Author Topic: MMM Betterment Update  (Read 1154 times)

Edubb20

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MMM Betterment Update
« on: January 12, 2022, 02:23:48 PM »
MMM did his annual Betterment update:

https://www.mrmoneymustache.com/betterment-vs-vanguard/



I then saw this in MMM's recap:


Your fancy new Betterment account contains more than just US stocks – this is a good thing!
The Vanguard fund VTI tracks the majority of US stocks. A Betterment porfolio tracks the majority of the developed world’s stocks. In recent years, US stocks have happened to be on a rampage, while European companies have seen solid earnings but lower stock price multiples. In other words, European stocks have been on sale. So my Betterment portfolio didn’t rise as quickly as the US market. At other times, the reverse happens: US stocks will fall dramatically, while other markets will fall less or even rise. On top of this, international stocks currently pay a much higher dividend yield. For every $100,000 of VTI you own, you’ll get $1780 in annual dividends. For an equal amount of VXUS, you will get $3370, or almost twice as much. In other words, international stocks are priced at a much more attractive level than US stocks, which in my book is a time to buy.




How you all feeling about this sentiment? Typically, I've felt the general sentiment in these forums is go big on Total US Market and maybe hedge just a little overseas. 

seattlecyclone

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Re: MMM Betterment Update
« Reply #1 on: January 12, 2022, 02:32:14 PM »
I tend to do a similar ratio to Vanguard's target date funds: less than half of the money in international, but a significant minority nonetheless.

dandarc

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Re: MMM Betterment Update
« Reply #2 on: January 12, 2022, 02:39:05 PM »
I tend to do a similar ratio to Vanguard's target date funds: less than half of the money in international, but a significant minority nonetheless.
Pretty much the same for me. Close enough for me to the roughly 60-40 split between US and International that you get in the target date funds.

windytrail

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Re: MMM Betterment Update
« Reply #3 on: January 13, 2022, 10:49:45 AM »
My split for taxable accounts is 65% US, 35% international, which reflects my perception that is slightly skeptical of the health of international markets in the long-term, but otherwise acknowledges the benefits of international diversification. My tax advantaged accounts are two target-date funds, VFFVX (Vanguard 2055 - Roth IRA) and LIVKX (Black Rock 2055 - 401(k)), which are more in line with 60/40.

It has been a bit hard in recent years to watch the outsized performance of US stocks, and the FOMO of being 100% in US equities, but then I realize that this is just my emotions playing tricks, and that to Sell Low and Buy High is exactly the wrong thing to do. Also, I'm overall happy with my returns even if they could have been higher being 100% US. It would be great to see International catch up in the next 10 years, but if that doesn't happen it's also OK.

Dicey

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Re: MMM Betterment Update
« Reply #4 on: January 13, 2022, 11:02:00 AM »
Holy shit! Two posts in a week? What is happening here? I hear the IRP are on standby. /jk

DaTrill

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Re: MMM Betterment Update
« Reply #5 on: January 13, 2022, 12:59:02 PM »
Robo advisers have not proven to provide any benefit over blind indexing.  This example has a relatively high contribution of $12,000 on $100,000 starting balance.  As the balance grows and the contribution of $12,000 year dwindles, the benefits of the tax loss harvesting strategy diminishes to be less than the yearly fees.  This happens with all Robo plans if as the market generally goes up, portfolio is largely made up of equities with large gains and there are few opportunities for TLH even when the market tanks.  Fees grow every year based on AUM and always swamp any benefit of the Robo.     

A better comparison would be to compare a blind index with once-a-year frontloading vs Betterment with monthly contribution.  I doubt any FIRE person has anywhere near 50% of the AUM in any Robo.     

terran

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Re: MMM Betterment Update
« Reply #6 on: January 13, 2022, 11:15:53 PM »
I tend to do a similar ratio to Vanguard's target date funds: less than half of the money in international, but a significant minority nonetheless.
Pretty much the same for me. Close enough for me to the roughly 60-40 split between US and International that you get in the target date funds.

Same. I figure Vanguard/Fidelity/etc have more resources, time, expertise and interest to research these things than I do, so I may as well take advantage of those efforts.

