The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: Nycginger on September 07, 2018, 02:36:49 AM
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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?
Thoughts?
Thanks!
MOD EDIT: Merged duplicate posts.
This is what the other one said, as it had a little more info:
I'm 32. I've got about 200k with Schwab Intelligent Portfolios across some retirement accounts and about 85k in a non retirement account. It's all invested pretty aggressively.
I've also got another 140k in cash to build a house in cash on a lot in the next 3-4 years that I own (hopefully a second unit as well to rent out).
I've got another 50k in random assets from my used car to bitcoin to tax credits that are dollar for dollar that I need to use.
I own a company and my equity stake is probably valued at about 150k.
I've enjoyed the Schwab Intelligent Portfolio because I like being able to chat with a CFP any time I'd like.
But I want to make sure I'm investing in a way that's getting good enough returns. Sounds like a lot of folks like to do it yourself with broad index funds.
I'm wondering if I should get out or if what I'm doing now makes sense?
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You should just invest in S&P 500. Buy a few funds with Vanguard and just rebalance to your AA a few times a year. Quit watching it and let the built in diversification work its magic.
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Why just the S&P? Choose a broad spectrum index fund with low fees (see recommendations for Vanguard above) and spend your time on something else.
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I like it because the fees are low
This is marketing. The fees appear low. It is hoped you analyze those fees in absolute terms, at which point they are very attractive.
In reality, the amount of cash the portfolio forces you to carry (and which they are leveraging to get much-better-than-cash returns) is a drag on the portfolio and allows them to market low obvious fees. But given the alternative is you investing in a broad index (I'm with Glenstache, go broader than just the S&P 500), you also need to consider the opportunity cost of holding the cash. The appropriate analysis is a relative analysis, not an absolute one...
Whenever I compare my portfolio to the S&P 500 I feel like the S&P 500 is always doing much better.
The length of time the intelligent portfolios have existed is (relatively) very short; the market results have been a situation where the combination of assets would be expected to lag the S&P 500. Based on a lengthy discussion with them just days after the intelligent portfolios were announced, their models indicate value to the cash component, and are based on more than 4 years of returns. In a major downturn, you will certainly have less volatility due to the cash component.
Then again, lower volatility and lower return may or may not help you. After my discussions with them I chose not to use the intelligent portfolios.
The cash is a form of insurance policy. Remember that insurance is (with few exceptions) extremely profitable for the seller. Just like deciding if you still need collision insurance on a 10 year old car (why would you?!?), it's your job to figure out if you need the insurance. If we get a major downdraft, do you NEED less volatility?
The debate then becomes whether you care about volatility (up and down) and what risks you are trying to hedge (using risk as actual risks, not volatility). For the vast majority of people, and almost all in the accumulation stage, the answer will be: Minimize fees and invest fully in a broad index fund.
If you really want to drill into actual risks and how to hedge them, that is a second order effect, and you need to know a lot more about markets. The major one we focus on here is the initial sequence of returns risk after retirement, and the forum has plenty of analysis on that. Other risks exist, but increasingly are rare events, impact small portions of the population, etc... Those are rarely covered on the MMM forums (research left as an exercise for the reader).
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Schwab IPs are great for the reason you mentioned. I love the firm, customer service tends to be great.
Personally, though, dont like the robo as it is because I feel i can do a better allocation. 100 percent S&P is one possibly better option, should trends continue, but it is less diversified than i like. I also dont like being forced into a cash or fundamental or metals fund allocation I believe may underperform, albiet slightly. I dont agree with Schwabs Fundamental Weighted funds allocation being (slighly higher fees).
Stay with Schwab and just buy their broad market ETF or mutual funds. Good funds. Super low cost. Great service.
SWTSX is fine.
SCHF for some international.
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Broad index fund. I like VTSAX, but plenty of others and similar ETFs to choose from. Stock market diversification with rock bottom expenses.
If you're looking for more of an automated portfolio, I would recommend Target Date Funds over a robo investor. Higher fees than a simple index fund, but less expensive than a robo investor and more predictable.
I admit I just don't like robo investors. Instead of paying a person to direct investments (e.g. EJ, CS), you're paying a person to write software to direct investments. Sure, it may be a little more efficient, but I'm skeptical that it yields better results after fees.
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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?
Thoughts?
Thanks!
Over the long term there is negligible difference between the performance of the S&P 500 and the Total Stock Market Index.
I prefer investing in the latter because it's more diversified.
It includes ~76% large-cap stocks, ~12% mid-cap stocks, and ~12 % small-cap stocks.
FWIW, I invest in FSTVX.
Good luck and happy inve$ting!
