Author Topic: Why not just buy S&P 500 over robo investor?  (Read 4790 times)

not_a_trex

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Re: Why not just buy S&P 500 over robo investor?
« Reply #50 on: September 16, 2018, 07:58:10 PM »
Is it a hidden fee somewhere? I saw .25% for the digital plan on their website, which is consistent with what shinn497 mentioned as the annual fee.

RWD

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Re: Why not just buy S&P 500 over robo investor?
« Reply #51 on: September 16, 2018, 08:21:47 PM »
Over long periods of time small differences in investing assumptions make a huge difference. See the same comparison with the only change being 10% returns instead of 6% returns.

shinn497

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Re: Why not just buy S&P 500 over robo investor?
« Reply #52 on: September 17, 2018, 06:23:32 AM »
You can use the calculator or not you're wrong either way. But please continue to help people feel better about making terrible decisions.

.35% is what betterment charges

The fee for their services alone is .25%

Although the total average expense ratio is .41% if you account for their underlying funds (which they are completely upfront about). 

I haven't run the numbers exactly, but you do get to something like 1.3 million if you account for compounding and opportunity cost. But it should be said that your portfolio would be huge at the end in either situation, like 10s of millions.
« Last Edit: September 17, 2018, 06:29:24 AM by shinn497 »

boarder42

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Re: Why not just buy S&P 500 over robo investor?
« Reply #53 on: September 17, 2018, 08:20:03 AM »
You can use the calculator or not you're wrong either way. But please continue to help people feel better about making terrible decisions.

.35% is what betterment charges

The fee for their services alone is .25%

Although the total average expense ratio is .41% if you account for their underlying funds (which they are completely upfront about). 

I haven't run the numbers exactly, but you do get to something like 1.3 million if you account for compounding and opportunity cost. But it should be said that your portfolio would be huge at the end in either situation, like 10s of millions.

so its even worse than my numbers show and for the record its not 10s of millions necessary you can keep claiming the number is outrageous but if you retire with 2MM and spend 80k a year and use that begin to invest calculator at .35% vs .04% you will pay 1.3MM more dollars to your robo advisor over 40 years than someone just indexing.  It next to impossible to provide that level of value in my opinion.

PizzaSteve

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Re: Why not just buy S&P 500 over robo investor?
« Reply #54 on: September 17, 2018, 08:33:35 AM »
You can use the calculator or not you're wrong either way. But please continue to help people feel better about making terrible decisions.

.35% is what betterment charges

The fee for their services alone is .25%

Although the total average expense ratio is .41% if you account for their underlying funds (which they are completely upfront about). 

I haven't run the numbers exactly, but you do get to something like 1.3 million if you account for compounding and opportunity cost. But it should be said that your portfolio would be huge at the end in either situation, like 10s of millions.
Agree if you use super rosey rates of return, compounding without losses, and have an 8 digit portfolio, a million is possible.  But frankly, with a 10M portfolio, you dont care about fees as much.  I was assuming a mmm early retiree, who would be withdrawing, and single digit average returns, most pundits think are more likely in a relatively low inflation, high valuation economy.

Anyway a worthwile dialog.  .35%x2M is 7k, decent money, especially when you consider compounding impacts.
« Last Edit: September 17, 2018, 08:48:19 AM by PizzaSteve »

not_a_trex

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Re: Why not just buy S&P 500 over robo investor?
« Reply #55 on: September 17, 2018, 08:55:46 AM »
Boarder42, what can your graphs say about time to FI? Given that this is an RE forum, I would I think the more relevant question is 'I have x, I'm shooting for y, how long would it be projected to get me to y in both scenarios?'.

boarder42

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Re: Why not just buy S&P 500 over robo investor?
« Reply #56 on: September 17, 2018, 09:02:56 AM »
Boarder42, what can your graphs say about time to FI? Given that this is an RE forum, I would I think the more relevant question is 'I have x, I'm shooting for y, how long would it be projected to get me to y in both scenarios?'.

the more you spend the less you save the longer it takes to get to FIRE.  So if you're paying your advisor almost 10x more than you could be you're greatly slowing your path to FIRE down.  Also if you plan to maintain higher expense ratio's when you're FIREd you have to have a lower SWR which means you'll not only take longer to get to FIRE b/c your money will accumulate slower.  You will effectively need a larger stache to be just as secure as indexing yourself. 

boarder42

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Re: Why not just buy S&P 500 over robo investor?
« Reply #57 on: September 17, 2018, 09:18:02 AM »
to put it in a bit of perspective "just .41%" in fees that shinn is paying is thats over 10% of the 4% SWR ... so if you plan to retire on 40k in spending if you're paying .41% in fees you're going to need to save up to cover an additional .37% you dont have to pay otherwise and its just reading jlcollins stock series and setting up a reasonable AA.  so you need an extra 100K give or take to retire paying a "cheap" robo advisor vs DIYing. 

