Author Topic: Beginner investing  (Read 5347 times)

mkbe229

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Beginner investing
« on: September 22, 2017, 09:33:50 AM »
Hey guys, I'm a 31yr old new to the mustachian ways and investing outside of my employers plan. I've been reading a lot about low-cost ETFs, etc and was wondering if entering the index market is always a good idea, even when the market is as high as it is currently. I have around $3,000 lump sum and $500 monthly I could dump into the market.  My employer currently matches my 5% retirement in a Fidelity 403b.

BTDretire

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Re: Beginner investing
« Reply #1 on: September 22, 2017, 06:21:58 PM »
The standard advice would be dollar cost average over the next year, meaning put in $250 a month over the next year. Others would say put it all in now, nobody knows where the market will be a year from now.
 If you have 20 years before you want the money, just put it in and be done. If the market goes down, just leave it in the market and wait, it will go back up and 20 years from now it was a blip. Put your $500 a month in the market.

Telecaster

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Re: Beginner investing
« Reply #2 on: September 22, 2017, 08:06:50 PM »
Hey guys, I'm a 31yr old new to the mustachian ways and investing outside of my employers plan. I've been reading a lot about low-cost ETFs, etc and was wondering if entering the index market is always a good idea, even when the market is as high as it is currently. I have around $3,000 lump sum and $500 monthly I could dump into the market.  My employer currently matches my 5% retirement in a Fidelity 403b.

Yes, it is a good idea.  The reason is because the market goes up and down, but it mostly goes up.  If you are waiting for the market to go down before entering, you could be waiting for years even at current valuations. 

Dollar cost averaging is just a form of self-deception.  If you really think about it, it makes no sense at all. 

alexpkeaton

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Re: Beginner investing
« Reply #3 on: September 22, 2017, 08:30:55 PM »
Dollar cost averaging is just a form of self-deception.  If you really think about it, it makes no sense at all.

Well, it reduces timing risk, but that goes both ways. You might miss out on a major spike just as likely as you'll avoid a crash. But, in general, yes the market tends to rise, so the earlier you can dump it all in the better.

alexpkeaton

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Re: Beginner investing
« Reply #4 on: September 22, 2017, 08:33:23 PM »
was wondering if entering the index market is always a good idea, even when the market is as high as it is currently.

The real question you want to answer is what your risk tolerance is and how you allocate assets accordingly. The high market also worries me, yet I'm still ~80% invested in stocks, because I'm not that risk averse. YMMV.

steveo

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Re: Beginner investing
« Reply #5 on: September 23, 2017, 05:25:09 PM »
I don't see you in a position when it comes to beginner investing. You are in a position to start investing as you will over the next 20 or so years. To me that means pick your asset allocation, pick some low cost index funds and then start investing.

I definitely wouldn't dollar cost average your initial investment and I would invest all of your monthly savings.

I wouldn't even consider how high the market is. The question should be what asset allocation are you comfortable with over the long term.

moof

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Re: Beginner investing
« Reply #6 on: September 23, 2017, 06:05:44 PM »
If your planned use for this money is 15+ years, just stick it in a low cost index fund.  Any low fee S&P500, or Total Stock Market index fund at your chosen broker, or work 401k manager will do to get started.  Buy 100% stocks early on, buy up bonds later in your accumulation (i.e. later).  The best place to park money for 15-20 years is stocks.  Money you need in 5 years or less should be in cash and bond funds.

Buy what you can, and forget you own it.  Read and follow the investing order sticky post in this section, follow it.

Dollar cost averaging is a form of training wheels for the skiddish investor, and on average will make you lose out on growth.  If you are investing just a small portion of your final portfolio, just invest it all and don't look back.  The saying goes that the best time to invest was 20 years ago, the next best time is now.  People who try to time the market almost always perform worse over the long haul.

When you get up to about half your final target sum, or within 10 years of your retirement you should pick an asset allocation of stock and bond funds and gradually switch to that allocation by buying what you are short of for your taxable account, or just do a rebalancing in your 401k, IRA, Roth IRA annually to move stuff over.  That is a long way off in your case.