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I have an account with betterment and my justifcation is more a tax efficient, behavioral, and time valued one, not a returns one. The way I see it:
- The site is designed to improve your behaviour. They encourage you to invest and stay in, while ignoring market fluctuations.
- They also encourage you to invest for goals, which I like since it is good for retirement, safety nets, and goals that will be liquidated.
- They give you notices and advise you about the tax impacts of your portfolio.
- They do automated tax loss harvesting and tax efficient asset allocation (if you have tax sheltered accounmts)
- I have done some calculations on TLH. It is best used when you invest consistantly into a taxable account over a large portion of time. If you don't, then you'll never have positions that are harvestable (which is actually sort of good since you are making money)
TLH is a way of making some returns on brief periods of volatility.
- The portfolio is more diversified and is value tilted.
- I am actually kind of 50/50 on this. I don't really think it will give me greater returns than the SP500, but I am all for the diversification
Anyway, I think investing isn't just about earning the highest ROI, it is about extracting the most amount of value from your money, for the least amount of effort. Betterment fits into this philosophy, and that is why I chose them.
But, I wouldn't think of them as purely a way of beating the SP or some other index on cash on cash returns alone (even with TLH).
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Improving behavior is a legitimate use for an adviser, and in that regard Betterment's fees are cheaper than 1% fees you can find elsewhere for an actively managed portfolio.
But I disagree with crediting them tax-loss harvesting as a long-term benefit. As stocks grow, the opportunity to tax loss harvest goes away. At best, you can tax loss harvest the last few years of contributions. Once you've contributed to your portfolio for a decade, most of the older investments just won't fall far enough to be worth tax loss harvesting. But at that point, you're still paying the Betterment fee (0.35%/year, I think?).
Also, when things get especially bad, you might learn about it on the news anyways. But back to the original point, that might also be the time when you need the behavioral restraint provided by an adviser. But I wouldn't recommend tax loss harvesting as a reason to pay their fee indefinitely, since after a few years most investments will have too much gains to tax loss harvest.
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Yep on what MustacheAndaHalf said. Also, if one uses Betterment's advanced tax loss harvesting scheme where they invest in 1,000 or some such individual stocks instead of indexes, when you want to get out of Betterment it would be ridiculously over complicated and probably expensive. If you don't get out of Betterment when you retire and new money is no longer coming in then you would be paying Betterment's fee for basically nothing.
On top of all the above, who knows if next week, next year, etc what the Betterment fee will be. At least with Vanguard there is a long history of reducing fees as opposed to raising them like Betterment did within the last year.
Basically anyone thinking about Betterment, another robo-advisor, or any advisor that charges a continual percentage of investments needs to take a long look at the following calculator showing the lifetime cost of that 0.35% extra Betterment fee: https://www.begintoinvest.com/expense-ratio-calculator/
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jjThose are good argument's against Betterment.
So a couple of things:
- If you invest consistantly over a long period of time, TLH makes perfect sense as you are continually taking more positions from which to have taxable losses from.
- I personally think TLH justifies the .25% fee since the money you save can be reinvested and what you earn from the reinvestments will eclipse all and future fees
- But really this only makes sense if you have a LOT of money with them in a taxable account. Like over 100k
- Also who knows maybe the market won't be volatile enough to TLH. I actually haven't had any harvestable loses yet and my fund has underperformed so YOLO
- Betterment's fee is .25%. They have higher tiers for advising but you don't really need them.
- This fee is only on the first 2.5 mill. MMM made a post about this
- Betterment's fee was originally 15% so the .1% bump does suck but I am confident it won't be necessary in the future as betterment manages more and more money. But hey who knows what will happen in the future.
- Their stock portfolio is oin 6 ETFs and so is their Bond portfolio. I have actually done some analysis. It is 4 US ETFs, 1 VTI, and 3 Value titled sectors that are roughly market capped weighted, and 2 international ETFs: developed and EM
- They try to keep the funds expense ratio as low as possible. And factor for Bid / Ask spread AND liquidity. So that is nice.
- I like the portfolio. The heavy international weight makes me nervous. And I Think the value tilt is a good idea. But I do not think it will beat the market
- I also personally don't care about the bond portfolio since i have 0 bonds for retirement and i don't plan to ever hold bonds for anything I'm saving for long term
Really though. I pay them to not truly worry about the stock market and let them do everything. But hey I am on this forum so that is how well that is working :b
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jjThose are good argument's against Betterment.
So a couple of things:
- If you invest consistantly over a long period of time, TLH makes perfect sense as you are continually taking more positions from which to have taxable losses from.
