Author Topic: Should I go with Betterment or Vanguard?  (Read 1399 times)

archistache

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Should I go with Betterment or Vanguard?
« on: January 21, 2019, 09:52:10 AM »
Brand new to the FIRE movement and just getting ready to start investing. Have very little knowledge of investing but am willing to learn and manage as much of my investments myself as is reasonable. Trying to decide whether to open an account with Betterment or Vanguard. Seems like in MMM's more recent blog posts he is leaning towards Betterment. Am planning to focus on putting max amount allowed into my traditional IRA and then index funds. Thoughts on which is better for someone just getting started?

Indexer

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Re: Should I go with Betterment or Vanguard?
« Reply #1 on: January 21, 2019, 10:07:35 AM »
Unless you have a big taxable account and you really care about Betterment's tax loss harvesting(TLH), I would go with Vanguard.

You can get the same funds with both. Vanguard is going to be cheaper, especially if you want to manage your own investments. In addition, if you care about TLH, you can TLH with Vanguard, it's just not automated. The best times to TLH are during market downturns and those get a lot of news attention so you'll have plenty of reminders to check it. Given that, I'm not sure if automated TLH is worth the the higher fees associated with Betterment.

Another Reader

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Re: Should I go with Betterment or Vanguard?
« Reply #2 on: January 21, 2019, 10:15:29 AM »
I believe MMM put a small amount of money in Betterment as an experiment.

I put a much smaller amount in as an experiment as well.  Totally unimpressed and resent them playing nanny by opening up a savings account without my permission.  Apparently, it's difficult to close your account as well, based on some posts here.  In your shoes, I would do a little homework and then go with Fidelity or Vanguard.  I prefer Fidelity for the customer interface and the variety of products that are easy to buy and sell.  Funds are as cheap or cheaper and no minimum purchase amount as well.

rebel_quietude

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Re: Should I go with Betterment or Vanguard?
« Reply #3 on: January 21, 2019, 10:19:02 AM »
The other thing to consider: If you're doing a lazy 3 portfolio or some such, it's much easier to manage with Vanguard.

There's more control on asset allocation between tax-advantaged  (401k, etc) retirement accounts (where you probably want to keep anything with a high distribution) and your taxable brokerage account, if your taxable brokerage account is in Vanguard. Betterment doesn't give you the option of choosing where to keep what based on tax liability.

https://www.bogleheads.org/wiki/Tax-efficient_fund_placement
https://www.bogleheads.org/wiki/Lazy_portfolios

RWD

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Re: Should I go with Betterment or Vanguard?
« Reply #4 on: January 21, 2019, 10:32:53 AM »
Vanguard

Sailor Sam

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Re: Should I go with Betterment or Vanguard?
« Reply #5 on: January 21, 2019, 10:51:37 AM »
Betterment is specifically designed as a 'my first investment' wrapper around Vanguard*. It's aimed at those who either won't or can't learn more about the mechanism of investing. I'm not knocking those who can't/won't dig deeper into investment and like the shiny Betterment wrapper, but you're already here on the MMM forums. There's a very high chance that you'll quickly outgrow Betterment, so I recommend going straight to Vanguard.

Like my childhood winter coats, Vanguard might start out a little too big for you, but you'll quickly be the right size.



*though, a quick check shows something called iShares as options in Betterment. iShares is managed by Blackrock, so perhaps Betterment has diversified...?

Dr Kidstache

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Re: Should I go with Betterment or Vanguard?
« Reply #6 on: January 21, 2019, 11:17:56 AM »
I use Betterment and I love it. Yes, there are higher fees than a Vanguard 3-fund or other simple portfolio. No, it's not cost-effective for everyone. I am not too lazy to DIY. I get good value for my fees through 2 of Betterment's features: tax loss harvesting and tax-coordination of accounts (taxable, trad IRA, roth IRA). I could not replicate what Betterment does for me for a time-value cost that is reasonable to me.

Telecaster

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Re: Should I go with Betterment or Vanguard?
« Reply #7 on: January 21, 2019, 02:38:17 PM »
I could be missing something, but I'm not sure that tax loss harvesting with a robo investor is worth all the karate.  You can deduct $3,000 of losses year, so the benefit is your top marginal rate times $3,000.   Let's say you are in the 22% tax bracket (up to about $165K for MFJ).   So your savings would be $660.   That's not nothing, certainly.   Now, let's say your portfolio is $500,000.  Betterment's fee of 0.25% would cost you $1250 in fees.   Not a great deal.   It works best for people in high tax brackets but small portfolios.  The breakeven point in the above example is about $260,000.   Above that amount it costs more than the savings. 

But it isn't even that good.  By harvesting losses now, you are increasing gains in the future.  In general, that's probably a good thing, but it does lower the break even point.   Since the OP is just starting out, he's probably okay with the robo-investor until he starts to get close to break even.   But if he decides to go that route, he put all of his investments with the robovestor so he doesn't accidently violate wash rules. 

Telecaster

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Re: Should I go with Betterment or Vanguard?
« Reply #8 on: January 21, 2019, 03:32:41 PM »
Unless you have a big taxable account and you really care about Betterment's tax loss harvesting(TLH), I would go with Vanguard.