PizzaSteve

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Re: Beginner investing
« Reply #7 on: September 24, 2017, 09:22:38 AM »
Hey guys, I'm a 31yr old new to the mustachian ways and investing outside of my employers plan. I've been reading a lot about low-cost ETFs, etc and was wondering if entering the index market is always a good idea, even when the market is as high as it is currently. I have around $3,000 lump sum and $500 monthly I could dump into the market.  My employer currently matches my 5% retirement in a Fidelity 403b.
Yes, it is always a good idea.

https://www.google.com/url?sa=t&source=web&rct=j&url=http://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/&ved=0ahUKEwi12piKkL7WAhWB0FQKHVRNBIYQFgg1MAA&usg=AFQjCNGk0HH76U5tprMdSXaPnaj-6NH_9w

mkbe229

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Re: Beginner investing
« Reply #8 on: September 24, 2017, 02:05:57 PM »
Thanks for the advice guys! I have good risk tolerance as my only debt is my 30yr mortgage at a 3.875 interest rate, and I have a secure emergency fund. My current thinking was to invest 90% stock/10% bonds via Betterment. I had considered just going directly through one or a couple of the large Vanguard indexes as another option. The $500 monthly investment wouldn't be felt so I could easily do this 15-20yrs with little to no risk. 

Or I could do a smaller amount and allocate more principal towards my mortgage, but I just bought my house last year so I have a long way to go. General consensus in my research seems to be that the low interest rate makes full investment in the market a better strategy.

theolympians

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Re: Beginner investing
« Reply #9 on: September 24, 2017, 07:21:34 PM »
Thanks for the advice guys! I have good risk tolerance as my only debt is my 30yr mortgage at a 3.875 interest rate, and I have a secure emergency fund. My current thinking was to invest 90% stock/10% bonds via Betterment. I had considered just going directly through one or a couple of the large Vanguard indexes as another option. The $500 monthly investment wouldn't be felt so I could easily do this 15-20yrs with little to no risk. 

Or I could do a smaller amount and allocate more principal towards my mortgage, but I just bought my house last year so I have a long way to go. General consensus in my research seems to be that the low interest rate makes full investment in the market a better strategy.
That depends on if you are in an absolute "debt is bad" mindframe, or more along the lines of thinking invested money will make more in the mong term.

Personally, I don't like debt and do want to pay off my house early (no other debts). That said, you do have to save/invest if you want FIRE. I would lump sum the initial $3000, then follow up with the $500 a month (at least). Any extra can go towards the house.

As your earnings increase, split between increasing the monthly investments and paying down the mortgage. Just "IMHO".

nickinak

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Re: Beginner investing
« Reply #10 on: September 24, 2017, 08:23:22 PM »
Another way to look at the two choices is to think about which option is most encouraging to you. Given the stage you are at, one key thing to consider is developing the long-lasting good habits. If you think about the results you could achieve with a growing investment account vs paying down the mortgage, which one seems to be more likely to reinforce your decision and continued effort?  Since both options have merit, perhaps that factor might help make the choice.

Mighty-Dollar

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Re: Beginner investing
« Reply #11 on: September 24, 2017, 10:35:16 PM »
Hey guys, I'm a 31yr old new to the mustachian ways and investing outside of my employers plan. I've been reading a lot about low-cost ETFs, etc and was wondering if entering the index market is always a good idea, even when the market is as high as it is currently. I have around $3,000 lump sum and $500 monthly I could dump into the market.  My employer currently matches my 5% retirement in a Fidelity 403b.
You're investing very little so it doesn't matter. If you had a lot to invest then you could diversify into a total bond market index fund to mitigate your stock index fund volatility.

alexpkeaton

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Re: Beginner investing
« Reply #12 on: September 25, 2017, 09:12:35 AM »
Thanks for the advice guys! I have good risk tolerance as my only debt is my 30yr mortgage at a 3.875 interest rate, and I have a secure emergency fund. My current thinking was to invest 90% stock/10% bonds via Betterment. I had considered just going directly through one or a couple of the large Vanguard indexes as another option. The $500 monthly investment wouldn't be felt so I could easily do this 15-20yrs with little to no risk.

Betterment is fine, but I prefer Wealthfront. Your first $15k will be managed for free with referral code (I can give you one if you like) rather than Betterment's 0.25% fee on all funds. Since you're starting relatively small it might be nice to avoid the fee. Both services should give you tax loss harvesting and automatic rebalancing though.

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Or I could do a smaller amount and allocate more principal towards my mortgage, but I just bought my house last year so I have a long way to go. General consensus in my research seems to be that the low interest rate makes full investment in the market a better strategy.