- I personally think TLH justifies the .25% fee since the money you save can be reinvested and what you earn from the reinvestments will eclipse all and future fees
- But really this only makes sense if you have a LOT of money with them in a taxable account. Like over 100k
- Also who knows maybe the market won't be volatile enough to TLH. I actually haven't had any harvestable loses yet and my fund has underperformed so YOLO
- Betterment's fee is .25%. They have higher tiers for advising but you don't really need them.
- This fee is only on the first 2.5 mill. MMM made a post about this
- Betterment's fee was originally 15% so the .1% bump does suck but I am confident it won't be necessary in the future as betterment manages more and more money. But hey who knows what will happen in the future.
- Their stock portfolio is oin 6 ETFs and so is their Bond portfolio. I have actually done some analysis. It is 4 US ETFs, 1 VTI, and 3 Value titled sectors that are roughly market capped weighted, and 2 international ETFs: developed and EM
- They try to keep the funds expense ratio as low as possible. And factor for Bid / Ask spread AND liquidity. So that is nice.
- I like the portfolio. The heavy international weight makes me nervous. And I Think the value tilt is a good idea. But I do not think it will beat the market
- I also personally don't care about the bond portfolio since i have 0 bonds for retirement and i don't plan to ever hold bonds for anything I'm saving for long term
Really though. I pay them to not truly worry about the stock market and let them do everything. But hey I am on this forum so that is how well that is working :b
This logic doesnt hold up. Higher fees drag performance, TLH impact is negligible, and 0 is you start buying EFTs rather than single stock mix during a bull run like current markets. The .25% is forever. Claiming TLH savings will compound is horribly convoluted logic as a loss is necessary to TLH to begin with, vs if you had gains in an ETF instead. A loss is never better than a gain. TLH just slightly mitigates some long term taxes on eventual gains. But LTCG rate is so low, it isnt going to help your long term returns unless we have some sort of whipsaw up and down market without growth.
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I have actually done some of these calculations and considered all of your assumptions so I'm confident in my assesment but you are free to disagree.
Also the fee is .25% where are you getting .35%?
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Also I'm not sure you get TLH right. it arbitrages marginal taxes into LTCG. So yes it is not a complete tax avoidance strategy.
I mean we shouldn't discuss the benefit of TLH, since you can do that yourself. Really it is can you TLH better than a robo advisor (bettermen this case but others do it as well. )
And to that I say I don't think so. Nor would I want to. I'm paying them to do it for me. Better than me. And the fact that I know this also encourages me to invest more. So its a compound behavioural effect. j
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And the fact that I know this also encourages me to invest more. So its a compound behavioural effect. j
Honestly, if a system gets you to invest more, then that probably outdoes the percentage point gain differences. In that regard, even an annuity can be a good deal. Optimization is almost always a minor point relative to shoveling money in as long as you aren't investing with Madoff.
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I have actually done some of these calculations and considered all of your assumptions so I'm confident in my assesment but you are free to disagree.
Your private calculations are not data. Share some convincing data if you want to convince.
For example, Vanguard's VTSAX averaged 11% for the past decade. That means $10,000 invested 10 years ago (an especially opportune time, by the way) would be ~$28.4k today. The only way to turn a +184% profit into a loss is with a drop of over -65%. That hasn't happened since the worst years of the Great Depression. And that's just 10 years, which is far too soon to retire. For those with 10 year old investments, you can see from the data I present that it's very hard to find a loss.
And actually, Betterment's value is even more specific: it's tax loss harvesting that you couldn't do yourself. How hard is it to notice the 2008 crash? Or the Great Depression? Even if betterment can take advantage of a -70% drop.... well, so could you. That level of destruction would be all over the news. It would take no skill to notice it.
Tax loss harvesting is a temporary benefit that is outgrown by long-term stock returns. The more significant the loss, the more likely everyone sees it on the news.
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There are different ways to do robo-investing. I think your typical Boglehead has it right that you should cut fees as much as possible. I think this is done best by using one of the robo investors that has no fee structure. I created a "pie" that functionally should work like a mutual fund that I believe could beat Vanguard in terms of money lost to fees.
To my knowledge, no existing funds have these cost advantage features of this investment pie I buit, but I'd love to hear if other funds do have this.
You have to be careful about "No fee services" Since some robo advisors advertise this but use clever tricks like cash drag and bid-ask spreads to still incur losses in your portfolio you otherwise wouldn't have.
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I have actually done some of these calculations and considered all of your assumptions so I'm confident in my assesment but you are free to disagree.
Your private calculations are not data. Share some convincing data if you want to convince.
