Author Topic: Should I use Betterment.com?  (Read 3215 times)

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Should I use Betterment.com?
« on: July 08, 2015, 08:03:13 AM »
Hello everyone,

I have a rather large sum of money sitting in a CD making 2.30%. I have been doing some research and I have come acorss this website called www.betterment.com.

I am wondering if I should use this website to do some investing.

I have a 401k account with Fidelity, and a Roth IRA with Vanguard. I am still not 100% clear on investing money vs. retirement investing. I am guessing the money I am going to put in betterment.com (should I choose to open an account) would be non-retirement investing? Either way, should I open an account there or would it better to stick to vanguard?

I will have plenty of money left over after maxing out my Roth IRA, and I would like to put it to some good use.

Thanks!

Jeremy E.

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Re: Should I use Betterment.com?
« Reply #2 on: July 09, 2015, 07:52:37 AM »
Thank you very much for your reply.

I already have a Roth IRA with Vanguard. If I want to invest more than $5500 this year, how do I do this? I am a little confused here. Should I open a different vanguard account because I do not want to pool the money into my Roth IRA?

Also, does Vanguard give me the same benefits as a Betterment account in terms of tax protection?

Thanks for any suggestions.

Jeremy E.

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Re: Should I use Betterment.com?
« Reply #3 on: July 09, 2015, 09:10:13 AM »
Thank you very much for your reply.

I already have a Roth IRA with Vanguard. If I want to invest more than $5500 this year, how do I do this? I am a little confused here. Should I open a different vanguard account because I do not want to pool the money into my Roth IRA?

Also, does Vanguard give me the same benefits as a Betterment account in terms of tax protection?

Thanks for any suggestions.
You can open a taxable account on the same login. Vanguard doesn't have automatic tax loss harvesting, but if you learn about it you can do it yourself manually, it might not be quite as efficient as the automatic tax loss harvesting that Betterment offers. Read these
http://www.madfientist.com/tax-loss-harvesting/
http://www.madfientist.com/tax-gain-harvesting/
http://www.gocurrycracker.com/never-pay-taxes-again/

Good Luck!

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Re: Should I use Betterment.com?
« Reply #4 on: July 09, 2015, 09:37:06 AM »
Thank you very much for your time.

cautiouspessimist

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Re: Should I use Betterment.com?
« Reply #5 on: July 09, 2015, 09:38:21 AM »
I really like betterment for its ease of use and relatively low cost. In your case, I would probably just do as Jeremy suggests and create a taxable account with Vanguard because you already have an account with them. Alternatively, if you are really concerned about the tax loss harvesting aspect, you could open up accounts with betterment and roll your vanguard IRA over to betterment.

I definitely don't recommend having both a Vanguard and betterment account unless you are certain you're not in the same funds. While I don't think it's a major concern, it does open you up to the possibility of 'whitewashing' due to their automatic tax loss harvesting.

Regardless of what you decide, I think you should be sure to read all the links that Jeremy posted before making your decision. And let me know if you want to go with betterment and I'll send you my referral link ;-)

Jeremy E.

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Re: Should I use Betterment.com?
« Reply #6 on: July 09, 2015, 09:57:27 AM »
I really like betterment for its ease of use and relatively low cost. In your case, I would probably just do as Jeremy suggests and create a taxable account with Vanguard because you already have an account with them. Alternatively, if you are really concerned about the tax loss harvesting aspect, you could open up accounts with betterment and roll your vanguard IRA over to betterment.

I definitely don't recommend having both a Vanguard and betterment account unless you are certain you're not in the same funds. While I don't think it's a major concern, it does open you up to the possibility of 'whitewashing' due to their automatic tax loss harvesting.

Regardless of what you decide, I think you should be sure to read all the links that Jeremy posted before making your decision. And let me know if you want to go with betterment and I'll send you my referral link ;-)
Putting an IRA into Betterment isn't very appealing as it is a tax sheltered account and doesn't get the benefit of the tax loss harvesting to negate the higher expense ratio, I think Betterment is more for people with taxable accounts that put a tax burden on them.

cautiouspessimist

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Re: Should I use Betterment.com?
« Reply #7 on: July 09, 2015, 10:02:52 AM »
I really like betterment for its ease of use and relatively low cost. In your case, I would probably just do as Jeremy suggests and create a taxable account with Vanguard because you already have an account with them. Alternatively, if you are really concerned about the tax loss harvesting aspect, you could open up accounts with betterment and roll your vanguard IRA over to betterment.