Probably best to not pay off the mortgage early at that low rate. Though if it helps you sleep better at night to pay a little extra here and there it's not the end of the world.

boarder42

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Re: Beginner investing
« Reply #13 on: September 25, 2017, 01:50:59 PM »
Thanks for the advice guys! I have good risk tolerance as my only debt is my 30yr mortgage at a 3.875 interest rate, and I have a secure emergency fund. My current thinking was to invest 90% stock/10% bonds via Betterment. I had considered just going directly through one or a couple of the large Vanguard indexes as another option. The $500 monthly investment wouldn't be felt so I could easily do this 15-20yrs with little to no risk.

Betterment is fine, but I prefer Wealthfront. Your first $15k will be managed for free with referral code (I can give you one if you like) rather than Betterment's 0.25% fee on all funds. Since you're starting relatively small it might be nice to avoid the fee. Both services should give you tax loss harvesting and automatic rebalancing though.

Quote
Or I could do a smaller amount and allocate more principal towards my mortgage, but I just bought my house last year so I have a long way to go. General consensus in my research seems to be that the low interest rate makes full investment in the market a better strategy.

Probably best to not pay off the mortgage early at that low rate. Though if it helps you sleep better at night to pay a little extra here and there it's not the end of the world.

It doesnt take much to learn this your self and not pay for a service you really dont need.  betterment and wealthfront will both cost you money in the long vs just learning and doing yourself ... most of these things arent too hard to do yourself and the tax lost harvesting is unlikely to be worth the extra fees you're going to be charged to make it happen. 

we spend the first 18-25 years of our lives learning how to make money take 3 months and go read JLcollins stock series and teach your self what to do with that money now that you've made it. 

100,000x on the mortgage.  never pay that puppy off.  if rates drop again refi it back to another 30 year at a lower rate. 

alexpkeaton

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Re: Beginner investing
« Reply #14 on: September 25, 2017, 09:37:17 PM »
It doesnt take much to learn this your self and not pay for a service you really dont need.  betterment and wealthfront will both cost you money in the long vs just learning and doing yourself ... most of these things arent too hard to do yourself and the tax lost harvesting is unlikely to be worth the extra fees you're going to be charged to make it happen. 

Most people here are of the opinion of just put in VSTAX and forget it. There's nothing wrong with that, but for a taxable account this won't get you any tax loss harvesting, and it won't automatically rebalance your asset allocation for you.

But you're right, both of these things could be easily done by hand if one is motivated to do so. But for the people who just throw everything into VSTAX? They're leaving money on the table. Why not pay a small fee for a service which will pay for itself?

Telecaster

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Re: Beginner investing
« Reply #15 on: September 26, 2017, 11:04:22 AM »

Most people here are of the opinion of just put in VSTAX and forget it. There's nothing wrong with that, but for a taxable account this won't get you any tax loss harvesting, and it won't automatically rebalance your asset allocation for you.

But you're right, both of these things could be easily done by hand if one is motivated to do so. But for the people who just throw everything into VSTAX? They're leaving money on the table. Why not pay a small fee for a service which will pay for itself?

Color me skeptical.  `For one, if you just put it in VSTAX most years you won't have losses to harvest.  But if you do harvest losses, you are lowering your cost basis, which means your taxes will be higher in the future.   Seems like a lot of karate for not much benefit.  Remember, the tax loss savings aren't automatic.  You just pay less in tax.  For it to make a difference, you then have to invest the amount of the tax savings.  So there is still some manual work you have to do to get the "automatic" benefit. 

And don't underestimate the "small" fee.   The ETFs themselves have fees, and then Betterment tacks on 0.25% on top of that, so 0.3%-ish.  Compared to 0.04% for VSTAX.  Doesn't sound like a lot, but for a 100,000 portfolio with a $5K annual contribution, the difference is over $20,000 after 20 years.   That's real money.   

Which brings me to my next point,  Betterment doesn't compare their performance against a benchmark, they compare vs. the "average investor."  We all know the average investor, and even average money managers trail the benchmarks.  So why set the bar so low?  The reason is Betterment trails the benchmarks too.  By a lot.   Their high fees mean they can never beat the benchmarks, so they don't use them. 