For example, Vanguard's VTSAX averaged 11% for the past decade. That means $10,000 invested 10 years ago (an especially opportune time, by the way) would be ~$28.4k today. The only way to turn a +184% profit into a loss is with a drop of over -65%. That hasn't happened since the worst years of the Great Depression. And that's just 10 years, which is far too soon to retire. For those with 10 year old investments, you can see from the data I present that it's very hard to find a loss.
And actually, Betterment's value is even more specific: it's tax loss harvesting that you couldn't do yourself. How hard is it to notice the 2008 crash? Or the Great Depression? Even if betterment can take advantage of a -70% drop.... well, so could you. That level of destruction would be all over the news. It would take no skill to notice it.
Tax loss harvesting is a temporary benefit that is outgrown by long-term stock returns. The more significant the loss, the more likely everyone sees it on the news.
- Like I said earlier, TLH has a primary benefit if you continue to add money into the account, and continue to take on positions that could take harvestable losses. If you look at MMM, he had harvestable losses all through 2014, 2015, and 2013. This is despite the current, "bull market", since a market that goes up overall can still have volatility.
- If you have a lump sum sitting in an account and you want it to grow, than yeah TLH is not beneficial. In that soituation I would just use the lowest cost option possible.
- Really though. The benefit isn't that Betterment's TLH is better than a human (even though I earnestly think it is). It is that you don't have to do it. I don't want to check my portfolio each day in my retirement account. Rather I just want to put the money in and leave. I think this will improve behaviour, make me less responsive to the market, and cause me to have higher returns overall. This is sort of the case for all robo advisors. DOn't go with them for higher returns. Go with them for better behaviour and better quality of life.
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I'd argue that it isn't. Thus there is no answer to the question possible...
The SIP costs more to use than a properly setup 3 or 4-fund portfolio that most of us prefer. Those costs, like stock gains, add up over time. I'm also of the opinion that the more "hands off" you are with your money, the easier it is for it to become poorly allocated for your situation in life over time.
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Again, harvesting a loss is a 5 minute exercise that no one needs robotic assistance with, especially for a simple ETF portfolio. In fact, it is better to do it yourself, because you may want to harvest when it is most advantageous for your income taxes.
Yes I understand the concepts, very, very well, so please no lectures. I was a professional advising CFOs and can understand basic taxes.
The harvesting strategies also should consider the complexity of tax reporting work required, which I also prefer to control, harvesting requires you to report the transactions in your income taxes.
.25% of a 2M retirement portfolio is $5000 a year*!
That cost better have a better story for how they pay me back than...well you are constantly harvesting...fuzzy math. Factor investing, leverage, high beta stocks, preventing behavior mistakes, or other stuff I could maybe figure might earn a premium, but TLH....minimal.
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I have actually done some of these calculations and considered all of your assumptions so I'm confident in my assesment but you are free to disagree.
Your private calculations are not data. Share some convincing data if you want to convince.
For example, Vanguard's VTSAX averaged 11% for the past decade. That means $10,000 invested 10 years ago (an especially opportune time, by the way) would be ~$28.4k today. The only way to turn a +184% profit into a loss is with a drop of over -65%. That hasn't happened since the worst years of the Great Depression. And that's just 10 years, which is far too soon to retire. For those with 10 year old investments, you can see from the data I present that it's very hard to find a loss.
And actually, Betterment's value is even more specific: it's tax loss harvesting that you couldn't do yourself. How hard is it to notice the 2008 crash? Or the Great Depression? Even if betterment can take advantage of a -70% drop.... well, so could you. That level of destruction would be all over the news. It would take no skill to notice it.
Tax loss harvesting is a temporary benefit that is outgrown by long-term stock returns. The more significant the loss, the more likely everyone sees it on the news.
- Like I said earlier, TLH has a primary benefit if you continue to add money into the account, and continue to take on positions that could take harvestable losses. If you look at MMM, he had harvestable losses all through 2014, 2015, and 2013. This is despite the current, "bull market", since a market that goes up overall can still have volatility.
- If you have a lump sum sitting in an account and you want it to grow, than yeah TLH is not beneficial. In that soituation I would just use the lowest cost option possible.
- Really though. The benefit isn't that Betterment's TLH is better than a human (even though I earnestly think it is). It is that you don't have to do it. I don't want to check my portfolio each day in my retirement account. Rather I just want to put the money in and leave. I think this will improve behaviour, make me less responsive to the market, and cause me to have higher returns overall. This is sort of the case for all robo advisors. DOn't go with them for higher returns. Go with them for better behaviour and better quality of life.
Two points.
