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Learning, Sharing, and Teaching => Investor Alley => Topic started by: BosoxNelly on September 03, 2014, 05:45:02 PM

Title: Betterment?
Post by: BosoxNelly on September 03, 2014, 05:45:02 PM
Hello all, I'm relatively new to the site, and very new to the blog, but I've at least gotten motivated to move all of my old 401k/IRA/Roth's from Morgan Stanley and I was thinking about using Betterment's service.  Check it out if you have a chance, they essentially use all Vanguard funds, essentially offering rebalancing and target based fund distributions.  The overall fee structure is very low (Vanguard + small Betterment fees).  I've had my money with MS for a long time and finally did the research to determine the fees I've been paying. Ugh.  The worst part is the broker is a college friend of mine so I had to have the breakup email :).  Anyway, I thought, being a Vanguard advocate, that someone on this forum may have experience with Betterment.
Thanks!
Title: Re: Betterment?
Post by: Beric01 on September 03, 2014, 05:54:14 PM
I *almost* signed up for Betterment. Then I realized I was just being lazy. It only takes a little more work to buy the funds yourself, and avoid the fees completely. And then you avoid the institutional risk of Betterment going down, and also give yourself more options for the future.
Title: Re: Betterment?
Post by: GGNoob on September 03, 2014, 05:59:43 PM
I'm a big fan of Betterment. I've been investing there for over a year now and I recommend it to new investors (I've signed up several family members at Betterment). As big of a fan as I am, I just withdrew the last of my funds from Betterment and I am moving to Vanguard. I want to be able to manage the funds myself and choose my own allocation. But I agree that their fees are pretty low and they can be hard to beat if you just want to deposit your money and forget about it. But with how much I enjoy managing the money myself, I figured I better move to Vanguard since in the long term, it will save me money.

FYI, Betterment offers a couple of sign-up bonuses that include 1-year free service (on top of the 30 days free). If you want a referral link, send me a message. It doesn't benefit me (my mom's account has the 1-year free referral, mine has $25 free), but I'm happy to help somebody out!

UPDATE: The 1 year free from the referral sign-up bonus has now been changed to just 30 days. So you get 30 days for free on top of your 30 day trial for a total of 60 days.
Title: Re: Betterment?
Post by: Dodge on September 03, 2014, 08:05:27 PM
Want to put your money somewhere and forget about it?  Here you go:

https://investor.vanguard.com/mutual-funds/lifestrategy/#/mini/overview/0122

Want it to automatically shift to bonds as you get older?  While still putting your money somewhere and forgetting about it?  Here you go:

https://investor.vanguard.com/mutual-funds/target-retirement/#/

Just want a 60/40 stock/bond portfolio, with the cheapest fee out there (0.09%). Here you go:

https://personal.vanguard.com/us/funds/snapshot?FundId=0502&FundIntExt=INT

Going with a place like Betterment/Wealthfront, who will just put your money into Vanguard anyway, will cost hundreds of thousands of dollars over your lifetime.  There's no need for it.
Title: Re: Betterment?
Post by: GGNoob on September 03, 2014, 08:18:23 PM
Good points Dodge.


Sent from my iPhone using Tapatalk
Title: Re: Betterment?
Post by: milesdividendmd on September 05, 2014, 02:00:50 AM
 
 Betterment is fantastic, particularly for taxable accounts, where tax loss harvesting should more than pay for the betterment account fee.

People have strong opinions about betterment. My bias is that they provide a great product for a fair price. I have over 50K invested with them with (about 18 % of my stock portfolio) the rest is invested in low cost self directed index funds. 

If I were you I would put 50% in betterment and 50% vanguard self directed funds and reassess after one year to see which is doing better.

Why not answer the question for yourself?
Title: Re: Betterment?
Post by: matchewed on September 05, 2014, 05:46:31 AM
I agree with Dodge, you could pay Betterment more money to do essentially the same thing you can do in 15 minutes a year. The cost doesn't match up fairly with time you'd save going with them.
Title: Re: Betterment?
Post by: Dodge on September 05, 2014, 08:21:54 AM

 Betterment is fantastic, particularly for taxable accounts, where tax loss harvesting should more than pay for the betterment account fee.

People have strong opinions about betterment. My bias is that they provide a great product for a fair price. I have over 50K invested with them with (about 18 % of my stock portfolio) the rest is invested in low cost self directed index funds. 

If I were you I would put 50% in betterment and 50% vanguard self directed funds and reassess after one year to see which is doing better.

Why not answer the question for yourself?

1 year is too short a time to know for sure, and by the time 30 years is up, it'll be too late.  I don't agree with this advice.  Would you advise giving 50% of your money to every fund manager out there who claims to be able to beat the market, to see if they really can?  If not, how do you differentiate?  There are many outfits who claim to use indexing + *magic sauce* to beat the market.

I recommend keeping it simple.
Title: Re: Betterment?
Post by: milesdividendmd on September 05, 2014, 11:21:45 AM

 Betterment is fantastic, particularly for taxable accounts, where tax loss harvesting should more than pay for the betterment account fee.

People have strong opinions about betterment. My bias is that they provide a great product for a fair price. I have over 50K invested with them with (about 18 % of my stock portfolio) the rest is invested in low cost self directed index funds. 

If I were you I would put 50% in betterment and 50% vanguard self directed funds and reassess after one year to see which is doing better.

Why not answer the question for yourself?

