Author Topic: Betterment - strangely unsuccessful investment  (Read 5705 times)

neo von retorch

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Betterment - strangely unsuccessful investment
« on: November 19, 2014, 11:29:35 AM »
Now I know that a) values change throughout the day (though an index fund like VFINX only gets an update after each market close) and b) VFINX is not representative of the stocks that Betterment invests in but I was wondering why my Betterment account has been spinning its wheels despite deposits going in during apparent dips in the market and the market seemingly at a record high the past couple of days. I made a spreadsheet listing the dates and amounts of deposits. Then I noted the value of VFINX on those days (and calculated the number of shares I would have.) Then I took today's VFINX price and calculated what the value "should be" if everything was nice and neat. Comparing the total value I calculated to my actual real world Betterment balance - the real world balance is 4.3% lower than what I calculated. (Or if you like to reverse the math, my theoretical investment is 4.5% higher.)

Can someone explain to me why this Betterment Portfolio is doing so much worse than a theoretical portfolio invested in VFINX over the same 4.3 month time period?

milesdividendmd

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Re: Betterment - strangely unsuccessful investment
« Reply #1 on: November 19, 2014, 11:42:16 AM »
 The simple answer is that the S&P has outperformed foreign stock markets in the time period you invested. (True of the past couple of years. )

Scandium

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Re: Betterment - strangely unsuccessful investment
« Reply #2 on: November 19, 2014, 11:46:52 AM »
VFINX is not representative of the stocks that Betterment invests in

You answered your own question..
Compare performance to the relevant index. What does it show then?

neo von retorch

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Re: Betterment - strangely unsuccessful investment
« Reply #3 on: November 19, 2014, 11:51:04 AM »
That make some sense. It just seems like a large differential in a short time period. Basically almost all of the deposits were when VFINX was ~$180 and it's now $190 (or 5%) while the value of my Betterment portfolio from July 10 to now has resulted in basically 0% change. Was there enough of a loss in the other investment types (foreign stocks) to make up for the 5% gain in US stocks?

Scandium

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Re: Betterment - strangely unsuccessful investment
« Reply #4 on: November 19, 2014, 12:00:01 PM »
That make some sense. It just seems like a large differential in a short time period. Basically almost all of the deposits were when VFINX was ~$180 and it's now $190 (or 5%) while the value of my Betterment portfolio from July 10 to now has resulted in basically 0% change. Was there enough of a loss in the other investment types (foreign stocks) to make up for the 5% gain in US stocks?

well it might be something like this
http://quotes.morningstar.com/chart/etf/chart.action?t=VEU&region=usa&culture=en-US
Down 6.4%?

neo von retorch

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Re: Betterment - strangely unsuccessful investment
« Reply #5 on: November 19, 2014, 12:12:02 PM »
Ah yes - the answer was really right there. They have my allocation at 39.5% in VEA - http://etfs.morningstar.com/quote?t=VEA (Developed Markets)
Just 16.9% is in VTI.

So given all that, would the erm... classic investment advice be "stick with it. This is properly allocated, so what comes down will go up?"

GGNoob

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Re: Betterment - strangely unsuccessful investment
« Reply #6 on: November 19, 2014, 12:26:16 PM »
Ah yes - the answer was really right there. They have my allocation at 39.5% in VEA - http://etfs.morningstar.com/quote?t=VEA (Developed Markets)
Just 16.9% is in VTI.

So given all that, would the erm... classic investment advice be "stick with it. This is properly allocated, so what comes down will go up?"

Yes, if you chose Betterment for your investment, just stick with it and keep investing. You cannot compare your entire portfolio to just one index.

wtjbatman

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Re: Betterment - strangely unsuccessful investment
« Reply #7 on: November 19, 2014, 03:29:13 PM »
Ah yes - the answer was really right there. They have my allocation at 39.5% in VEA - http://etfs.morningstar.com/quote?t=VEA (Developed Markets)
Just 16.9% is in VTI.

So given all that, would the erm... classic investment advice be "stick with it. This is properly allocated, so what comes down will go up?"

If you're this worried about 4 months of lagging returns, you're going to have a rough investing career! Yes, stick with it, there's a reason everyone talks about being in it for the long term. Think decades, not months.

Unless you're retiring in 4 months, then yes, you should think about it ;)

pbkmaine

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Re: Betterment - strangely unsuccessful investment
« Reply #8 on: November 19, 2014, 03:55:37 PM »
I would ask them why they are doing that particular allocation. Sounds a bit strange.

neo von retorch

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Re: Betterment - strangely unsuccessful investment
« Reply #9 on: November 19, 2014, 06:15:22 PM »
You can see the breakdown here: https://www.betterment.com/portfolio/

For reference, I have this particular account at 95% stocks.

GGNoob

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Re: Betterment - strangely unsuccessful investment
« Reply #10 on: November 19, 2014, 06:35:33 PM »

You can see the breakdown here: https://www.betterment.com/portfolio/

For reference, I have this particular account at 95% stocks.

I was 100% stocks when I used Betterment. I've since moved to Vanguard to manage my investments myself and avoid the fee. I personally really like Betterment and recommend it to any family and friends who are new to investing.

If you are investing for the long term, the short term performance doesn't matter. Just keep adding money and you'll be fine. Always remember that if stocks are down and you contribute more money, you just get to buy more shares.


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Goldielocks

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Re: Betterment - strangely unsuccessful investment
« Reply #11 on: November 19, 2014, 07:24:27 PM »


So given all that, would the erm... classic investment advice be "stick with it. This is properly allocated, so what comes down will go up?"

I think the classic advice is research, then "Buy more".   
 :-)

BEN_BANNED

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Re: Betterment - strangely unsuccessful investment
« Reply #12 on: November 19, 2014, 11:44:37 PM »
I had the same experience as the the OP and was admonished for "chasing yields".

Move your money to WiseBanyan. Same concept without the management fees and fancy U.I.

milesdividendmd

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Betterment - strangely unsuccessful investment
« Reply #13 on: November 19, 2014, 11:52:39 PM »
If you move your money based on 4 months performance when compared to a completely different asset allocation you are truly chasing yields.

It's not an admonishment. It is a fact.

If "skating to where the puck was" is your investment philosophy then good luck!

The wise banyan comment is totally irrelevant. In this case Betterment didn't underperform because of its fees. It was because of its asset allocation.
« Last Edit: November 19, 2014, 11:55:09 PM by milesdividendmd »

neo von retorch

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Re: Betterment - strangely unsuccessful investment
« Reply #14 on: November 20, 2014, 08:07:19 AM »
Yes - my biggest concern with moving money after 4 months is that if I had made any money, it's a short-term capital gain. My (taxable) money is roughly split 50/50 between Vanguard and Betterment, and it will stay that way for the next couple of years, but after that I will probably decide either a) I'm comfortable making occasional rebalances or b) I just want Betterment to do the tiny bit of work for me and I'm willing to pay for it. On my own (i.e. my Vanguard) I am not properly diversified. I just own lots of VTSAX. Also, Betterment should, within a couple years, have an glide option to automatically, slowly over time (as you approach goals) change your allocations from stock heavy to slightly more bond heavy. That might be interesting.