Frankies Girl

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Re: Beginner investing
« Reply #16 on: September 26, 2017, 12:01:02 PM »
If all an investor is doing is buying VTSAX, how do they tax loss harvest? You have to sell loser funds to gain any advantage... so by going the Betterment/Wealthfront route, you're paying them a constant fee to do something you could do for free (buying VTSAX), for a benefit you may never actually need to utilize (tax loss harvesting).



Simple steps to becoming an investing genius:

1. http://jlcollinsnh.com/stock-series/
^all the things you need to know to understand basic investing

2. https://www.bogleheads.org/wiki/Main_Page
^the investor's bible. Learn how to write an IPS and figure out your AA.

3. Open your own accounts (Vanguard is usually the winner here, but Fido is great too) and invest according to your IPS and AA.

Telecaster

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Re: Beginner investing
« Reply #17 on: September 26, 2017, 12:15:23 PM »
If all an investor is doing is buying VTSAX, how do they tax loss harvest? You have to sell loser funds to gain any advantage... so by going the Betterment/Wealthfront route, you're paying them a constant fee to do something you could do for free (buying VTSAX), for a benefit you may never actually need to utilize (tax loss harvesting).

For tax purposes, you can specify which share lots you are selling for tax loss harvesting.  But like I say, by doing this you are just setting yourself up for a bigger capital gain in the future.  Maybe you save a little bit here and there, but that gets more than wiped out by the fees.


boarder42

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Re: Beginner investing
« Reply #18 on: September 26, 2017, 01:06:38 PM »
If all an investor is doing is buying VTSAX, how do they tax loss harvest? You have to sell loser funds to gain any advantage... so by going the Betterment/Wealthfront route, you're paying them a constant fee to do something you could do for free (buying VTSAX), for a benefit you may never actually need to utilize (tax loss harvesting).

For tax purposes, you can specify which share lots you are selling for tax loss harvesting.  But like I say, by doing this you are just setting yourself up for a bigger capital gain in the future.  Maybe you save a little bit here and there, but that gets more than wiped out by the fees.

correct their tax loss harvesting benefits are overstated and overvalued compared to the fees you would be paying ... MMM gets paid to post about them ... and for the avg person this is far better than anything else they could get on the open market.  But this community if you've made it into the forums you should take the very few hours of your very hopefully long life to teach yourself how to invest using the links posted by Frankie's Girl above.

I spent 5 years in school and will proably avg 100k per year over the life of my ~15 year career - creating 1.5MM in income. 

the few months i spent learning this will make my wife and i uncalculable wealth over using something else.  if we just assume the the betterment fee of .25% the cost of that on our 2MM when we retire would cost us 750k more over 30 years.  i dont see how betterment is making up 750k with tax loss harvesting.  and this is assuming they are keeping me mostly in a .04% expense ratio fund or less. But really we're looking at 60 years so the difference becomes 8.5MM at the end of that.

Now probably would never have heard of betterment and lets assume i'd ended up with a great advisor that charges .7% to follow what we do here.  thats not that much is it??!?!?

oh wait its 21MM from the day i retire til i likely die in my mid 90s. 

so what i learned in 4 years made me 1.5MM dollars in my life

and what i learned in 3 months of reading and asking questions around here has made me at least 7MM if not over 20MM

and thats just the investing side we havent even gotten into tax optimization profit and optimized withdrawal strategies. 


alexpkeaton

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Re: Beginner investing
« Reply #19 on: September 26, 2017, 02:06:10 PM »
Color me skeptical.  `For one, if you just put it in VSTAX most years you won't have losses to harvest.

It works best if you're investing new funds regularly. Being able to harvest tax losses on new lots is pretty likely. Not sure how it works with VTSAX since it's not an ETF that you trade, but it's easily done with VTI.

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But if you do harvest losses, you are lowering your cost basis, which means your taxes will be higher in the future.

Except if you're in a lower tax bracket in the future. Your capital gains taxes may be 0%. Even if your taxes aren't lower you've essentially got an interest free loan from the government until you do pay capital gains.

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Seems like a lot of karate for not much benefit.

Which is why you automate it.

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And don't underestimate the "small" fee.   The ETFs themselves have fees, and then Betterment tacks on 0.25% on top of that, so 0.3%-ish.  Compared to 0.04% for VSTAX.  Doesn't sound like a lot, but for a 100,000 portfolio with a $5K annual contribution, the difference is over $20,000 after 20 years.   That's real money.