1 year is too short a time to know for sure, and by the time 30 years is up, it'll be too late.  I don't agree with this advice.  Would you advise giving 50% of your money to every fund manager out there who claims to be able to beat the market, to see if they really can?  If not, how do you differentiate?  There are many outfits who claim to use indexing + *magic sauce* to beat the market.

I recommend keeping it simple.

I agree that trying both for a year will not give one a statistically significant determination as to which approach is better.

The question is what is the OP comparing this option to?  Taking it on faith that Betterment is not a worthwhile service based on the  opinion of a few people on an  internet board?

I have been invested in betterment in addition to my previous Vanguard/Fidelity index funds for over a year new, and my experience has been that Betterment offers a valuable service at a reasonable price.  I recently upped my position in Betterment to take advantage of their tax loss harvesting algorithm.  In my opinion It is neither better nor worse than a self directed approach.

In the end the most important thing is that one picks an approach that they have a firm belief in so that they can stick with it through thick and thin and not deviate from their strategy when the going gets tough. 

I do believe that it is quite possible Betterment's set it and forget it approach will allow many investors not make behavioral mistakes with their portfolio because thay don't have to "do" anything at all to maintain a consistent approach to the market.

Observations like this one are pertinant even for Mustachians....

http://www.businessinsider.com.au/forgetful-investors-performed-best-2014-9

Enjoy!

Title: Re: Betterment?
Post by: BosoxNelly on September 05, 2014, 11:35:59 AM
Thanks everyone, I appreciate all the advice....I'll let you know what I decide!
Title: Re: Betterment?
Post by: Dodge on September 05, 2014, 12:05:51 PM

 Betterment is fantastic, particularly for taxable accounts, where tax loss harvesting should more than pay for the betterment account fee.

People have strong opinions about betterment. My bias is that they provide a great product for a fair price. I have over 50K invested with them with (about 18 % of my stock portfolio) the rest is invested in low cost self directed index funds. 

If I were you I would put 50% in betterment and 50% vanguard self directed funds and reassess after one year to see which is doing better.

Why not answer the question for yourself?

1 year is too short a time to know for sure, and by the time 30 years is up, it'll be too late.  I don't agree with this advice.  Would you advise giving 50% of your money to every fund manager out there who claims to be able to beat the market, to see if they really can?  If not, how do you differentiate?  There are many outfits who claim to use indexing + *magic sauce* to beat the market.

I recommend keeping it simple.

I agree that trying both for a year will not give one a statistically significant determination as to which approach is better.

The question is what is the OP comparing this option to?  Taking it on faith that Betterment is not a worthwhile service based on the  opinion of a few people on an  internet board?

I have been invested in betterment in addition to my previous Vanguard/Fidelity index funds for over a year new, and my experience has been that Betterment offers a valuable service at a reasonable price.  I recently upped my position in Betterment to take advantage of their tax loss harvesting algorithm.  In my opinion It is neither better nor worse than a self directed approach.

In the end the most important thing is that one picks an approach that they have a firm belief in so that they can stick with it through thick and thin and not deviate from their strategy when the going gets tough. 

I do believe that it is quite possible Betterment's set it and forget it approach will allow many investors not make behavioral mistakes with their portfolio because thay don't have to "do" anything at all to maintain a consistent approach to the market.

Observations like this one are pertinant even for Mustachians....

http://www.businessinsider.com.au/forgetful-investors-performed-best-2014-9

Enjoy!

Not questioning your thought process directly, but since you invest with Betterment, maybe you can answer this.  How is Betterment's "Set it and forget it" approach different than Vanguard's "Set it and forget it" approach, in terms of helping the average person stay the course?  I would argue that adding additional parts/complexity to the portfolio would only reduce their ability to stay the course, as it adds more questions.

Instead of just "Oh no, maybe indexing doesn't work (despite the mountain of evidence showing it does), time to sell everything!"  They now have:

"Oh no, maybe Betterment/Wealthfront isn't for me, time to sell everything and move elsewhere!"
or
"Oh no, Betterment/Wealthfront changed their philosophy adding a new secret sauce that no longer 100%  focuses on index funds, should I trust them?"
...etc.

When prices fall 50% like in 2008, it's easy to start questioning the decisions of the people managing your money.  In my opinion, the less questions there are, the easier it is for the average person to stay the course.  There is much evidence that indexing works over the long term.  There is no equivalent long-term evidence for a wealth management firm like Betterment/Wealthfront.

I don't see that helping.
Title: Re: Betterment?
Post by: milesdividendmd on September 05, 2014, 12:33:56 PM

 Betterment is fantastic, particularly for taxable accounts, where tax loss harvesting should more than pay for the betterment account fee.

People have strong opinions about betterment. My bias is that they provide a great product for a fair price. I have over 50K invested with them with (about 18 % of my stock portfolio) the rest is invested in low cost self directed index funds. 

If I were you I would put 50% in betterment and 50% vanguard self directed funds and reassess after one year to see which is doing better.

Why not answer the question for yourself?

1 year is too short a time to know for sure, and by the time 30 years is up, it'll be too late.  I don't agree with this advice.  Would you advise giving 50% of your money to every fund manager out there who claims to be able to beat the market, to see if they really can?  If not, how do you differentiate?  There are many outfits who claim to use indexing + *magic sauce* to beat the market.

I recommend keeping it simple.

I agree that trying both for a year will not give one a statistically significant determination as to which approach is better.

The question is what is the OP comparing this option to?  Taking it on faith that Betterment is not a worthwhile service based on the  opinion of a few people on an  internet board?