or another way - if you save 50k per year you can retire in 19 years DIYing vs 21 years with a robo investor.  you're losing 10% more than the lowest cost index fund no matter how you skin it. 10% of your time - 10% of your money.
« Last Edit: September 17, 2018, 09:20:48 AM by boarder42 »

shinn497

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Re: Why not just buy S&P 500 over robo investor?
« Reply #58 on: September 17, 2018, 11:30:15 AM »
to put it in a bit of perspective "just .41%" in fees that shinn is paying is thats over 10% of the 4% SWR ... so if you plan to retire on 40k in spending if you're paying .41% in fees you're going to need to save up to cover an additional .37% you dont have to pay otherwise and its just reading jlcollins stock series and setting up a reasonable AA.  so you need an extra 100K give or take to retire paying a "cheap" robo advisor vs DIYing. 

or another way - if you save 50k per year you can retire in 19 years DIYing vs 21 years with a robo investor.  you're losing 10% more than the lowest cost index fund no matter how you skin it. 10% of your time - 10% of your money.

I actually agree on all points and am still with betterment. :b

boarder42

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Re: Why not just buy S&P 500 over robo investor?
« Reply #59 on: September 17, 2018, 01:21:07 PM »
to put it in a bit of perspective "just .41%" in fees that shinn is paying is thats over 10% of the 4% SWR ... so if you plan to retire on 40k in spending if you're paying .41% in fees you're going to need to save up to cover an additional .37% you dont have to pay otherwise and its just reading jlcollins stock series and setting up a reasonable AA.  so you need an extra 100K give or take to retire paying a "cheap" robo advisor vs DIYing. 

or another way - if you save 50k per year you can retire in 19 years DIYing vs 21 years with a robo investor.  you're losing 10% more than the lowest cost index fund no matter how you skin it. 10% of your time - 10% of your money.

I actually agree on all points and am still with betterment. :b

your loss man

in the context of this forum and this blog its a stupid decision.

shinn497

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Re: Why not just buy S&P 500 over robo investor?
« Reply #60 on: September 17, 2018, 01:46:06 PM »
Welp both JL and MMM both recommend betterment, so i don't think it is in the context of this blog. Even if they didn't, i still see value in the service. Which is what we disagree with. Like I said. I am fully with you on the numbers and even the cost, but I don't mind paying said cost for what is offered. And if we can't see eye to eye on that, it is ok. I won't call you stupid for not sharing my ideas. 

boarder42

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Re: Why not just buy S&P 500 over robo investor?
« Reply #61 on: September 17, 2018, 01:56:05 PM »
Welp both JL and MMM both recommend betterment, so i don't think it is in the context of this blog. Even if they didn't, i still see value in the service. Which is what we disagree with. Like I said. I am fully with you on the numbers and even the cost, but I don't mind paying said cost for what is offered. And if we can't see eye to eye on that, it is ok. I won't call you stupid for not sharing my ideas.

I didn't call you stupid. I called the decision when presented with the data stupid.

PizzaSteve

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Re: Why not just buy S&P 500 over robo investor?
« Reply #62 on: September 17, 2018, 02:57:33 PM »
I will weigh in that for some individuals, the possible behavioral premiums and factors tilt could make up for some of the fees.  I would advise you though to see if you could negotiate periodic fee reductions.  I just got a $100 credit for threating to cancel a credit card (free service for one more year), perhaps there are hidden better deals.

Once your balance gets serious, I imagine better fee structures or even no fee could be negotiated, since they earn management fees from Vanguard and others for their accounting work and can loan shares, etc.

I would cite the broker bonuses to switch (roughly one year of fees) and see what you get offered.

Nycginger

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Re: Why not just buy S&P 500 over robo investor?
« Reply #63 on: September 20, 2018, 09:51:42 PM »
I've also somewhat been w/out an income for the last 18-24 months while I figure out what I want to do next. Right now I'm driving a car from Mongolia back to London!

Talk about burying the lede! Sounds like a great trip.

Ha! Thanks. I'm in Mongolia now about to drive to Kazakhstan.

I'm an entrepreneur and writer, my income has fluctuated from 10k on an annual basis to 300k, so I try to live on 20-25k every year since there's no guarantee my next business or book will do well. It's actually cheaper to do a trip from Mongolia to London than it is to live in the USA, so that's part of my lifestyle at this point.

Though I hate that it's so expensive and hard to live in the USA w/out taking a stable job. Even though I feel ahead financially I can't really afford to live where I'm from w/out abandoning my entrepreneurial life, which I'm not willing to do because I think it's how I can best help the work become a better place. I'm from a very expensive part of the USA, Charleston, SC. I reject the culture but it's still my home, so there's a tension there.

