe this to be the case then you would equally consider implementing a 100 % stock portfolio to a 100 % bond portfolio for your long term asset  allocation. 

[Dodge]

The only free lunch in the Betterment strategy is improved diversification across imperfectly correlated asset classes.

Value is not an asset class.  Even if you believe it is, there is no improved diversification from weighing differently across the same number of stocks.

Betterment only offers 2329 international stocks, whereas the Vanguard "Set it and forget it" funds all have 5673 international stocks.

It cannot be stated that Betterment offers more diversification.

Exposure to the size and value factors represents increased risk and an increased reward.  These asset classes are more volatile than the broad market.  There is nothing free about it, (although some do claim that the value factor is in part behaviorally based because investors prefer owning "good" companies to cheap or "bad," companies.  As an example people are more excited to own amazon stock than Kmart stock which perhaps creates a market inefficiency.)

If it's not free, and the portfolio has less diversification, there is no benefit.

What a ridiculous statement.

Berkshire Hathaway is not free and it has less diversification than the total stock market.

By your logic warren buffet has provided no "benefit" to his investors.

Survivorship Bias

[Dodge]

"Tilting for small and value may offer better results than total market investing going forward.  Or, it may not. "

This is a true and incomplete statement.  Either may offer better results, but based on all available academic research tilting towards small and value is more likely to offer better results.

Past performance does not predict future returns.

Of course.  But past performance over long periods of time does make some future outcomes more probable than others.

If you don't believe this to be the case then you would equally consider implementing a 100 % stock portfolio to a 100 % bond portfolio for your long term asset  allocation.

Perhaps when looking at an entire asset classes, yes, but not within the asset class.  When looking at the asset class as a whole, you're expecting population growth, and productivity, to increase similarly in the future, as it has in the past.

When you're looking within the asset class, you're expecting a specific strategy to perform better, compared to other strategies, and compared the market as a whole.

This is fundamentally different.

[milesdividendmd]

"Tilting for small and value may offer better results than total market investing going forward.  Or, it may not. "

This is a true and incomplete statement.  Either may offer better results, but based on all available academic research tilting towards small and value is more likely to offer better results.

Past performance does not predict future returns.

Of course.  But past performance over long periods of time does make some future outcomes more probable than others.

If you don't believe this to be the case then you would equally consider implementing a 100 % stock portfolio to a 100 % bond portfolio for your long term asset  allocation.

Perhaps when looking at an entire asset classes, yes, but not within the asset class.  When looking at the asset class as a whole, you're expecting population growth, and productivity, to increase similarly in the future, as it has in the past.

When you're looking within the asset class, you're expecting a specific strategy to perform better, compared to other strategies, and compared the market as a whole.

This is fundamentally different.

I am unaware of any evidence to support your claim.  Please provide it if you have it.
 
On the other hand  I am aware of  plenty of academic evidence that refutes your claim.   Over long time periods value has outperformed growth stocks (and the market as a whole), positive momentum has consistently outperformed negative momentum(and the market as a whole), small stocks have consistently outperformed large stocks(and the market as a whole), and high quality stocks have consistently outperformed low quality stocks(and the market as a whole). 

This is  reality.  Now you can argue that hundreds of years of data have no relevance to the future if you like, but this is non statisitical (perhaps) magical thinking to imagine that statistical precedent is only relevant to stock versus bond allocation and not to value stocks versus growth stocks, etc.

Happy to share the studies if you are interested in reading them.

[milesdividendmd]

The only free lunch in the Betterment strategy is improved diversification across imperfectly correlated asset classes.

Value is not an asset class.  Even if you believe it is, there is no improved diversification from weighing differently across the same number of stocks.

Betterment only offers 2329 international stocks, whereas the Vanguard "Set it and forget it" funds all have 5673 international stocks.

It cannot be stated that Betterment offers more diversification.

Exposure to the size and value factors represents increased risk and an increased reward.  These asset classes are more volatile than the broad market.  There is nothing free about it, (although some do claim that the value factor is in part behaviorally based because investors prefer owning "good" companies to cheap or "bad," companies.  As an example people are more excited to own amazon stock than Kmart stock which perhaps creates a market inefficiency.)

If it's not free, and the portfolio has less diversification, there is no benefit.

What a ridiculous statement.

Berkshire Hathaway is not free and it has less diversification than the total stock market.

