IRAs with Betterment vs. Vanguard

[RSG89]

Hello everyone! And Merry Christmas.

About 3 years ago I transferred my relatively low-balance ROTH IRA from active, high-fee "management" to Betterment and started my wife's ROTH IRA at Betterment as well. I knew very little about Betterment at the time other than it got the MMM stamp of approval and the company/site looked simple enough to navigate and get the information I wanted. We've maxed out the Roth IRAs the past couple of years and I just wanted to make sure that now that the balances are a little larger, Betterment is still a solid place for those to stay. The only other option I considered is rolling it over to Vanguard.

As I understand it, Betterment basically diversifies my balance/deposits among different low-cost index funds based on the stocks:bonds ratio I choose? I know there are a few other features, like tax-lost harvesting - - but essentially that's what they do for a relatively small fee? If I moved to Vanguard, I would choose the index fund(s) of my choosing and any changes or rebalancing would need to be handled manually by me - - thus not paying that relatively small fee? Am I understanding that correctly?

If so, I think I'd rather just stick with Betterment - my time/knowledge/skill is not to the level where I'd feel comfortable doing much more than setting up the auto-deposit and watching the market do its thing :) But if I"m over-simplifying it or simply misunderstanding the benefits of one or the other, I'd love some advice.

Thanks!

[caracarn]

I had switched to Betterment for about 18 months at one point and then realized I was paying them (yes a small fee, but in the MMM mindset, all money wasted is wasted) for very little after observing the process, so I moved everything to Vanguard.  Betterment used about 10-13 holdings to diversify and I also saw no reason to deal with that as the simple 2-3 fund portfolio is shown to perform similarly and that portfolio mix in Betterment has higher management fees in general or they were using a Vanguard fund and then still adding their 0.25% - 0.15% fee on top of that.  At the time it was hard to see the exact portfolio they would build until I used them.  As I watched over 18 months and really analyzed what was going on I got more and more irritated that I had switched.   At small amounts that is not much but it starts to get into thousands of dollars a year around $400K and over 20-30+ years into retirement I felt this was not worth it.

I will say moving the funds from Betterment to ANYTHING is a royal PITA.  Their systems to get in and run are great.  Getting out they literally send me an Excel spreadsheet so that Vanguard could figure out my cost basis.  It took about 3 months to clean things up as Vanguard has to hand enter these into their system because the file could not be imported.  I made contributions weekly, so I had at least 75 or so purchases on 10-13 holdings, so about 1,000 entries.  After that experience I would never use Betterment again.  It was a disaster, and I was paying for that disaster.  I have now been with Vanguard again for about two years and love it. 

Rebalancing does not need to happen as often as Betterment likes to do it (this was one of the things that drew me to them because I have in the past forgotten to look at things for 4-5 years and been off a bit), once or twice a year is good enough. 

So my vote is save yourself money and just go to Vanguard.  Be prepared for a bit of a headache unless they fixed things (oh they heard about the process from me and I escalated it all the way to the top, so perhaps they fixed that).  Vanguard was amazed at how the could not do a simple like-kind transfer with cost basis information. 

I'll be happy to talk more if you'd like.

ETA: Better initial explanation

[MayDay]

I would definitely do Vanguard.

Betterment has higher fees for very little. If you want rebalancing put it in a life strategy fund.

[RSG89]

@MayDay @caracarn Thank you both for the advice! Very interesting.

[kenaces]

I agree with the above posters but wanted to add that there is NO tax loss harvesting in ANY roth IRA.  The robo advisors tax-loss harvesting feature might be worth paying for in a brokerage account but that is a discussion for another thread :)

[WhiteTrashCash]

Betterment is pretty much a scam like any other service of that type. Vanguard is simple, easy, and super cheap. Two or three index funds at the percentages you choose and just adjust it once in a while to keep that balance. That's it. It's amazing that there is an entire industry based on this where ex-frat boy "advisors" get paid to blow money on liquor and hookers for their "expertise."

[draco44]

Another Vanguard booster here. To be fair, Betterment isn't a bad choice, it's just one where you pay extra to be advised towards extra diversity you probably don't need.  In case you haven't come across it before, I'd advise reading JL Collins' Stock Series: https://jlcollinsnh.com/stock-series/. Read that and you should get a clearer idea of why folks on this forum lean so heavily in favor of Vanguard.

[RSG89]

@draco44 Thanks for the link - I'll check that out! I agree - there are far worse places to put our Roth's than Betterment. Straight to Vanguard is likely better, but I'm not completely shooting myself in the foot by having investments there.

[caracarn]

@draco44 Thanks for the link - I'll check that out! I agree - there are far worse places to put our Roth's than Betterment. Straight to Vanguard is likely better, but I'm not completely shooting myself in the foot by having investments there.

Correct.  You're just blowing off a toe or two.