RobertFromTX

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Re: MMM Betterment Update
« Reply #7 on: January 14, 2022, 06:40:14 AM »
My main question with roboadvisors, particularly those that do auto tax loss harvesting, is how much money am I losing on the bid/ask spread for all these transactions?

MustacheAndaHalf

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Re: MMM Betterment Update
« Reply #8 on: January 18, 2022, 09:07:13 AM »
My main question with roboadvisors, particularly those that do auto tax loss harvesting, is how much money am I losing on the bid/ask spread for all these transactions?
VTI is up +67% in 3 years.  Even at the bottom of another -35% crash (like 2020), money you've had over 3 years will still have a gain.  That's the problem with tax loss harvesting: only your recent investments can benefit.

So you're paying a fee on your entire balance, but they can only tax loss harvest recent investments.  The more years you invest, the smaller their tax loss harvesting matters.  They don't change their fees, of course - they change their fee across all your assets, even when most have no tax loss harvesting possibilities.  So that's the real problem with that feature: you pay the full fee years after your portfolio finds tax loss harvesting useful.

Gronnie

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Re: MMM Betterment Update
« Reply #9 on: January 18, 2022, 11:26:55 AM »
My main question with roboadvisors, particularly those that do auto tax loss harvesting, is how much money am I losing on the bid/ask spread for all these transactions?
VTI is up +67% in 3 years.  Even at the bottom of another -35% crash (like 2020), money you've had over 3 years will still have a gain.  That's the problem with tax loss harvesting: only your recent investments can benefit.

So you're paying a fee on your entire balance, but they can only tax loss harvest recent investments.  The more years you invest, the smaller their tax loss harvesting matters.  They don't change their fees, of course - they change their fee across all your assets, even when most have no tax loss harvesting possibilities.  So that's the real problem with that feature: you pay the full fee years after your portfolio finds tax loss harvesting useful.

Would a solution to that maybe be to transfer out a bunch of assets in kind every 2-3 years?

Telecaster

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Re: MMM Betterment Update
« Reply #10 on: January 18, 2022, 11:59:51 AM »
My main question with roboadvisors, particularly those that do auto tax loss harvesting, is how much money am I losing on the bid/ask spread for all these transactions?
VTI is up +67% in 3 years.  Even at the bottom of another -35% crash (like 2020), money you've had over 3 years will still have a gain.  That's the problem with tax loss harvesting: only your recent investments can benefit.

So you're paying a fee on your entire balance, but they can only tax loss harvest recent investments.  The more years you invest, the smaller their tax loss harvesting matters.  They don't change their fees, of course - they change their fee across all your assets, even when most have no tax loss harvesting possibilities.  So that's the real problem with that feature: you pay the full fee years after your portfolio finds tax loss harvesting useful.

Would a solution to that maybe be to transfer out a bunch of assets in kind every 2-3 years?

That would work, but it would be even easier to simply harvest the losses yourself.  You can only deduct $3,000 each year (losses can be carried forward).  If you have a large balance, which is the scenario we're talking about, it is easy to realize $3,000 in losses.




dandarc

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Re: MMM Betterment Update
« Reply #11 on: January 18, 2022, 12:18:02 PM »
My main question with roboadvisors, particularly those that do auto tax loss harvesting, is how much money am I losing on the bid/ask spread for all these transactions?
VTI is up +67% in 3 years.  Even at the bottom of another -35% crash (like 2020), money you've had over 3 years will still have a gain.  That's the problem with tax loss harvesting: only your recent investments can benefit.

So you're paying a fee on your entire balance, but they can only tax loss harvest recent investments.  The more years you invest, the smaller their tax loss harvesting matters.  They don't change their fees, of course - they change their fee across all your assets, even when most have no tax loss harvesting possibilities.  So that's the real problem with that feature: you pay the full fee years after your portfolio finds tax loss harvesting useful.

Would a solution to that maybe be to transfer out a bunch of assets in kind every 2-3 years?
For a long read on how all this works:
https://www.betterment.com/resources/tax-loss-harvesting-methodology

Main takeaway I get is that this works best if all of your money is at betterment. Even in this essay, they don't articulate a way the system will know enough / communicate with you to avoid wash sales involving assets held elsewhere.

Other takeaway is how complicated this all is - I would probably want to have clearly different funds in any accounts outside of betterment if I was to sign up for this. Which is counter to the "in-kind" transfer idea.