By your logic warren buffet has provided no "benefit" to his investors.

Survivorship Bias

Okay,  so you're on the record that you think that Warren Buffet is not a skilled investor and that his outperformance simply reflects survivorship bias.

I'll go on the record that I disagree with you.  I think Buffet is skilled and not just lucky.

[Dodge]

"Tilting for small and value may offer better results than total market investing going forward.  Or, it may not. "

This is a true and incomplete statement.  Either may offer better results, but based on all available academic research tilting towards small and value is more likely to offer better results.

Past performance does not predict future returns.

Of course.  But past performance over long periods of time does make some future outcomes more probable than others.

If you don't believe this to be the case then you would equally consider implementing a 100 % stock portfolio to a 100 % bond portfolio for your long term asset  allocation.

Perhaps when looking at an entire asset classes, yes, but not within the asset class.  When looking at the asset class as a whole, you're expecting population growth, and productivity, to increase similarly in the future, as it has in the past.

When you're looking within the asset class, you're expecting a specific strategy to perform better, compared to other strategies, and compared the market as a whole.

This is fundamentally different.

I am unaware of any evidence to support your claim.  Please provide it if you have it.
 
On the other hand  I am aware of  plenty of academic evidence that refutes your claim.   Over long time periods value has outperformed growth stocks (and the market as a whole), positive momentum has consistently outperformed negative momentum(and the market as a whole), small stocks have consistently outperformed large stocks(and the market as a whole), and high quality stocks have consistently outperformed low quality stocks(and the market as a whole). 

This is  reality.  Now you can argue that hundreds of years of data have no relevance to the future if you like, but this is non statisitical (perhaps) magical thinking to imagine that statistical precedent is only relevant to stock versus bond allocation and not to value stocks versus growth stocks, etc.

Happy to share the studies if you are interested in reading them.

Provide evidence that past performance does not predict future returns?

Can you provide evidence that value, or any other factor, has continued to outperform the market on a risk-adjusted basis, after such information was made public?

[Petunia 100]

Perhaps when looking at an entire asset classes, yes, but not within the asset class.  When looking at the asset class as a whole, you're expecting population growth, and productivity, to increase similarly in the future, as it has in the past.

When you're looking within the asset class, you're expecting a specific strategy to perform better, compared to other strategies, and compared the market as a whole.

This is fundamentally different.

I am unaware of any evidence to support your claim.  Please provide it if you have it.
 
On the other hand  I am aware of  plenty of academic evidence that refutes your claim.   Over long time periods value has outperformed growth stocks (and the market as a whole), positive momentum has consistently outperformed negative momentum(and the market as a whole), small stocks have consistently outperformed large stocks(and the market as a whole), and high quality stocks have consistently outperformed low quality stocks(and the market as a whole). 

This is  reality.  Now you can argue that hundreds of years of data have no relevance to the future if you like, but this is non statisitical (perhaps) magical thinking to imagine that statistical precedent is only relevant to stock versus bond allocation and not to value stocks versus growth stocks, etc.

Happy to share the studies if you are interested in reading them.

Then why hold growth and large cap stocks at all?  If the higher return is assured, why not go 100% small value?

[milesdividendmd]

Nothing is assured.  Some outcomes are merely more probable.  Diversification has historically and statistically significantly lowered portfolio risk and tilting toward factors that increase returns has statistically improved portfolio returns out of proportion to the portfolio's overall risk.

It's up to you to decide if you want to play the averages and how big of a bet you want to make on any one factor.

But just remember that if you invest in a Life strategy fund you are making a non market cap weighted bet that the US will significantly outperform the rest of the world going forward since you are over-weighting the US.   (If I had to bet I'd guess the converse would be true based on valuations, , but I don't, so my portfolio will be close to 50/50 US/International going forward, in keeping with the actual composition of the world economy.)

[milesdividendmd]

"Tilting for small and value may offer better results than total market investing going forward.  Or, it may not. "

This is a true and incomplete statement.  Either may offer better results, but based on all available academic research tilting towards small and value is more likely to offer better results.

Past performance does not predict future returns.

Of course.  But past performance over long periods of time does make some future outcomes more probable than others.

If you don't believe this to be the case then you would equally consider implementing a 100 % stock portfolio to a 100 % bond portfolio for your long term asset  allocation.