- TL
yet again you're posting stuff with out actually showing any data. you're not coming out ahead you're coming out behind. you can do 0 TLH and still will come out ahead of those insane fees. PS and I butt heads here a lot but there is a resounding STOP doing this coming your way and instead of looking at data- arent you a data scientist or something. you put your head in the sand again.
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I'd argue that it isn't. Thus there is no answer to the question possible...
The SIP costs more to use than a properly setup 3 or 4-fund portfolio that most of us prefer. Those costs, like stock gains, add up over time. I'm also of the opinion that the more "hands off" you are with your money, the easier it is for it to become poorly allocated for your situation in life over time.
Can you tell me the 3 or 4 funds I should be investing in with their ticker symbols? Thanks!
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I'd argue that it isn't. Thus there is no answer to the question possible...
The SIP costs more to use than a properly setup 3 or 4-fund portfolio that most of us prefer. Those costs, like stock gains, add up over time. I'm also of the opinion that the more "hands off" you are with your money, the easier it is for it to become poorly allocated for your situation in life over time.
Can you tell me the 3 or 4 funds I should be investing in with their ticker symbols? Thanks!
VTSAX, VTIAX, VBTLX
https://www.bogleheads.org/wiki/Three-fund_portfolio
https://jlcollinsnh.com/stock-series/
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Yep, this. Boglehead wiki also has 4-fund lazy portfolio examples as well.
Sent from my XT1635-01 using Tapatalk
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Again, harvesting a loss is a 5 minute exercise that no one needs robotic assistance with, especially for a simple ETF portfolio. In fact, it is better to do it yourself, because you may want to harvest when it is most advantageous for your income taxes.
Yes I understand the concepts, very, very well, so please no lectures. I was a professional advising CFOs and can understand basic taxes.
The harvesting strategies also should consider the complexity of tax reporting work required, which I also prefer to control, harvesting requires you to report the transactions in your income taxes.
.25% of a 2M retirement portfolio is $5000 a year*!
That cost better have a better story for how they pay me back than...well you are constantly harvesting...fuzzy math. Factor investing, leverage, high beta stocks, preventing behavior mistakes, or other stuff I could maybe figure might earn a premium, but TLH....minimal.
I sort of think we agree on that then since I consider the best benefit of robo advisors to be behavioral. One of the biggest issues with doing it yourself is you have to pay attention to the markets and that alone is risky behavior. I'd muuuuch rather leave that to software.
I also don't see why you wouldn't TLH. If your taxes are that complicated, than hand it off to professional.
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I have actually done some of these calculations and considered all of your assumptions so I'm confident in my assesment but you are free to disagree.
Your private calculations are not data. Share some convincing data if you want to convince.
For example, Vanguard's VTSAX averaged 11% for the past decade. That means $10,000 invested 10 years ago (an especially opportune time, by the way) would be ~$28.4k today. The only way to turn a +184% profit into a loss is with a drop of over -65%. That hasn't happened since the worst years of the Great Depression. And that's just 10 years, which is far too soon to retire. For those with 10 year old investments, you can see from the data I present that it's very hard to find a loss.
And actually, Betterment's value is even more specific: it's tax loss harvesting that you couldn't do yourself. How hard is it to notice the 2008 crash? Or the Great Depression? Even if betterment can take advantage of a -70% drop.... well, so could you. That level of destruction would be all over the news. It would take no skill to notice it.
Tax loss harvesting is a temporary benefit that is outgrown by long-term stock returns. The more significant the loss, the more likely everyone sees it on the news.
- Like I said earlier, TLH has a primary benefit if you continue to add money into the account, and continue to take on positions that could take harvestable losses. If you look at MMM, he had harvestable losses all through 2014, 2015, and 2013. This is despite the current, "bull market", since a market that goes up overall can still have volatility.
- If you have a lump sum sitting in an account and you want it to grow, than yeah TLH is not beneficial. In that soituation I would just use the lowest cost option possible.
- Really though. The benefit isn't that Betterment's TLH is better than a human (even though I earnestly think it is). It is that you don't have to do it. I don't want to check my portfolio each day in my retirement account. Rather I just want to put the money in and leave. I think this will improve behaviour, make me less responsive to the market, and cause me to have higher returns overall. This is sort of the case for all robo advisors. DOn't go with them for higher returns. Go with them for better behaviour and better quality of life.
Two points.
- TL
yet again you're posting stuff with out actually showing any data. you're not coming out ahead you're coming out behind. you can do 0 TLH and still will come out ahead of those insane fees. PS and I butt heads here a lot but there is a resounding STOP doing this coming your way and instead of looking at data- arent you a data scientist or something. you put your head in the sand again.