I have been invested in betterment in addition to my previous Vanguard/Fidelity index funds for over a year new, and my experience has been that Betterment offers a valuable service at a reasonable price.  I recently upped my position in Betterment to take advantage of their tax loss harvesting algorithm.  In my opinion It is neither better nor worse than a self directed approach.

In the end the most important thing is that one picks an approach that they have a firm belief in so that they can stick with it through thick and thin and not deviate from their strategy when the going gets tough. 

I do believe that it is quite possible Betterment's set it and forget it approach will allow many investors not make behavioral mistakes with their portfolio because thay don't have to "do" anything at all to maintain a consistent approach to the market.

Observations like this one are pertinant even for Mustachians....

http://www.businessinsider.com.au/forgetful-investors-performed-best-2014-9

Enjoy!

Not questioning your thought process directly, but since you invest with Betterment, maybe you can answer this.  How is Betterment's "Set it and forget it" approach different than Vanguard's "Set it and forget it" approach, in terms of helping the average person stay the course?  I would argue that adding additional parts/complexity to the portfolio would only reduce their ability to stay the course, as it adds more questions.

Instead of just "Oh no, maybe indexing doesn't work (despite the mountain of evidence showing it does), time to sell everything!"  They now have:

"Oh no, maybe Betterment/Wealthfront isn't for me, time to sell everything and move elsewhere!"
or
"Oh no, Betterment/Wealthfront changed their philosophy adding a new secret sauce that no longer 100%  focuses on index funds, should I trust them?"
...etc.

When prices fall 50% like in 2008, it's easy to start questioning the decisions of the people managing your money.  In my opinion, the less questions there are, the easier it is for the average person to stay the course.  There is much evidence that indexing works over the long term.  There is no equivalent long-term evidence for a wealth management firm like Betterment/Wealthfront.

I don't see that helping.

The advantage behaviorally in terms of a "set it and forget it" approach with betterment versus creating your own portfolio  of low cost index funds, is that the fund rebalances itself.  You have to do exactly nothing to maintain your designed asset allocation/risk exposure. 

With a collection of index funds you must rebalance once a year, which is an opportunity not to rebalance if the market is doing poorly, or to change your allocation in order to performance chase if the market is doing well.  Every one thinks they are immune to irrational investing decisions, but few actually are.

The vanguard equivalent is to put all your money in a target date fund, or a life strategy fund, but these are generally just 2 fund portfolios with a mark up.  Bettement's portfolio is better diversified, with more  value and size factor exposure.  Historically exposure to these factors has improved the returns and increased the efficiency of ones portfolio by a margin greater than the delta of the expenses.  (ie the diversification pays for itself.)

Simply put, Betterment has a better portfolio than the target date or lifetyle funds, and it likely has less behavioral risk than managing your own slice and dice portfolio.

Title: Re: Betterment?
Post by: Dodge on September 05, 2014, 12:48:48 PM

 Betterment is fantastic, particularly for taxable accounts, where tax loss harvesting should more than pay for the betterment account fee.

People have strong opinions about betterment. My bias is that they provide a great product for a fair price. I have over 50K invested with them with (about 18 % of my stock portfolio) the rest is invested in low cost self directed index funds. 

If I were you I would put 50% in betterment and 50% vanguard self directed funds and reassess after one year to see which is doing better.

Why not answer the question for yourself?

1 year is too short a time to know for sure, and by the time 30 years is up, it'll be too late.  I don't agree with this advice.  Would you advise giving 50% of your money to every fund manager out there who claims to be able to beat the market, to see if they really can?  If not, how do you differentiate?  There are many outfits who claim to use indexing + *magic sauce* to beat the market.

I recommend keeping it simple.

I agree that trying both for a year will not give one a statistically significant determination as to which approach is better.

The question is what is the OP comparing this option to?  Taking it on faith that Betterment is not a worthwhile service based on the  opinion of a few people on an  internet board?

I have been invested in betterment in addition to my previous Vanguard/Fidelity index funds for over a year new, and my experience has been that Betterment offers a valuable service at a reasonable price.  I recently upped my position in Betterment to take advantage of their tax loss harvesting algorithm.  In my opinion It is neither better nor worse than a self directed approach.

In the end the most important thing is that one picks an approach that they have a firm belief in so that they can stick with it through thick and thin and not deviate from their strategy when the going gets tough. 

I do believe that it is quite possible Betterment's set it and forget it approach will allow many investors not make behavioral mistakes with their portfolio because thay don't have to "do" anything at all to maintain a consistent approach to the market.

Observations like this one are pertinant even for Mustachians....

http://www.businessinsider.com.au/forgetful-investors-performed-best-2014-9

Enjoy!

Not questioning your thought process directly, but since you invest with Betterment, maybe you can answer this.  How is Betterment's "Set it and forget it" approach different than Vanguard's "Set it and forget it" approach, in terms of helping the average person stay the course?  I would argue that adding additional parts/complexity to the portfolio would only reduce their ability to stay the course, as it adds more questions.

Instead of just "Oh no, maybe indexing doesn't work (despite the mountain of evidence showing it does), time to sell everything!"  They now have:

"Oh no, maybe Betterment/Wealthfront isn't for me, time to sell everything and move elsewhere!"
or
"Oh no, Betterment/Wealthfront changed their philosophy adding a new secret sauce that no longer 100%  focuses on index funds, should I trust them?"
...etc.

When prices fall 50% like in 2008, it's easy to start questioning the decisions of the people managing your money.  In my opinion, the less questions there are, the easier it is for the average person to stay the course.  There is much evidence that indexing works over the long term.  There is no equivalent long-term evidence for a wealth management firm like Betterment/Wealthfront.