You can get the same funds with both. Vanguard is going to be cheaper, especially if you want to manage your own investments. In addition, if you care about TLH, you can TLH with Vanguard, it's just not automated. The best times to TLH are during market downturns and those get a lot of news attention so you'll have plenty of reminders to check it. Given that, I'm not sure if automated TLH is worth the the higher fees associated with Betterment.

Somewhat counter-intuitively, the bigger your portfolio the less you need Betterment.   If you have, say a $750K portfolio, it is dead easy to find a $3000 loss.   A bit tougher with a 75K portfolio.   

patrickza

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Re: Should I go with Betterment or Vanguard?
« Reply #9 on: January 22, 2019, 02:34:58 AM »
Vanguard is the only investment company in the world that is client owned. That means it's not designed to make money for the shareholders, but designed to keep costs as low as possible for the clients.

I've had my run ins with investment companies promising the world only to make my life miserable later on, at least with Vanguard you'll know where their priorities lie.

Upwardly Frugal

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Re: Should I go with Betterment or Vanguard?
« Reply #10 on: January 26, 2019, 10:08:32 PM »
Vanguard! It may be all sing-alongs and fun and games at Betterment now. But in the long run, I think you'll end up back with the adults at Vanguard. So skip the headache of transferring over later on, and go right to the source from the get-go.

frugalnacho

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Re: Should I go with Betterment or Vanguard?
« Reply #11 on: January 29, 2019, 08:43:45 AM »
I could be missing something, but I'm not sure that tax loss harvesting with a robo investor is worth all the karate.  You can deduct $3,000 of losses year, so the benefit is your top marginal rate times $3,000.   Let's say you are in the 22% tax bracket (up to about $165K for MFJ).   So your savings would be $660.   That's not nothing, certainly.   Now, let's say your portfolio is $500,000.  Betterment's fee of 0.25% would cost you $1250 in fees.   Not a great deal.   It works best for people in high tax brackets but small portfolios.  The breakeven point in the above example is about $260,000.   Above that amount it costs more than the savings. 

But it isn't even that good.  By harvesting losses now, you are increasing gains in the future.  In general, that's probably a good thing, but it does lower the break even point.   Since the OP is just starting out, he's probably okay with the robo-investor until he starts to get close to break even.   But if he decides to go that route, he put all of his investments with the robovestor so he doesn't accidently violate wash rules.

And the more time that passes the less valuable TLH is anyway.  Your investments grow over time, so after like 5-10 years when we are in another bull market what exactly are you going to tax loss harvest?  All your recent purchases will have increased in value because of the bull market, and all your old purchases will have increased in value because that's the entire point of investing.  But you will still be paying much higher fees for the service.  Automated TLH is really only useful at the beginning, but the costs to manage the accounts quickly out paces the TLH benefits and actually leaves you worse off. 

I vote vanguard all the way.

danakado

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Re: Should I go with Betterment or Vanguard?
« Reply #12 on: January 29, 2019, 09:03:49 AM »
Highly recommend you read JL Collins book The Simple Plan to Wealth.  Short summary- Invest in Vanguard's Total Stock market Index fund and ride it out. 

Bayou Dweller

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Re: Should I go with Betterment or Vanguard?
« Reply #13 on: January 29, 2019, 04:15:44 PM »
Out of those two, Vanguard (VTSAX only for me).

However, I'd personally go with Fidelity and just hit up FZROX and FZILX. They're fee free total market and international total market funds, respectively, with no minimums.

ShoulderThingThatGoesUp

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Re: Should I go with Betterment or Vanguard?
« Reply #14 on: January 29, 2019, 07:58:49 PM »
Out of those two, Vanguard (VTSAX only for me).

However, I'd personally go with Fidelity and just hit up FZROX and FZILX. They're fee free total market and international total market funds, respectively, with no minimums.

Charles Schwab has these too - SCHB and SCHF respectively. Vanguard, Fidelity, and Schwab all pretty much offer the same thing to retail investors.

(My 401k just got moved into Vanguard and our fund choices are craptacular. Nothing will be magically great all the time.)

Indexer

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Re: Should I go with Betterment or Vanguard?
« Reply #15 on: February 01, 2019, 08:59:30 PM »
(My 401k just got moved into Vanguard and our fund choices are craptacular. Nothing will be magically great all the time.)

That's really unexpected. Which funds?

Is it a plan at Vanguard or is it a plan with a third party company that includes Vanguard funds?  In other words, do you use the Vanguard.com website to get to your 401k?

Shane

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Re: Should I go with Betterment or Vanguard?
« Reply #16 on: February 01, 2019, 09:59:39 PM »
GCC has a post on Betterment:

Why Betterment has Zero of Our Dollars

ShoulderThingThatGoesUp

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Re: Should I go with Betterment or Vanguard?
« Reply #17 on: February 02, 2019, 07:36:44 AM »
(My 401k just got moved into Vanguard and our fund choices are craptacular. Nothing will be magically great all the time.)

That's really unexpected. Which funds?

Is it a plan at Vanguard or is it a plan with a third party company that includes Vanguard funds?  In other words, do you use the Vanguard.com website to get to your 401k?

Yes, I access it through Vanguard.com. The lowest ER fund is the S&P500 one but it still has a much higher ER than Iím used to at Schwab. No VTSAX available.

And for some reason it includes a lot of third-party funds with really high ERs.