Perhaps when looking at an entire asset classes, yes, but not within the asset class.  When looking at the asset class as a whole, you're expecting population growth, and productivity, to increase similarly in the future, as it has in the past.

When you're looking within the asset class, you're expecting a specific strategy to perform better, compared to other strategies, and compared the market as a whole.

This is fundamentally different.

I am unaware of any evidence to support your claim.  Please provide it if you have it.
 
On the other hand  I am aware of  plenty of academic evidence that refutes your claim.   Over long time periods value has outperformed growth stocks (and the market as a whole), positive momentum has consistently outperformed negative momentum(and the market as a whole), small stocks have consistently outperformed large stocks(and the market as a whole), and high quality stocks have consistently outperformed low quality stocks(and the market as a whole). 

This is  reality.  Now you can argue that hundreds of years of data have no relevance to the future if you like, but this is non statisitical (perhaps) magical thinking to imagine that statistical precedent is only relevant to stock versus bond allocation and not to value stocks versus growth stocks, etc.

Happy to share the studies if you are interested in reading them.

Provide evidence that past performance does not predict future returns?

Can you provide evidence that value, or any other factor, has continued to outperform the market on a risk-adjusted basis, after such information was made public?

Easy.

Momentum: 

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2435323

Still waiting for you to support your claim....

[Petunia 100]

Tilting and diversification are not synonymous.  Diversification is achieved by adding an additional asset class.  Tilting is achieved by overweighting an already present asset class.   

Diversification reduces a portfolio's risk.  Tilting increases a portfolio's risk. 

[Dodge]

"Tilting for small and value may offer better results than total market investing going forward.  Or, it may not. "

This is a true and incomplete statement.  Either may offer better results, but based on all available academic research tilting towards small and value is more likely to offer better results.

Past performance does not predict future returns.

Of course.  But past performance over long periods of time does make some future outcomes more probable than others.

If you don't believe this to be the case then you would equally consider implementing a 100 % stock portfolio to a 100 % bond portfolio for your long term asset  allocation.

Perhaps when looking at an entire asset classes, yes, but not within the asset class.  When looking at the asset class as a whole, you're expecting population growth, and productivity, to increase similarly in the future, as it has in the past.

When you're looking within the asset class, you're expecting a specific strategy to perform better, compared to other strategies, and compared the market as a whole.

This is fundamentally different.

I am unaware of any evidence to support your claim.  Please provide it if you have it.
 
On the other hand  I am aware of  plenty of academic evidence that refutes your claim.   Over long time periods value has outperformed growth stocks (and the market as a whole), positive momentum has consistently outperformed negative momentum(and the market as a whole), small stocks have consistently outperformed large stocks(and the market as a whole), and high quality stocks have consistently outperformed low quality stocks(and the market as a whole). 

This is  reality.  Now you can argue that hundreds of years of data have no relevance to the future if you like, but this is non statisitical (perhaps) magical thinking to imagine that statistical precedent is only relevant to stock versus bond allocation and not to value stocks versus growth stocks, etc.

Happy to share the studies if you are interested in reading them.

Provide evidence that past performance does not predict future returns?

Can you provide evidence that value, or any other factor, has continued to outperform the market on a risk-adjusted basis, after such information was made public?

Easy.

Momentum: 

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2435323

Still waiting for you to support your claim....

Please point to the specific part of that paper which shows  that value, or any other factor, has continued to outperform the market on a risk-adjusted basis, after such information was made public.

[Dodge]

Nothing is assured.  Some outcomes are merely more probable.  Diversification has historically and statistically significantly lowered portfolio risk and tilting toward factors that increase returns has statistically improved portfolio returns out of proportion to the portfolio's overall risk.

It's up to you to decide if you want to play the averages and how big of a bet you want to make on any one factor.

But just remember that if you invest in a Life strategy fund you are making a non market cap weighted bet that the US will significantly outperform the rest of the world going forward since you are over-weighting the US.   (If I had to bet I'd guess the converse would be true based on valuations, , but I don't, so my portfolio will be close to 50/50 US/International going forward, in keeping with the actual composition of the world economy.)

FYI, 50% international might not be ideal.  You're taking on a lot of currency risk, which is uncompensated.  You might benefit from checking out this Vanguard PDF:

https://personal.vanguard.com/pdf/icriecr.pdf

[Dodge]

The only free lunch in the Betterment strategy is improved diversification across imperfectly correlated asset classes.