I don't see that helping.

The advantage behaviorally in terms of a "set it and forget it" approach with betterment versus creating your own portfolio  of low cost index funds, is that the fund rebalances itself.  You have to do exactly nothing to maintain your designed asset allocation/risk exposure. 

With a collection of index funds you must rebalance once a year, which is an opportunity not to rebalance if the market is doing poorly, or to change your allocation in order to performance chase if the market is doing well.  Every one thinks they are immune to irrational investing decisions, but few actually are.

The vanguard equivalent is to put all your money in a target date fund, or a life strategy fund, but these are generally just 2 fund portfolios with a mark up.  Bettement's portfolio is better diversified, with more international, value and size exposure.  Historically exposure to these factors has improved the returns and increased the efficiency of ones portfolio by a margin greater than the delta of the expenses.  (ie the diversification pays for itself.)

Simply put, Betterment has a better portfolio than the target date or lifetyle funds, and it likely has less behavioral risk than managing your own slice and dice portfolio.

The Vanguard target date and life strategy "set it and forget it" funds, all contain at least 4 funds.

Total Stock Market: 3744 stocks
Total Bond Market:  6985 bonds
Total International Stock Market: 5673 stocks
Total International Bond Market: 2764 bonds

A total of 19166 unique assets.  Betterment portfolios have more than 19166 unique assets?
Title: Re: Betterment?
Post by: milesdividendmd on September 05, 2014, 12:56:29 PM

 Betterment is fantastic, particularly for taxable accounts, where tax loss harvesting should more than pay for the betterment account fee.

People have strong opinions about betterment. My bias is that they provide a great product for a fair price. I have over 50K invested with them with (about 18 % of my stock portfolio) the rest is invested in low cost self directed index funds. 

If I were you I would put 50% in betterment and 50% vanguard self directed funds and reassess after one year to see which is doing better.

Why not answer the question for yourself?

1 year is too short a time to know for sure, and by the time 30 years is up, it'll be too late.  I don't agree with this advice.  Would you advise giving 50% of your money to every fund manager out there who claims to be able to beat the market, to see if they really can?  If not, how do you differentiate?  There are many outfits who claim to use indexing + *magic sauce* to beat the market.

I recommend keeping it simple.

I agree that trying both for a year will not give one a statistically significant determination as to which approach is better.

The question is what is the OP comparing this option to?  Taking it on faith that Betterment is not a worthwhile service based on the  opinion of a few people on an  internet board?

I have been invested in betterment in addition to my previous Vanguard/Fidelity index funds for over a year new, and my experience has been that Betterment offers a valuable service at a reasonable price.  I recently upped my position in Betterment to take advantage of their tax loss harvesting algorithm.  In my opinion It is neither better nor worse than a self directed approach.

In the end the most important thing is that one picks an approach that they have a firm belief in so that they can stick with it through thick and thin and not deviate from their strategy when the going gets tough. 

I do believe that it is quite possible Betterment's set it and forget it approach will allow many investors not make behavioral mistakes with their portfolio because thay don't have to "do" anything at all to maintain a consistent approach to the market.

Observations like this one are pertinant even for Mustachians....

http://www.businessinsider.com.au/forgetful-investors-performed-best-2014-9

Enjoy!

Not questioning your thought process directly, but since you invest with Betterment, maybe you can answer this.  How is Betterment's "Set it and forget it" approach different than Vanguard's "Set it and forget it" approach, in terms of helping the average person stay the course?  I would argue that adding additional parts/complexity to the portfolio would only reduce their ability to stay the course, as it adds more questions.

Instead of just "Oh no, maybe indexing doesn't work (despite the mountain of evidence showing it does), time to sell everything!"  They now have:

"Oh no, maybe Betterment/Wealthfront isn't for me, time to sell everything and move elsewhere!"
or
"Oh no, Betterment/Wealthfront changed their philosophy adding a new secret sauce that no longer 100%  focuses on index funds, should I trust them?"
...etc.

When prices fall 50% like in 2008, it's easy to start questioning the decisions of the people managing your money.  In my opinion, the less questions there are, the easier it is for the average person to stay the course.  There is much evidence that indexing works over the long term.  There is no equivalent long-term evidence for a wealth management firm like Betterment/Wealthfront.

I don't see that helping.

The advantage behaviorally in terms of a "set it and forget it" approach with betterment versus creating your own portfolio  of low cost index funds, is that the fund rebalances itself.  You have to do exactly nothing to maintain your designed asset allocation/risk exposure. 

With a collection of index funds you must rebalance once a year, which is an opportunity not to rebalance if the market is doing poorly, or to change your allocation in order to performance chase if the market is doing well.  Every one thinks they are immune to irrational investing decisions, but few actually are.

The vanguard equivalent is to put all your money in a target date fund, or a life strategy fund, but these are generally just 2 fund portfolios with a mark up.  Bettement's portfolio is better diversified, with more international, value and size exposure.  Historically exposure to these factors has improved the returns and increased the efficiency of ones portfolio by a margin greater than the delta of the expenses.  (ie the diversification pays for itself.)

Simply put, Betterment has a better portfolio than the target date or lifetyle funds, and it likely has less behavioral risk than managing your own slice and dice portfolio.

The Vanguard target date and life strategy "set it and forget it" funds, all contain at least 4 funds.

Total Stock Market: 3744 stocks
Total Bond Market:  6985 bonds
Total International Stock Market: 5673 stocks
Total International Bond Market: 2764 bonds

A total of 19166 unique assets.  Betterment portfolios have more than 19166 unique assets?