Yes, this is the real problem. There is some break-even point where Wealthfront's fees equal the benefit from tax loss harvesting. My Wealthfront account is worth ~$15k, so I'm not paying them any fees just yet. I saw a post elsewhere where someone ran the numbers. The break-even point is somewhere around $500k.

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Which brings me to my next point,  Betterment doesn't compare their performance against a benchmark, they compare vs. the "average investor."  We all know the average investor, and even average money managers trail the benchmarks.  So why set the bar so low?  The reason is Betterment trails the benchmarks too.  By a lot.   Their high fees mean they can never beat the benchmarks, so they don't use them.

Well there are a couple things here. The underlying ETFs will obviously track their benchmarks. But since you're holding a number of different ETFs, there isn't a singular benchmark to compare the account to. It really depends on asset allocation.

And assuming tax loss harvesting works as advertised, it should yield enough to pay for the fee and more.

That said, tax loss harvesting simply doesn't do anything for tax advantaged accounts. You will definitely do worse with Wealthfront or Betterment if you keep your IRA with them. I would only use them for a taxable account which you make regular contributions to, or for a small account which will be on Wealthfront's free tier, like mine.

alexpkeaton

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Re: Beginner investing
« Reply #20 on: September 26, 2017, 02:12:36 PM »
Just for reference, my marginal tax rate is around 38% between federal, state, and city income taxes. Cutting $3k off my AGI is worth $1,140/year to me. If my Wealthfront account were worth $100k, I'd be paying them $200/year in fees (($100k balance - $20k managed for free) * 0.0025).

Telecaster

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Re: Beginner investing
« Reply #21 on: September 26, 2017, 03:38:06 PM »

Which brings me to my next point,  Betterment doesn't compare their performance against a benchmark, they compare vs. the "average investor."  We all know the average investor, and even average money managers trail the benchmarks.  So why set the bar so low?  The reason is Betterment trails the benchmarks too.  By a lot.   Their high fees mean they can never beat the benchmarks, so they don't use them.

Well there are a couple things here. The underlying ETFs will obviously track their benchmarks. But since you're holding a number of different ETFs, there isn't a singular benchmark to compare the account to. It really depends on asset allocation.

And assuming tax loss harvesting works as advertised, it should yield enough to pay for the fee and more.


You have to measure performance somehow.  Why invest with them if they can't make you more money than you could on your own? 

 Either robo-investors improve returns or they don't.  Since inception (2004), the S&P 500 has obliterated Betterment's 100% stock allocation. 

Since inception (2011), the S&P 500 has crushed Weathfront's 10.0 risk allocation.  It isn't close in either case. 

They don't want to talk about benchmarks because they can't beat them. 


alexpkeaton

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Re: Beginner investing
« Reply #22 on: September 26, 2017, 07:23:59 PM »
Either robo-investors improve returns or they don't.  Since inception (2004), the S&P 500 has obliterated Betterment's 100% stock allocation. 

Since inception (2011), the S&P 500 has crushed Weathfront's 10.0 risk allocation.  It isn't close in either case. 

They don't want to talk about benchmarks because they can't beat them.

Then it's just a question of asset allocation. If you put all your money in an S&P 500 fund, you'll match the S&P 500. Are you saying one shouldn't put money into international/emerging markets, or small and midcap domestic stocks? VSTAX invests more broadly than just the S&P 500, and it actually has outperformed the S&P 500 over time. But it just as easily could have lagged the S&P had small and midcap stocks turned out to be a a bad choice.

Telecaster

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Re: Beginner investing
« Reply #23 on: September 27, 2017, 12:06:42 AM »
Either robo-investors improve returns or they don't.  Since inception (2004), the S&P 500 has obliterated Betterment's 100% stock allocation. 

Since inception (2011), the S&P 500 has crushed Weathfront's 10.0 risk allocation.  It isn't close in either case. 

They don't want to talk about benchmarks because they can't beat them.

Then it's just a question of asset allocation. If you put all your money in an S&P 500 fund, you'll match the S&P 500. Are you saying one shouldn't put money into international/emerging markets, or small and midcap domestic stocks? VSTAX invests more broadly than just the S&P 500, and it actually has outperformed the S&P 500 over time. But it just as easily could have lagged the S&P had small and midcap stocks turned out to be a a bad choice.