Welp I have said multiple times that I am not banking on the returns from TLH to justify the cost it is really more about peace of mind. I'm also not saying that robo advisors are for everyone. Just those that don't want to worry about investing as much. Also you are making this oddly personal. I do not know why. I am not that good looking. :b
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Bc you're throwing money away and making up excuses to defend your reasoning that don't hold much weight. It would be a kin to saying I drive an f150 bc it feels good. And expecting support for that here. You're throwing money down the toilet
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To put it in more perspective if you retire and have 2MM and spend 80k per year. 7k of which will go to the .35 percent fee. Your "cheap" (thief) of a robot advisor will take 1.3MM more from you than just putting it into a vanguard index fund over 40 years.
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To put it in more perspective if you retire and have 2MM and spend 80k per year. 7k of which will go to the .35 percent fee. Your "cheap" (thief) of a robot advisor will take 1.3MM more from you than just putting it into a vanguard index fund over 40 years.
Lets have a discussion of pros and cons, while respecting everyone's individual decisions. Lets not criticise peoples' individual outcomes. Lets talk ideas and not people.
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To put it in more perspective if you retire and have 2MM and spend 80k per year. 7k of which will go to the .35 percent fee. Your "cheap" (thief) of a robot advisor will take 1.3MM more from you than just putting it into a vanguard index fund over 40 years.
Lets have a discussion of pros and cons, while respecting everyone's individual decisions. Lets not criticise peoples' individual outcomes. Lets talk ideas and not people.
You can feel free to substitute you with anyone using a robot advisor sorry if you personally don't like the math. My statement was objective regardless of the word you. All you've made are subjective statements with no data. Which is odd for a data scientist.
If this post doesn't make you understand the con I'm not sure what will
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To put it in more perspective if you retire and have 2MM and spend 80k per year. 7k of which will go to the .35 percent fee. Your "cheap" (thief) of a robot advisor will take 1.3MM more from you than just putting it into a vanguard index fund over 40 years.
Lets have a discussion of pros and cons, while respecting everyone's individual decisions. Lets not criticise peoples' individual outcomes. Lets talk ideas and not people.
You can feel free to substitute you with anyone using a robot advisor sorry if you personally don't like the math. My statement was objective regardless of the word you. All you've made are subjective statements with no data. Which is odd for a data scientist.
If this post doesn't make you understand the con I'm not sure what will
I am not saying I don't like the math, just we have different assumptions. And that is ok. Here is the thing. I'm not coming to you and saying your investment strategies are wrong or that you should change. I am not saying one strategy is universally the best. I don't have the research for that, and I don't really think anyone does. IF they did they wouldn't share it (well ray dalio did and no one agreews with him :b). I am just answering the question of why you would go with one way or the other. I am accepting that different people have differing views. And that is ok. I would ask you to do the same.
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Without criticizing individuals, the entire goal of investing is outcomes. It's reasonable to ask where the stopping point for optimization is, and robot advisors may be more optimal than a human advisor, but a robot advisor isn't easier or cheaper than broad based index funds, so to be worth it, it needs better returns to outweigh the index option. Frankly, a lot of people have shared that broad index investing is the best strategy and a lot of people on this board do it!
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Without criticizing individuals, the entire goal of investing is outcomes. It's reasonable to ask where the stopping point for optimization is, and robot advisors may be more optimal than a human advisor, but a robot advisor isn't easier or cheaper than broad based index funds, so to be worth it, it needs better returns to outweigh the index option. Frankly, a lot of people have shared that broad index investing is the best strategy and a lot of people on this board do it!
I would argue that it is easier. I don't want to continually rebalance, check for TLH opportunities, or calculate tax consequences of distributions. Nor do I want to calculate what my AA is. I don't even really want to consciously make regular deposits. The more automated this all is, the more likely it will be habit. And the more likely it will be a consistant value over the long term. And that is the benefit I see to pay for.
But yes. Robo advisors are lower fee. But lower fee does not necessarily mean cheaper. Esp. if you value your time or emotional expense.
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To put it in more perspective if you retire and have 2MM and spend 80k per year. 7k of which will go to the .35 percent fee. Your "cheap" (thief) of a robot advisor will take 1.3MM more from you than just putting it into a vanguard index fund over 40 years.
Lets have a discussion of pros and cons, while respecting everyone's individual decisions. Lets not criticise peoples' individual outcomes. Lets talk ideas and not people.
A bad decision should not be respected here.
Also, criticism of Betterment is legitimate, even if you don't like it. You're the one taking any attack on Betterment as a personal attack.