Nycginger

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Re: Why not just buy S&P 500 over robo investor?
« Reply #64 on: September 20, 2018, 10:03:05 PM »
I will weigh in that for some individuals, the possible behavioral premiums and factors tilt could make up for some of the fees.  I would advise you though to see if you could negotiate periodic fee reductions.  I just got a $100 credit for threating to cancel a credit card (free service for one more year), perhaps there are hidden better deals.

Once your balance gets serious, I imagine better fee structures or even no fee could be negotiated, since they earn management fees from Vanguard and others for their accounting work and can loan shares, etc.

I would cite the broker bonuses to switch (roughly one year of fees) and see what you get offered.


Two additional things:

1) I've checked w/ Schwab on my fees. I know this isn't good, but I can't remember what they are, other than that they were really low and lower than Betterment even when I went w/ the plan that gives me 24 hour access to a CFP. They charge me about $50 a quarter. I'm OKAY w/ the cash because I'm sitting on an additional 145k in cash to build a house in cash in the next few years on a piece of land I bought. If I want to invest more in Schwab I can add some of that cash.

2) My knowledge has increased investing and I hope it will continue to. One thing that isn't taken into consideration here is the time it takes for me to learn and then do all this myself. As an entrepreneur I always need to put a value on my time and what it costs for me to do this myself. I think ultimately, as I learn this all myself, I might go with Boarder42's approach. Why not save the money if I can? But for now I think I've got a little more learning to do before I'm confident and comfortable doing it myself.

Boarder42 if you have a suggestion on what I should study to get to this place (as if I'm starting out as a kindergartener or at least not sophisticated, let me know)

Thanks for the help everyone!




Nycginger

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Re: Why not just buy S&P 500 over robo investor?
« Reply #65 on: September 20, 2018, 10:13:18 PM »
Just as a follow up my advisory fee is .28 at Schwab which gives me access to a CFP 24/7. I also have them managing a little more than half of the 185k I have w/ them and they advise me on my entire financial picture. This costs about $50 every quarter.

Thanks to the suggestion I'll see if I can get a lower fee.

Thoughts?

Nycginger

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Re: Why not just buy S&P 500 over robo investor?
« Reply #66 on: September 20, 2018, 10:16:38 PM »
It's free if you don't use the advisory. If that encourages anybody to switch over let me know. I'll refer you and split the referral reward with you.

RWD

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Re: Why is a Robo investor better than broad ETFs?
« Reply #67 on: September 21, 2018, 07:19:37 AM »
Boarder42 if you have a suggestion on what I should study to get to this place (as if I'm starting out as a kindergartener or at least not sophisticated, let me know)

Thanks for the help everyone!
https://www.bogleheads.org/wiki/Three-fund_portfolio
https://jlcollinsnh.com/stock-series/

Did you read the stock series I linked from earlier in this thread? I believe I posted those links before the threads got merged so they would have been easy to miss.

boarder42

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Re: Why is a Robo investor better than broad ETFs?
« Reply #68 on: September 21, 2018, 07:26:16 AM »
Boarder42 if you have a suggestion on what I should study to get to this place (as if I'm starting out as a kindergartener or at least not sophisticated, let me know)

Thanks for the help everyone!
https://www.bogleheads.org/wiki/Three-fund_portfolio
https://jlcollinsnh.com/stock-series/

Did you read the stock series I linked from earlier in this thread? I believe I posted those links before the threads got merged so they would have been easy to miss.

yep that stock series is like gold for helping you understand how to DIY this.

TomTX

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Re: Why not just buy S&P 500 over robo investor?
« Reply #69 on: September 21, 2018, 11:07:42 AM »
I've been using Schwabs Intelligent Portfolio. I like it because the fees are low and I can chat with a certified financial planner any time I'd like as well as some of the other benefits of a robo advisor.

But whenever I compare my portfolio to the S&P 500 I feel like the S&P 500 is always doing much better. So why do I not just buy all S&P 500? Is it because it rides the waves big time and gets crushed in a recession?

I just put everything in VTI. I don't need to pay extra fees to chat with a CFP.

Nycginger

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Re: Why is a Robo investor better than broad ETFs?
« Reply #70 on: October 04, 2018, 10:56:03 PM »
Boarder42 if you have a suggestion on what I should study to get to this place (as if I'm starting out as a kindergartener or at least not sophisticated, let me know)

Thanks for the help everyone!
https://www.bogleheads.org/wiki/Three-fund_portfolio
https://jlcollinsnh.com/stock-series/

Did you read the stock series I linked from earlier in this thread? I believe I posted those links before the threads got merged so they would have been easy to miss.

yep that stock series is like gold for helping you understand how to DIY this.


Thanks I'm just seeing these links and will def check them out :)

Mighty-Dollar

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Re: Why not just buy S&P 500 over robo investor?
« Reply #71 on: October 11, 2018, 01:31:51 PM »
Investing is simple. Buy a total stock market index fund like ITOT and a total bond market index fund like BND. Subtract your age from 120. That's how much you put in ITOT. Percentage rebalance when your portfolio deviates by about 7%.