If you want to know what I'm saying look at the exact words I wrote in my post.  No need to concoct a  strawman argument.   I said it is important to measure performance. The whole premise behind these expensive robo-advisors is that they increase performance.  The idea is that if I invest with Wealthfront or Betterment, I wind up with more money than if I just invested it myself.  Why would I invest with them otherwise?  And they (and you) claim the fees they charge are made up for by increased performance.

But only way to know if you wind up more money if is you measure them against what you would have done otherwise.  And if you would have simply stuck the money in a nice S&P 500 index fund, you would have blown the doors off both of them.

Their claim, and your claim is they are doing something wildly different, and therefore they shouldn't be compared to anything.  Okay.  But if I don't compare them to anything, how do I know if it is a good idea to invest with them or not?  Just trust the nice man taking my money has my best interests  at heart?   They are asking us to trust, but don't verify. 

There is a reason why they argue against making comparisons.  It is because mathematically they can't win.  They don't use benchmarks because they always lose vs. any common benchmark. You can wave your hands all you want, but that's just the math.

It is your money.  If you want to pay big dollars to scoop pennies out of the ashtray, knock yourself out.  But you should ask yourself why your paid adviser who is selling his performance doesn't want you to measure his performance. 


« Last Edit: September 27, 2017, 09:43:39 AM by Telecaster »

boarder42

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Re: Beginner investing
« Reply #24 on: September 27, 2017, 06:16:39 AM »
Telecaster do you have the numbers from those 2 and what their standard asset allocations are..

since 2004
VWO - up 73%
VTI   - up 149%
VO    - up 195%
VOO  - up 125%
VB    - up 183%
VXUS - up 10%

Since 2011 
VWO - up -8.16%
VTI   - up 98.8%
VO    - up 95%
VOO  - up 100%
VB    - up 91%
VXUS - up 10%

I would assume they arent more that 10% emerging markets and probably arent more than 20% international but those 2 were the biggest portfolio drags over this time.

AdrianC

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Re: Beginner investing
« Reply #25 on: September 27, 2017, 10:55:48 AM »
Thanks for the advice guys! I have good risk tolerance as my only debt is my 30yr mortgage at a 3.875 interest rate, and I have a secure emergency fund. My current thinking was to invest 90% stock/10% bonds via Betterment.

You could also consider the Vanguard LifeStrategy Funds:

https://investor.vanguard.com/mutual-funds/lifestrategy/#/

Automatic diversification, asset allocation and rebalancing for 0.15%.

boarder42

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Re: Beginner investing
« Reply #26 on: September 27, 2017, 11:58:07 AM »
Thanks for the advice guys! I have good risk tolerance as my only debt is my 30yr mortgage at a 3.875 interest rate, and I have a secure emergency fund. My current thinking was to invest 90% stock/10% bonds via Betterment.

You could also consider the Vanguard LifeStrategy Funds:

https://investor.vanguard.com/mutual-funds/lifestrategy/#/

Automatic diversification, asset allocation and rebalancing for 0.15%.

Did you not see the piles of advice recommending against betterment.  you should be looking into vanguard over betterment or some other lower cost provider.  betterment not only loses to the market it loses handidly. 

You're sacraficing millions for the sake of not learning

Telecaster

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Re: Beginner investing
« Reply #27 on: September 27, 2017, 12:41:21 PM »
Telecaster do you have the numbers from those 2 and what their standard asset allocations are..


I don't.  And it isn't possible to backtest (as far as I know) unless you know their algorithm when to sell, and the substitute ETF to buy to avoid wash sale rules. 

Interest Compound

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Re: Beginner investing
« Reply #28 on: September 27, 2017, 01:04:06 PM »
If you're considering going with a Robo Advisor, Vanguard is the obvious choice. Betterment puts your money in Vanguard anyway, so why not go directly to the source?

After speaking with hundreds of people about investing, I've come to recommend Vanguard's automatic accounts. MrMoneyMustache also recommends an automatic portfolio for his readers. Psychologically it makes sense. It takes the newbie's decision making out of the equation, as they put their portfolio in the hands of an expert. And what better expert than Vanguard? The only investment firm that's legally obligated to act in our best interests?