It's also worth noting that MMM's Betterment experiment compared 2014 and 2015. Well, 2014's worst quarter was a -0.1% loss, while 2015's worst quarter was a -7.3% loss. Someone investing on their own (without Betterment) would also have found 2015 to be a better year for tax loss harvesting (TLH).
If MMM had started his Betterment experiment on Jan 1 2016, he might have reached the opposite conclusion. 2016's worst quarter was a +1.0% gain. That's not a good year for tax loss harvesting compared to 2015.
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I'm 32. I've got about 200k with Schwab Intelligent Portfolios across some retirement accounts and about 85k in a non retirement account. It's all invested pretty aggressively.
I've also got another 140k in cash to build a house in cash on a lot in the next 3-4 years that I own (hopefully a second unit as well to rent out).
I've got another 50k in random assets from my used car to bitcoin to tax credits that are dollar for dollar that I need to use.
I own a company and my equity stake is probably valued at about 150k.
I've enjoyed the Schwab Intelligent Portfolio because I like being able to chat with a CFP any time I'd like.
But I want to make sure I'm investing in a way that's getting good enough returns. Sounds like a lot of folks like to do it yourself with broad index funds.
I'm wondering if I should get out or if what I'm doing now makes sense?
WOAH
Dude if this guy got this far at 32, he's doing so well that it shouldnt matter what he does!
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I'm 32. I've got about 200k with Schwab Intelligent Portfolios across some retirement accounts and about 85k in a non retirement account. It's all invested pretty aggressively.
I've also got another 140k in cash to build a house in cash on a lot in the next 3-4 years that I own (hopefully a second unit as well to rent out).
I've got another 50k in random assets from my used car to bitcoin to tax credits that are dollar for dollar that I need to use.
I own a company and my equity stake is probably valued at about 150k.
I've enjoyed the Schwab Intelligent Portfolio because I like being able to chat with a CFP any time I'd like.
But I want to make sure I'm investing in a way that's getting good enough returns. Sounds like a lot of folks like to do it yourself with broad index funds.
I'm wondering if I should get out or if what I'm doing now makes sense?
WOAH
Dude if this guy got this far at 32, he's doing so well that it shouldnt matter what he does!
[/quote]
I agree that he's doing well, but it shouldn't matter? That's a dangerous sentiment and completely untrue.
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So this is interesting @Nycginger .
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.
OP I highly recommend you look up
"Performance chasing". (http://"https://pressroom.vanguard.com/nonindexed/Quantifying_the_impact_of_chasing_fund_performance_July_2014.pdf")
This is a well known psychological phenomenon of looking at funds other than yours and moving money accordingly. I even linked some Vanguard research on it.
It is highly highly documented that doing this results in lower returns. There is an easy reason why. Past performance does not equate to future gains. When you follow past performance and have reactionary money moves relative to the market, you will often miss the largest increases that make up for most of a fund's gains.
This is why it is not so important that you have the best performing fund, but that you stick with said fund consistently. In truth, it is incredibly difficult and perhaps impossible to select a "best fund" so there is no reason to change funds because of past performance.
I would reckon that if you compare a robo advisor fund to the SP500 you will notice a difference in gains. Most robo advisor funds are internationally diversified, and US has been kicking ass lately, relative to the rest of the world. But this is not guaranteed for the future. So many metrics state that us stocks have a high value to earnings ratio.
Anyway, especially in light of this information about your own finances, I personally say stay the course. If you have an investment that motivates you to invest, you are happy with the service, and you've done well so far continue doing what you are doing. Be wary of moving based on returns alone and, if you do, do your research and don't make it a habit.
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Thanks, I think I'm def return chasing and do it every few years when someone says "fees are way too high and you should be doing this." I do not have the personal knowledge/expertise to make sure I'm invested in the right funds and to some degree that's why I'm with the robo investor because while I want to be reasonably educated I don't want to become the expert.
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! Just want to make sure I'm reasonably well invested.
I'll probably read back through this thread once more and if it still seems like a good idea I'll just stay put.
Thanks!
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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.
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jlcollinsnh.com/stock-series/
This is all the knowledge and experience you need to not waste money.
Can we stop defending bull shit sites that charge you insane amounts of money. All the reasons people are using to defend this are just I don't wanna learn basically. And as I've shown above it's millions you're sacrificing to not go read that. Not eating out each day pails in comparison to not managing your own money with index funds.
Oh and I'm 31 with 800k since we now think that's relevant to making smarter investing decisions.
You don't have to TLH you'll come out ahead just indexing and it's just as simple as what you're trying to make betterment be.
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I'm 32. I've got about 200k with Schwab Intelligent Portfolios across some retirement accounts and about 85k in a non retirement account. It's all invested pretty aggressively.