I definitely don't recommend having both a Vanguard and betterment account unless you are certain you're not in the same funds. While I don't think it's a major concern, it does open you up to the possibility of 'whitewashing' due to their automatic tax loss harvesting.

Regardless of what you decide, I think you should be sure to read all the links that Jeremy posted before making your decision. And let me know if you want to go with betterment and I'll send you my referral link ;-)
Putting an IRA into Betterment isn't very appealing as it is a tax sheltered account and doesn't get the benefit of the tax loss harvesting to negate the higher expense ratio, I think Betterment is more for people with taxable accounts that put a tax burden on them.

The purpose would be to have both accounts with one provider. As mentioned, this can help alleviate concerns about 'whitewashing' when the tax loss harvesting occurs, given that betterment basically just buys vanguard funds. If the IRA was with any other provider, I probably would just leave it there since you'd be pretty safe on that front.

johnny847

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Re: Should I use Betterment.com?
« Reply #8 on: July 09, 2015, 10:04:06 AM »
Hello everyone,

I have a rather large sum of money sitting in a CD making 2.30%. I have been doing some research and I have come acorss this website called www.betterment.com.

I am wondering if I should use this website to do some investing.

I have a 401k account with Fidelity, and a Roth IRA with Vanguard.
I am still not 100% clear on investing money vs. retirement investing. I am guessing the money I am going to put in betterment.com (should I choose to open an account) would be non-retirement investing? Either way, should I open an account there or would it better to stick to vanguard?

I will have plenty of money left over after maxing out my Roth IRA, and I would like to put it to some good use.

Thanks!

To the best of my knowledge, there are only a couple advantages that Betterment offers:
1) Some kind of question that will attempt to understand your ability to take risk, and it can suggest a portfolio for you
2) It provides automated tax loss harvesting strategies.

If there are any more that people are aware of, please let me know.

Here's my refute
1) You can find a bunch of questionnaires like this online.
2) Having a 401k not managed by Betterment makes the TLH difficult.

On that second point, the reason is the wash sale rule. In order to claim a capital loss on a security you sold, you cannot buy a substantially identical security 30 days before or after the sale of the security. If you do, the capital losses you can claim are reduced proportional to how much of the substantially identical security you purchased.
The IRS has never provided guidance on what "substantially identical" means. Many people are of the reasonable opinion that two funds tracking the same index are substantially identical, while two funds tracking different indices are not.
The purchase of a security in a 401k or IRA can cause of the wash sale of a security you're trying to tax loss harvest in a taxable account.

So here's the problem. If your 401k is not managed by Betterment (and as far as I know, they don't manage 401k's), then Betterment cannot know what you're buying or selling in your 401k. Meaning you could be creating wash sales, but Betterment will do all of their trades assuming you did not.
To avoid this issue, you have to use funds that track indices that are different from what Betterment uses. But Betterment uses funds that track the most commonly used indices, such as the CRSP US total market (what Vanguard total US tracks), the Dow Jones US Broad market index, CRSP US large value, the S&P 500, etc. So then you're forced to look for funds in your 401k that track indices that are slightly more obscure than these. But 401k's aren't known for providing a wide variety of funds (of course, your 401k may be an exception, I don't know). You may not even be able to find funds that track different indices.

Finally, TLH doesn't actually avoid taxes. It only defers them into the future because you are lowering your cost basis. The reason TLH is a good strategy is because it works out as an interest free loan (assuming your marginal tax rates - both ordinary and LTCG/QDI - remain the same). But Betterment in their white paper of TLH+(TM) ignores this fact.


Betterment adds management fees of 0.35%, 0.25%, or 0.15%. These fees are on top of the fees charged by the underlying funds. There is no need to pay these fees. Learning how to manage your portfolio and how to properly tax loss harvest is easy. Links provided by others previously will guide you on this.