You have two amazing options:

1. "I want Vanguard's experts to do everything for me. I'll just tell them my age and they'll put it in the appropriate Target Retirement Fund"



2. "I want Vanguard's experts to do everything for me. I'll just tell them how much risk I want, and they'll put it in the appropriate LifeStrategy Fund"



Then forget about it.

Vanguard's automatic accounts are every-bit as automatic as Betterment. I would say I wish Vanguard advertised this more...but then all our fees would go up to pay for it :)

Choosing a Vanguard automatic account is effectively like saying, "Hey Vanguard. Will you manage that 3-fund portfolio for me that I keep hearing so much about?" These accounts:
  • Don't require advanced knowledge of the market to invest (anybody can do it with a few button pushes)
  • Are professionally managed automatically, by the only company which generates just enough profit to cover its costs, and with no outside owners (they are owned by people like you who invest with them) truly operates with your best interests in mind.
  • Relieve you of the burden of choosing your own asset allocation, and does so with no tracking error. Reducing behavioral mistakes and possible emotional abandonment to the strategy, the biggest risk to your portfolio.
  • Automatically rebalance.
  • Gradually get less risky as you age (TargetRetirement).
  • Keep you from tinkering with your portfolio.
  • Let you easily schedule automatic contributions while keeping your allocation balanced ($500 a paycheck automatically invested for example).
  • Let you easily schedule automatic distributions while keeping your allocation balanced ($4000 a month automatically deposited to your bank account for example).
  • Let you "Set it and forget it". You can literally login once, schedule automatic contributions, and come back 30 years later knowing everything has been taken care of for you.
  • Reinvest dividends automatically.
  • Don't try to beat the market by adding 10% of this and 5% of that. The aim is not to separate winners from losers, but rather to hold the entire market.
  • Give you the most diverse portfolio possible, with 21,600+ individual holdings across the world.
  • Allow you to easily invest money separately based on goals. Short-term money vs long-term money vs retirement money, for example.

And don't fall for the idea that tax loss harvesting will pay for Betterment's much higher fees. This is mathematically impossible in any market that goes up over time. When looking back at the ETFs that Betterment puts you in, all tax loss harvesting for any particular deposit completely stopped on average in a year or so. Again, this is what you expect in a market that goes up over time.

When a company starts making decisions which sound good for marketing, but make their customers worse-off (20+ ETFs, making sector bets which backtested well which looks great in marketing material, forcing Municipal Bonds on taxable accounts when 99% of Americans are mathematically better off without them), that's a big warning flag.

Their growth rate is stagnating, and they're still unprofitable. Choose wisely.

boarder42

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Re: Beginner investing
« Reply #29 on: September 27, 2017, 02:49:52 PM »
I reported you to the moderators Interest

B/c i think this post should be stickied.  so many people come on here and want to invest NOW but dont have time to learn NOW.  this post is a great reflection of why betterment/wealthfront will be bad for you in the long run as well as the amazing benefits of using a vanguard account that can do the same thing for you but for a lower cost. 

If i was going to pick a robo advisor vanguard is the way to go (but we all should really learn ourselves) see my post above about the lifetime cost of not learning yourself.

alexpkeaton

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Re: Beginner investing
« Reply #30 on: September 27, 2017, 10:26:52 PM »
But only way to know if you wind up more money if is you measure them against what you would have done otherwise.  And if you would have simply stuck the money in a nice S&P 500 index fund, you would have blown the doors off both of them.

You also need to compare risk. It may well be the case that the S&P 500 made more money during this time period. But is that true against all time periods? This is why you diversify. Yes, it happens to be the case that in the time period you picked foreign markets compared poorly to the S&P 500. So what?

Telecaster

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Re: Beginner investing
« Reply #31 on: September 27, 2017, 11:33:05 PM »
But only way to know if you wind up more money if is you measure them against what you would have done otherwise.  And if you would have simply stuck the money in a nice S&P 500 index fund, you would have blown the doors off both of them.

You also need to compare risk. It may well be the case that the S&P 500 made more money during this time period. But is that true against all time periods? This is why you diversify. Yes, it happens to be the case that in the time period you picked foreign markets compared poorly to the S&P 500. So what?

Hey hometown, you are the one making the extraordinary claim that fees Wealthfront and Betterment charge are more than made up for by the extra performance they deliver. 

Sounds awesome!  How much is that extra performance exactly?