Value is not an asset class.  Even if you believe it is, there is no improved diversification from weighing differently across the same number of stocks.

Betterment only offers 2329 international stocks, whereas the Vanguard "Set it and forget it" funds all have 5673 international stocks.

It cannot be stated that Betterment offers more diversification.

Exposure to the size and value factors represents increased risk and an increased reward.  These asset classes are more volatile than the broad market.  There is nothing free about it, (although some do claim that the value factor is in part behaviorally based because investors prefer owning "good" companies to cheap or "bad," companies.  As an example people are more excited to own amazon stock than Kmart stock which perhaps creates a market inefficiency.)

If it's not free, and the portfolio has less diversification, there is no benefit.

What a ridiculous statement.

Berkshire Hathaway is not free and it has less diversification than the total stock market.

By your logic warren buffet has provided no "benefit" to his investors.

Survivorship Bias

Okay,  so you're on the record that you think that Warren Buffet is not a skilled investor and that his outperformance simply reflects survivorship bias.

I'll go on the record that I disagree with you.  I think Buffet is skilled and not just lucky.

Incorrect assessment of my statement.  I believe pointing to Warren Buffet as evidence that a portfolio with less diversification, and no free lunch, has a higher probability to beat the market, is exhibiting a Survivorship Bias, because it discounts the large number of similar funds which failed during this same time period.

[milesdividendmd]

The only free lunch in the Betterment strategy is improved diversification across imperfectly correlated asset classes.

Value is not an asset class.  Even if you believe it is, there is no improved diversification from weighing differently across the same number of stocks.

Betterment only offers 2329 international stocks, whereas the Vanguard "Set it and forget it" funds all have 5673 international stocks.

It cannot be stated that Betterment offers more diversification.

Exposure to the size and value factors represents increased risk and an increased reward.  These asset classes are more volatile than the broad market.  There is nothing free about it, (although some do claim that the value factor is in part behaviorally based because investors prefer owning "good" companies to cheap or "bad," companies.  As an example people are more excited to own amazon stock than Kmart stock which perhaps creates a market inefficiency.)

If it's not free, and the portfolio has less diversification, there is no benefit.

What a ridiculous statement.

Berkshire Hathaway is not free and it has less diversification than the total stock market.

By your logic warren buffet has provided no "benefit" to his investors.

Survivorship Bias

Okay,  so you're on the record that you think that Warren Buffet is not a skilled investor and that his outperformance simply reflects survivorship bias.

I'll go on the record that I disagree with you.  I think Buffet is skilled and not just lucky.

Incorrect assessment of my statement.  I believe pointing to Warren Buffet as evidence that a portfolio with less diversification, and no free lunch, has a higher probability to beat the market, is exhibiting a Survivorship Bias, because it discounts the large number of similar funds which failed during this same time period.

Then your statement had no relevance to the conversation.

I was not arguing that less diversification, and a portfolio that was not free, led to improved performance.

I was merely pointing out that the following statement that you made was a logical fallacy.

"If it's not free, and the portfolio has less diversification, there is no benefit."

Surely The mere existence of Warren Buffett and Berkshire Hathaway disproves The logic of your statement since Berkshire Hathaway is a portfolio with less diversification, and definite fees, and it has provided benefit above market returns for its investors.

[Dodge]

The only free lunch in the Betterment strategy is improved diversification across imperfectly correlated asset classes.

Value is not an asset class.  Even if you believe it is, there is no improved diversification from weighing differently across the same number of stocks.

Betterment only offers 2329 international stocks, whereas the Vanguard "Set it and forget it" funds all have 5673 international stocks.

It cannot be stated that Betterment offers more diversification.

Exposure to the size and value factors represents increased risk and an increased reward.  These asset classes are more volatile than the broad market.  There is nothing free about it, (although some do claim that the value factor is in part behaviorally based because investors prefer owning "good" companies to cheap or "bad," companies.  As an example people are more excited to own amazon stock than Kmart stock which perhaps creates a market inefficiency.)

If it's not free, and the portfolio has less diversification, there is no benefit.

What a ridiculous statement.

Berkshire Hathaway is not free and it has less diversification than the total stock market.

By your logic warren buffet has provided no "benefit" to his investors.

Survivorship Bias

Okay,  so you're on the record that you think that Warren Buffet is not a skilled investor and that his outperformance simply reflects survivorship bias.