The betterment portolio has exposure to the value and size factors.  The target date funds do not.  Exposure to the value, size, momentum, and quality factors have historically been associated with higher than cap weighted market returns.

They have the roughly same number of unique assets, but the weighting is different.  Overweighting value companies and small companies, (or shorting large and growth companies) are the only ways to gain exposure to those factors.
Title: Re: Betterment?
Post by: Dodge on September 05, 2014, 01:33:17 PM

The Vanguard target date and life strategy "set it and forget it" funds, all contain at least 4 funds.

Total Stock Market: 3744 stocks
Total Bond Market:  6985 bonds
Total International Stock Market: 5673 stocks
Total International Bond Market: 2764 bonds

A total of 19166 unique assets.  Betterment portfolios have more than 19166 unique assets?

The betterment portolio has exposure to the value and size factors.  The target date funds do not.  Exposure to the value, size, momentum, and quality factors have historically been associated with higher than cap weighted market returns.

They have the roughly same number of unique assets, but the weighting is different.  Overweighting value companies and small companies, (or shorting large and growth companies) are the only way to gain exposure to those factors.

Got it.  So it sounds like we're hoping the past performance of these factors, predicts future returns.  Hoping that the market doesn't know about, or act on this free lunch, since that would eliminate the price advantage.  Correct?

I'm not sure how that's any different than all the other active funds who claim to be able to beat the market based on historical performance and backtesting of this or that, then fail to beat it moving forward, but let's ignore that for now.

Imagine BosoxNelly goes with Betterment, based on these factors, and 2008 happens.  Let's also assume BosoxNelly's portfolio drops 50%, exactly as much as the all-index portfolio.  My opinion, is that BosoxNelly would have a higher chance of not staying the course in this scenario.  If he/she believed the factors you mentioned would provide a less bumpy ride with higher returns, and they didn't, he/she might bail, looking for a new safe-haven/free-lunch.

In my opinion, the whole free-lunch mindset is toxic to the average investor.  If they think they've found a magic bullet, and it ends up not being true, they might exit the market all-together.  Maybe I'm biased, because I personally know people who thought they were positioned to beat the market, then bailed in early 2009, and I know other people who were indexed and said "Scared?  This happens all the time, give it a few years", but's just my experience.
Title: Re: Betterment?
Post by: kato on September 05, 2014, 01:38:47 PM
Want to put your money somewhere and forget about it?  Here you go:

https://investor.vanguard.com/mutual-funds/lifestrategy/#/mini/overview/0122

Want it to automatically shift to bonds as you get older?  While still putting your money somewhere and forgetting about it?  Here you go:

https://investor.vanguard.com/mutual-funds/target-retirement/#/

Just want a 60/40 stock/bond portfolio, with the cheapest fee out there (0.09%). Here you go:

https://personal.vanguard.com/us/funds/snapshot?FundId=0502&FundIntExt=INT

Going with a place like Betterment/Wealthfront, who will just put your money into Vanguard anyway, will cost hundreds of thousands of dollars over your lifetime.  There's no need for it.

Are there any vanguard funds (or simple combination of funds) that replicate Betterment's value tilt? 
Title: Re: Betterment?
Post by: GGNoob on September 05, 2014, 01:41:44 PM
Want to put your money somewhere and forget about it?  Here you go:

https://investor.vanguard.com/mutual-funds/lifestrategy/#/mini/overview/0122

Want it to automatically shift to bonds as you get older?  While still putting your money somewhere and forgetting about it?  Here you go:

https://investor.vanguard.com/mutual-funds/target-retirement/#/

Just want a 60/40 stock/bond portfolio, with the cheapest fee out there (0.09%). Here you go:

https://personal.vanguard.com/us/funds/snapshot?FundId=0502&FundIntExt=INT

Going with a place like Betterment/Wealthfront, who will just put your money into Vanguard anyway, will cost hundreds of thousands of dollars over your lifetime.  There's no need for it.

Are there any vanguard funds (or simple combination of funds) that replicate Betterment's value tilt?

Betterment uses Vanguard ETFs, so the entire portfolio can be replicated with ETFs or mutual funds if you wanted to.
Title: Re: Betterment?
Post by: milesdividendmd on September 05, 2014, 01:49:06 PM
Want to put your money somewhere and forget about it?  Here you go:

https://investor.vanguard.com/mutual-funds/lifestrategy/#/mini/overview/0122

Want it to automatically shift to bonds as you get older?  While still putting your money somewhere and forgetting about it?  Here you go:

https://investor.vanguard.com/mutual-funds/target-retirement/#/

Just want a 60/40 stock/bond portfolio, with the cheapest fee out there (0.09%). Here you go:

https://personal.vanguard.com/us/funds/snapshot?FundId=0502&FundIntExt=INT

Going with a place like Betterment/Wealthfront, who will just put your money into Vanguard anyway, will cost hundreds of thousands of dollars over your lifetime.  There's no need for it.

Are there any vanguard funds (or simple combination of funds) that replicate Betterment's value tilt?

Betterment uses Vanguard ETFs, so the entire portfolio can be replicated with ETFs or mutual funds if you wanted to.

Betterment also uses ishares, but I agree you can easily clone a close approximation of their portfolio using vanguard ETFs.
Title: Re: Betterment?
Post by: GGNoob on September 05, 2014, 01:53:07 PM
Betterment also uses ishares, but I agree you can easily clone a close approximation of their portfolio using vanguard ETFs.