I have 0.0 expectation that you will respond with a number quantifying the out performance. 


AdrianC

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Re: Beginner investing
« Reply #32 on: September 28, 2017, 09:37:22 AM »
Betterment and Wealthfront have internationally diversified portfolios. They got blown away by VTSAX (US only) because international did poorly over the last 10 years or so. Vanguard Lifestrategy Growth also did poorly compared to VTSAX over the last 10 years (Lifestrategy 5.3%, US Only 7.8%, Developed Markets 1.9%).

Going forward? Who knows? But international sure is cheaper.

I agree with everything in Interest Compound's post. Go with Vanguard. Be diversified.

alexpkeaton

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Re: Beginner investing
« Reply #33 on: September 28, 2017, 09:00:36 PM »
Hey hometown, you are the one making the extraordinary claim that fees Wealthfront and Betterment charge are more than made up for by the extra performance they deliver. 

Sounds awesome!  How much is that extra performance exactly?

I have 0.0 expectation that you will respond with a number quantifying the out performance.

You're saying you need to compare it to what you'd have done alternatively. I would not have invested it all in an S&P 500 fund. I would have lost to the S&P 500 in either case because I'd have diversified. Would you have dumped it all into the S&P 500? Why or why not?

Telecaster

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Re: Beginner investing
« Reply #34 on: October 09, 2017, 08:01:54 PM »
Hey hometown, you are the one making the extraordinary claim that fees Wealthfront and Betterment charge are more than made up for by the extra performance they deliver. 

Sounds awesome!  How much is that extra performance exactly?

I have 0.0 expectation that you will respond with a number quantifying the out performance.

You're saying you need to compare it to what you'd have done alternatively. I would not have invested it all in an S&P 500 fund. I would have lost to the S&P 500 in either case because I'd have diversified. Would you have dumped it all into the S&P 500? Why or why not?

Uh, I explained what I meant previously, but maybe you missed it:

Quote from: me
If you want to know what I'm saying look at the exact words I wrote in my post.


I'm saying you, alexpkeaton, will never, ever provide evidence of your claims of out performance.  The sun will grow dim before you provide a single number that backs up your bold statements. 

You will backtrack, change the subject, equivocate, make excuses, but one thing you will never, under any circumstances ever do is provide evidence.  That's what I'm saying.  You will never provide any numbers that validate your claims, ever.   

You seem new to investing, so I'll throw you a bone:  There is more than one way to measure performance.  You don't have to compare yourself to the S&P500.  You can and should just compare yourself to your desired asset allocation. 

 Let's say hypothetically, Wealthfront has you in 25% International, 50% US Large Cap, 35% Emerging markets.   If you want to answer the question if Wealthfront is worth the costs, you could simply create a blended index, with the returns weighted by the percent in your portfolio.  That's trivially easy to do.  Use say, the FTSE Global All Cap ex US Index, the S&P 500 and MSCI Emerging Markets Index as benchmarkets.  Then simply take the weight, multiply by the return, and add them all together.  Should take you less than five minutes a year.  Then you could see for yourself how much you are underperforming your blended index.

The reason why I said you seem new to investing is the only reason to invest with Wealthfront is you make more money with them, than without them.  That's true even if you only want them for their rebalancing services (there are other, cheaper ways to auto rebalance).  But if you can't tell if they are making you more money...then you sound like a rookie. 


Hey, everyone was a rookie once. 

AdrianC

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Re: Beginner investing
« Reply #35 on: October 10, 2017, 07:55:08 AM »
Let's say hypothetically, Wealthfront has you in 25% International, 50% US Large Cap, 35% Emerging markets.   If you want to answer the question if Wealthfront is worth the costs, you could simply create a blended index, with the returns weighted by the percent in your portfolio.  That's trivially easy to do.  Use say, the FTSE Global All Cap ex US Index, the S&P 500 and MSCI Emerging Markets Index as benchmarkets.  Then simply take the weight, multiply by the return, and add them all together.  Should take you less than five minutes a year.  Then you could see for yourself how much you are underperforming your blended index.

I'll just point out, and you know this but our newbie friend might not, that this method is not going to be accurate over multiple years or multiple rebalancing.

It's still trivially easy, use this:

https://www.portfoliovisualizer.com/backtest-portfolio

Enter your time period, rebalance frequency and investments and viola, accurate results.