Roth IRA with Betterment - move to Vanguard?

[ginklord]

Hi,

We're married, 33 and 30, with two kids (and another on the way). We've been slowly investing in a Roth IRA with Betterment at 100% stocks, and just bumped over $3k. I'm considering a move to Vanguard directly, and investing this in the Total Stock Market (VTSMX) fund.

I won't have to pay Betterment's fees (0.035%) but I lose some of the diversification. Also, I don't have anything invested in Bonds right now.

We're investing 10% of my net pay every month, but I work for commission so some months are dramatically better than others.

We also have a traditional 401k (S&P 500 index fund) that I invest 5% before taxes, plus another four points from my employer.

We'll eventually increase our savings even more, but for now I want to make sure we're putting our money in the best place for long term growth. Should we roll this over to Vanguard? Is there a better strategy that I don't see?

Any advice is welcome. Thanks!

[BaldingStoic]

You're return will likely be similar under either scenario, but personally I'd say yes, pull your money from Betterment and invest directly with Vanguard, to avoid the fees, especially since you can't take advantage of the tax harvesting in an IRA.  You will loose some diversification but once your balance grows you can add an International Fund, followed by a Bond Fund.  Just make sure that you do a proper Rollover - to avoid early withdraw penalties. 

Disclaimer: I've been a Vanguard fan for over 10 years, but I did just put in $100K into Betterment after selling a rental property.  Betterment seems like good option for taxable accounts put personally I don't think the fees (though modest) are worth it for tax-sheltered accounts.

You could also look into Wealthfront, which is similar to Betterment but no fees until you surpass $10,000.   

[Another Reader]

I was generally opposed to the robo advisors initially as being gimmicky and just another investing fad.  However, both MMM and MilesDividend have written about Betterment and they make good points in Betterment's favor.  The tax loss harvesting is not that important, but the value tilt and the automatic rebalancing are very useful.  I like the ETF's they have chosen as well. 

Target date funds are funds of funds and therefore have two levels of fund operating expenses.  The Betterment approach gives you automatic rebalancing and the value tilt for not that much more than the second level of operating expense.  I started a small account as an experiment and so far I like what I see.  It's a great way for someone without a lot of money to invest up front to get started.  You can learn a lot just by watching how it works.  Small amounts of money are invested in a way that rebalances your total account.  Realistically, how often are you going to change the destination of your deposits to rebalance?

The recent MMM update shows VTI beat Betterment for the first four months.  US stocks have been on a tear recently.  It will be interesting to follow this for a couple of years to see what happens as the markets shift.

To answer the OP's question - I would leave the money at Betterment for now and watch how it works.  Meanwhile, read up on investing until you are comfortable with it.  Then have another look and see if Betterment suits your needs or if you would be happier with a more "hands on" approach.

[ginklord]

Thank you! I really appreciate the feedback.