Yes, was just going to edit my post. I was 100% stock in Betterment, so mine was all Vanguard. Some of the bond funds are iShares.
Title: Re: Betterment?
Post by: milesdividendmd on September 05, 2014, 02:30:22 PM

The Vanguard target date and life strategy "set it and forget it" funds, all contain at least 4 funds.

Total Stock Market: 3744 stocks
Total Bond Market:  6985 bonds
Total International Stock Market: 5673 stocks
Total International Bond Market: 2764 bonds

A total of 19166 unique assets.  Betterment portfolios have more than 19166 unique assets?

The betterment portolio has exposure to the value and size factors.  The target date funds do not.  Exposure to the value, size, momentum, and quality factors have historically been associated with higher than cap weighted market returns.

They have the roughly same number of unique assets, but the weighting is different.  Overweighting value companies and small companies, (or shorting large and growth companies) are the only way to gain exposure to those factors.

Got it.  So it sounds like we're hoping the past performance of these factors, predicts future returns.  Hoping that the market doesn't know about, or act on this free lunch, since that would eliminate the price advantage.  Correct?

I'm not sure how that's any different than all the other active funds who claim to be able to beat the market based on historical performance and backtesting of this or that, then fail to beat it moving forward, but let's ignore that for now.

Imagine BosoxNelly goes with Betterment, based on these factors, and 2008 happens.  Let's also assume BosoxNelly's portfolio drops 50%, exactly as much as the all-index portfolio.  My opinion, is that BosoxNelly would have a higher chance of not staying the course in this scenario.  If he/she believed the factors you mentioned would provide a less bumpy ride with higher returns, and they didn't, he/she might bail, looking for a new safe-haven/free-lunch.

In my opinion, the whole free-lunch mindset is toxic to the average investor.  If they think they've found a magic bullet, and it ends up not being true, they might exit the market all-together.  Maybe I'm biased, because I personally know people who thought they were positioned to beat the market, then bailed in early 2009, and I know other people who were indexed and said "Scared?  This happens all the time, give it a few years", but's just my experience.

Dodge,

 It seems to me that Your definition of "active" leaves much to be desired, including....

1.  The market, value, size, momentum, and quality factors have been rigorously studied over hundreds of years of investment history in in and out of sample testing by the most rigorous academic economists of the modern era in a peer reviewed fashion.  Eugene Fama, co-author of the 3  factor model, in fact, split a nobel prize with Robert Schiller last year for this research.  Betting against the persistence of these factors is a far more "active" stance to take than betting on their persistence.  The efficient market hypothesis (which you seem to advocate) in fact depends on risk based explanations for all of these factors and on the persistence of these premia in order to test its hypotheses.

2.  By your definition Rick Ferri, Larry Swedroe, William Bernstein are all "active" investors since they all advocate small and value tilts.

3.  By your definition even Jack Bogle is an "active" investor since he chooses to overweight US equities, and underweight international equities, commodities, alternative investments, and Real estate compared to the actual capitalization of the world economy.

4.  To claim that your way of investing is "passive" and all other ways are "active" seems completely illogical by any metric.

As to your behavioral argument, I fail to see why someone would preferentially pull their money out of Betterment during a crisis when they literally never need to look at their account to mantain a consistent asset allocation.  Alternatively, If you have a Vanguard slice and dice portfolio you must choose to sell your safe bonds and buy more toxic equities come rebalancing time in order to be effective, which isn't easy. 

Your argument seems to be that since you have a gestault negative impression of Betterment, you would be more likely to pull your money out in a crisis which, while probably true,  tells us exactly nothing about its value to anyone but you as an individual.

Title: Re: Betterment?
Post by: milesdividendmd on September 05, 2014, 02:38:55 PM
Betterment also uses ishares, but I agree you can easily clone a close approximation of their portfolio using vanguard ETFs.

Yes, was just going to edit my post. I was 100% stock in Betterment, so mine was all Vanguard. Some of the bond funds are iShares.

Betterment actually also holds non vanguard stock etfs like IWN, IVE, and IWS, but there are vanguard equivalents to these funds.
Title: Re: Betterment?
Post by: Petunia 100 on September 05, 2014, 02:48:23 PM

 Betterment is fantastic, particularly for taxable accounts, where tax loss harvesting should more than pay for the betterment account fee.

People have strong opinions about betterment. My bias is that they provide a great product for a fair price. I have over 50K invested with them with (about 18 % of my stock portfolio) the rest is invested in low cost self directed index funds. 

If I were you I would put 50% in betterment and 50% vanguard self directed funds and reassess after one year to see which is doing better.

Why not answer the question for yourself?

1 year is too short a time to know for sure, and by the time 30 years is up, it'll be too late.  I don't agree with this advice.  Would you advise giving 50% of your money to every fund manager out there who claims to be able to beat the market, to see if they really can?  If not, how do you differentiate?  There are many outfits who claim to use indexing + *magic sauce* to beat the market.

I recommend keeping it simple.

I agree that trying both for a year will not give one a statistically significant determination as to which approach is better.

The question is what is the OP comparing this option to?  Taking it on faith that Betterment is not a worthwhile service based on the  opinion of a few people on an  internet board?

I have been invested in betterment in addition to my previous Vanguard/Fidelity index funds for over a year new, and my experience has been that Betterment offers a valuable service at a reasonable price.  I recently upped my position in Betterment to take advantage of their tax loss harvesting algorithm.  In my opinion It is neither better nor worse than a self directed approach.

In the end the most important thing is that one picks an approach that they have a firm belief in so that they can stick with it through thick and thin and not deviate from their strategy when the going gets tough. 