I'll go on the record that I disagree with you.  I think Buffet is skilled and not just lucky.

Incorrect assessment of my statement.  I believe pointing to Warren Buffet as evidence that a portfolio with less diversification, and no free lunch, has a higher probability to beat the market, is exhibiting a Survivorship Bias, because it discounts the large number of similar funds which failed during this same time period.

Then your statement had no relevance to the conversation.

I was not arguing that less diversification, and a portfolio that was not free, led to improved performance.

I was merely pointing out that the following statement that you made was a logical fallacy.

"If it's not free, and the portfolio has less diversification, there is no benefit."

Surely The mere existence of Warren Buffett and Berkshire Hathaway disproves The logic of your statement since Berkshire Hathaway is a portfolio with less diversification, and definite fees, and it has provided benefit above market returns for its investors.

That depends on how you define benefit.

Edit:  I don't consider high risk leading to high rewards a benefit.  I was referring to a benefit on a risk-reward basis.

[milesdividendmd]

Nothing is assured.  Some outcomes are merely more probable.  Diversification has historically and statistically significantly lowered portfolio risk and tilting toward factors that increase returns has statistically improved portfolio returns out of proportion to the portfolio's overall risk.

It's up to you to decide if you want to play the averages and how big of a bet you want to make on any one factor.

But just remember that if you invest in a Life strategy fund you are making a non market cap weighted bet that the US will significantly outperform the rest of the world going forward since you are over-weighting the US.   (If I had to bet I'd guess the converse would be true based on valuations, , but I don't, so my portfolio will be close to 50/50 US/International going forward, in keeping with the actual composition of the world economy.)

FYI, 50% international might not be ideal.  You're taking on a lot of currency risk, which is uncompensated.  You might benefit from checking out this Vanguard PDF:

https://personal.vanguard.com/pdf/icriecr.pdf

Thanks, I've read this paper.

The point was not really about how much international exposure you should have.

The point was that the Vanguard life strategy fund vastly under-weights the international market. And it displays the classic home-field bias in that it aggressively overweight the United States.

This may be right and this may be wrong. But it's a non-market capital weighted decision that will have very real consequences for the portfolio going forward which is really strategically no different from overweighting value or small size.

By your definition this is "active investing in search for a "free lunch."

[milesdividendmd]

The only free lunch in the Betterment strategy is improved diversification across imperfectly correlated asset classes.

Value is not an asset class.  Even if you believe it is, there is no improved diversification from weighing differently across the same number of stocks.

Betterment only offers 2329 international stocks, whereas the Vanguard "Set it and forget it" funds all have 5673 international stocks.

It cannot be stated that Betterment offers more diversification.

Exposure to the size and value factors represents increased risk and an increased reward.  These asset classes are more volatile than the broad market.  There is nothing free about it, (although some do claim that the value factor is in part behaviorally based because investors prefer owning "good" companies to cheap or "bad," companies.  As an example people are more excited to own amazon stock than Kmart stock which perhaps creates a market inefficiency.)

If it's not free, and the portfolio has less diversification, there is no benefit.

What a ridiculous statement.

Berkshire Hathaway is not free and it has less diversification than the total stock market.

By your logic warren buffet has provided no "benefit" to his investors.

Survivorship Bias

Okay,  so you're on the record that you think that Warren Buffet is not a skilled investor and that his outperformance simply reflects survivorship bias.

I'll go on the record that I disagree with you.  I think Buffet is skilled and not just lucky.

Incorrect assessment of my statement.  I believe pointing to Warren Buffet as evidence that a portfolio with less diversification, and no free lunch, has a higher probability to beat the market, is exhibiting a Survivorship Bias, because it discounts the large number of similar funds which failed during this same time period.

Then your statement had no relevance to the conversation.

I was not arguing that less diversification, and a portfolio that was not free, led to improved performance.

I was merely pointing out that the following statement that you made was a logical fallacy.

"If it's not free, and the portfolio has less diversification, there is no benefit."

Surely The mere existence of Warren Buffett and Berkshire Hathaway disproves The logic of your statement since Berkshire Hathaway is a portfolio with less diversification, and definite fees, and it has provided benefit above market returns for its investors.

That depends on how you define benefit.

I define benefit as more money in the investors pocket. How do you define-benefit?