I've also got another 140k in cash to build a house in cash on a lot in the next 3-4 years that I own (hopefully a second unit as well to rent out).
I've got another 50k in random assets from my used car to bitcoin to tax credits that are dollar for dollar that I need to use.
I own a company and my equity stake is probably valued at about 150k.
I've enjoyed the Schwab Intelligent Portfolio because I like being able to chat with a CFP any time I'd like.
But I want to make sure I'm investing in a way that's getting good enough returns. Sounds like a lot of folks like to do it yourself with broad index funds.
I'm wondering if I should get out or if what I'm doing now makes sense?
WOAH
Dude if this guy got this far at 32, he's doing so well that it shouldnt matter what he does!
Yeah by this logic he may as well by a yacht each day too
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Its probably good to use actual numbers, to keep the impact fact based, as it will not cost millions to robo. For example, lets assume the combination of fees and slightly more costly funds results in a current 200k portfolio paying about .35% (or 35 basis points) per year more than VTI or something similar, but has similar returns. That extra cost would be about $700 per year, at first. Assuming this gal keeps saving and investing for 20 years and lets say her portfolio is 2M by 50, then she is paying $7000 per year for the services. A bit more like real money, but the accumulated compounding of costs has also hurt. Im not going to do the exact math, but I guestimate the portfolio impact of a stream of money in fees like that, over 20 years like that is roughly that ratio is something like $75-100k ( this would be in total future $, not inflation adjusted). This is not millions, but not chump chnge either. This assumes no positive impact on returns by the services (which is I think likely).
Still...that is real bucks. So one would need to assume we are preventing about $100k of behavioral errors over 20 years of accumulation and investing. This is certainly possible, if this person is bad at reacting to market swings.
Please poke me in the eye if my math is way off. I dont know the average fees structure and cash drag for Schwabs fee robos, and the mix of higher fee funds can vary, so my assumption may be high.
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I already posted the math precioyusly. It is millions if you retire with 2MM and pay a robot .35 vs doing .04 with vanguard . And you spend 80k a year you pay 1.3MM over 40 years at 6% returns Eye poked.
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I already posted the math and a link to the begin to invest calculator preciously. It is millions if you retire with 2MM and pay a robot .35 vs doing .04 with vanguard . And you spend 80k a year you pay 1.3MM over 40 years at 6% returns Eye poked.
isnt .35% of 2M $7k, not 70k? ...grabs his calculator
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And that math doesn't include all the money you wasted getting to 2MM
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I already posted the math and a link to the begin to invest calculator preciously. It is millions if you retire with 2MM and pay a robot .35 vs doing .04 with vanguard . And you spend 80k a year you pay 1.3MM over 40 years at 6% returns Eye poked.
isnt .35% of 2M $7k, not 70k? ...grabs his calculator
Correct compounding is a Biitch when it's working against you please my previous post where I stated 7k.
You can Google begin to invest expense ratio calculator and enter the numbers yourself.
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I already posted the math and a link to the begin to invest calculator preciously. It is millions if you retire with 2MM and pay a robot .35 vs doing .04 with vanguard . And you spend 80k a year you pay 1.3MM over 40 years at 6% returns Eye poked.
isnt .35% of 2M $7k, not 70k? ...grabs his calculator
Correct compounding is a Biitch when it's working against you please my previous post where I stated 7k.
You can Google begin to invest expense ratio calculator and enter the numbers yourself.
Money doubles roughly every 7 years , so the initial 700 after 20 years at say 5% is $1857
a few thousands do not add up to a million. can you please recheck that you didnt miss a decimal, and we can delete these posts. I cant see how a million is possible unless you are assuming double digit compounding at a really high rate. Did you use .035 instead of .0035?
I dont see a link anywhere, so can you pm me the formula you used...thanks.
for example, this article shows how a 1% fee could cost 500k. https://www.nerdwallet.com/blog/investing/millennial-retirement-fees-one-percent-half-million-savings-impact/ (https://www.nerdwallet.com/blog/investing/millennial-retirement-fees-one-percent-half-million-savings-impact/) thats 3x the fee and less final impact. The robo investor cost was about 200k, over 40 years, more in line with what I was assuming, but I went only 20 years.
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This might be a stupid question, but where did .35% come from?
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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
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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.
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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.
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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% (http://"https://www.betterment.com/pricing/")
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.
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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% (http://"https://www.betterment.com/pricing/")
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.
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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% (http://"https://www.betterment.com/pricing/")
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.
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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?'.
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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.
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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!
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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?
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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.
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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.
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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.
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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.
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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 :)
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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%.