I do believe that it is quite possible Betterment's set it and forget it approach will allow many investors not make behavioral mistakes with their portfolio because thay don't have to "do" anything at all to maintain a consistent approach to the market.

Observations like this one are pertinant even for Mustachians....

http://www.businessinsider.com.au/forgetful-investors-performed-best-2014-9

Enjoy!

Since the OP plans to move old 401k, IRA, and Roth IRA monies, how will a tax loss harvesting algorithm be of any benefit?
Title: Re: Betterment?
Post by: milesdividendmd on September 05, 2014, 02:56:46 PM

 Betterment is fantastic, particularly for taxable accounts, where tax loss harvesting should more than pay for the betterment account fee.

People have strong opinions about betterment. My bias is that they provide a great product for a fair price. I have over 50K invested with them with (about 18 % of my stock portfolio) the rest is invested in low cost self directed index funds. 

If I were you I would put 50% in betterment and 50% vanguard self directed funds and reassess after one year to see which is doing better.

Why not answer the question for yourself?

1 year is too short a time to know for sure, and by the time 30 years is up, it'll be too late.  I don't agree with this advice.  Would you advise giving 50% of your money to every fund manager out there who claims to be able to beat the market, to see if they really can?  If not, how do you differentiate?  There are many outfits who claim to use indexing + *magic sauce* to beat the market.

I recommend keeping it simple.

I agree that trying both for a year will not give one a statistically significant determination as to which approach is better.

The question is what is the OP comparing this option to?  Taking it on faith that Betterment is not a worthwhile service based on the  opinion of a few people on an  internet board?

I have been invested in betterment in addition to my previous Vanguard/Fidelity index funds for over a year new, and my experience has been that Betterment offers a valuable service at a reasonable price.  I recently upped my position in Betterment to take advantage of their tax loss harvesting algorithm.  In my opinion It is neither better nor worse than a self directed approach.

In the end the most important thing is that one picks an approach that they have a firm belief in so that they can stick with it through thick and thin and not deviate from their strategy when the going gets tough. 

I do believe that it is quite possible Betterment's set it and forget it approach will allow many investors not make behavioral mistakes with their portfolio because thay don't have to "do" anything at all to maintain a consistent approach to the market.

Observations like this one are pertinant even for Mustachians....

http://www.businessinsider.com.au/forgetful-investors-performed-best-2014-9

Enjoy!

Since the OP plans to move old 401k, IRA, and Roth IRA monies, how will a tax loss harvesting algorithm be of any benefit?

It won't.  Did someone claim that it would be?
Title: Re: Betterment?
Post by: Dodge on September 05, 2014, 03:09:15 PM

The Vanguard target date and life strategy "set it and forget it" funds, all contain at least 4 funds.

Total Stock Market: 3744 stocks
Total Bond Market:  6985 bonds
Total International Stock Market: 5673 stocks
Total International Bond Market: 2764 bonds

A total of 19166 unique assets.  Betterment portfolios have more than 19166 unique assets?

The betterment portolio has exposure to the value and size factors.  The target date funds do not.  Exposure to the value, size, momentum, and quality factors have historically been associated with higher than cap weighted market returns.

They have the roughly same number of unique assets, but the weighting is different.  Overweighting value companies and small companies, (or shorting large and growth companies) are the only way to gain exposure to those factors.

Got it.  So it sounds like we're hoping the past performance of these factors, predicts future returns.  Hoping that the market doesn't know about, or act on this free lunch, since that would eliminate the price advantage.  Correct?

I'm not sure how that's any different than all the other active funds who claim to be able to beat the market based on historical performance and backtesting of this or that, then fail to beat it moving forward, but let's ignore that for now.

Imagine BosoxNelly goes with Betterment, based on these factors, and 2008 happens.  Let's also assume BosoxNelly's portfolio drops 50%, exactly as much as the all-index portfolio.  My opinion, is that BosoxNelly would have a higher chance of not staying the course in this scenario.  If he/she believed the factors you mentioned would provide a less bumpy ride with higher returns, and they didn't, he/she might bail, looking for a new safe-haven/free-lunch.

In my opinion, the whole free-lunch mindset is toxic to the average investor.  If they think they've found a magic bullet, and it ends up not being true, they might exit the market all-together.  Maybe I'm biased, because I personally know people who thought they were positioned to beat the market, then bailed in early 2009, and I know other people who were indexed and said "Scared?  This happens all the time, give it a few years", but's just my experience.

Dodge,

 It seems to me that Your definition of "active" leaves much to be desired, including....

1.  The market, value, size, momentum, and quality factors have been rigorously studied over hundreds of years of investment history in in and out of sample testing by the most rigorous academic economists of the modern era in a peer reviewed fashion.  Eugene Fama, co-author of the 3  factor model, in fact, split a nobel prize with Robert Schiller last year for this research.  Betting against the persistence of these factors is a far more "active" stance to take than betting on their persistence.  The efficient market hypothesis (which you seem to advocate) in fact depends on risk based explanations for all of these factors and on the persistence of these premia in order to test its hypotheses.

2.  By your definition Rick Ferri, Larry Swedroe, William Bernstein are all "active" investors since they all advocate small and value tilts.

3.  By your definition even Jack Bogle is an "active" investor since he chooses to overweight US equities, and underweight international equities, commodities, alternative investments, and Real estate compared to the actual capitalization of the world economy.

4.  To claim that your way of investing is "passive" and all other ways are "active" seems completely illogical by any metric.

As to your behavioral argument, I fail to see why someone would preferentially pull their money out of Betterment during a crisis when they literally never need to look at their account to mantain a consistent asset allocation.  Alternatively, If you have a Vanguard slice and dice portfolio you must choose to sell your safe bonds and buy more toxic equities come rebalancing time in order to be effective, which isn't easy. 

Your argument seems to be that since you have a gestault negative impression of Betterment, you would be more likely to pull your money out in a crisis which, while probably true,  tells us exactly nothing about its value to anyone but you as an individual.

Wow.  I completely disagree, but it's not worth going back and forth on each point.  If you believe tilting in any particular direction represents a free lunch, let's just leave it at that.  I wish you, and your portfolio, luck!

I gave my opinion on the behavioral side based on personal observations of people's reactions during market downturns.  In my experience, people who look for and expect a free lunch in their investing, tend to bail when it's shown the free lunch did not exist.  If someone chooses Betterment over a Vanguard "set it and forget it" fund, it seems they might be expecting a free lunch, so I recommend against it.
Title: Re: Betterment?
Post by: milesdividendmd on September 05, 2014, 03:17:58 PM
The only free lunch in the Betterment strategy is improved diversification across imperfectly correlated asset classes.

Exposure to the size and value factors represents increased risk and an increased reward.  These asset classes are more volatile than the broad market.  There is nothing free about it, (although some do claim that the value factor is in part behaviorally based because investors prefer owning "good" companies to cheap or "bad," companies.  As an example people are more excited to own amazon stock than Kmart stock which perhaps creates a market inefficiency.)
Title: Re: Betterment?
Post by: Petunia 100 on September 05, 2014, 03:18:32 PM

 Betterment is fantastic, particularly for taxable accounts, where tax loss harvesting should more than pay for the betterment account fee.

People have strong opinions about betterment. My bias is that they provide a great product for a fair price. I have over 50K invested with them with (about 18 % of my stock portfolio) the rest is invested in low cost self directed index funds. 

If I were you I would put 50% in betterment and 50% vanguard self directed funds and reassess after one year to see which is doing better.

Why not answer the question for yourself?

1 year is too short a time to know for sure, and by the time 30 years is up, it'll be too late.  I don't agree with this advice.  Would you advise giving 50% of your money to every fund manager out there who claims to be able to beat the market, to see if they really can?  If not, how do you differentiate?  There are many outfits who claim to use indexing + *magic sauce* to beat the market.

I recommend keeping it simple.

I agree that trying both for a year will not give one a statistically significant determination as to which approach is better.

The question is what is the OP comparing this option to?  Taking it on faith that Betterment is not a worthwhile service based on the  opinion of a few people on an  internet board?

I have been invested in betterment in addition to my previous Vanguard/Fidelity index funds for over a year new, and my experience has been that Betterment offers a valuable service at a reasonable price.  I recently upped my position in Betterment to take advantage of their tax loss harvesting algorithm.  In my opinion It is neither better nor worse than a self directed approach.

In the end the most important thing is that one picks an approach that they have a firm belief in so that they can stick with it through thick and thin and not deviate from their strategy when the going gets tough. 

I do believe that it is quite possible Betterment's set it and forget it approach will allow many investors not make behavioral mistakes with their portfolio because thay don't have to "do" anything at all to maintain a consistent approach to the market.

Observations like this one are pertinant even for Mustachians....

http://www.businessinsider.com.au/forgetful-investors-performed-best-2014-9

Enjoy!

Since the OP plans to move old 401k, IRA, and Roth IRA monies, how will a tax loss harvesting algorithm be of any benefit?

It won't.  Did someone claim that it would be?

It it won't be of any benefit, then why should OP pay more for this valuable service?  Makes no sense to me.
Title: Re: Betterment?
Post by: milesdividendmd on September 05, 2014, 03:24:02 PM
Isn't that what we've been discussing?  Value tilt?  Size tilt?  evidence based portfolio design? ease of use?  behavioral advantages?

TLH is a wonderful added benefit for taxable accounts which should more than pay for Betterments expense ratio.  But its lack of utility in tax sheltered accounts doesn't negate Betterment's other benefits.
Title: Re: Betterment?
Post by: Petunia 100 on September 05, 2014, 03:48:20 PM
Isn't that what we've been discussing?  Value tilt?  Size tilt?  evidence based portfolio design? ease of use?  behavioral advantages?

TLH is a wonderful added benefit for taxable accounts which should more than pay for Betterments expense ratio.  But its lack of utility in tax sheltered accounts doesn't negate Betterment's other benefits.

Tilting for small and value may offer better results than total market investing going forward.  Or, it may not.   

Ease of use and behavioral advantages are equally available at both Vanguard and Betterment.

Betterment has no minimums, so is readily accessible to someone who is just getting started with investing. That is the only
clear advantage I see, and not applicable to OP.

OP, unless you really prefer to slice & dice, I suggest you roll your monies to Vanguard and choose a Target Retirement or Lifestrategy fund.    Congrats on leaving Morgan Stanley. :)
Title: Re: Betterment?
Post by: milesdividendmd on September 05, 2014, 04:24:16 PM
Isn't that what we've been discussing?  Value tilt?  Size tilt?  evidence based portfolio design? ease of use?  behavioral advantages?

TLH is a wonderful added benefit for taxable accounts which should more than pay for Betterments expense ratio.  But its lack of utility in tax sheltered accounts doesn't negate Betterment's other benefits.

Tilting for small and value may offer better results than total market investing going forward.  Or, it may not.   

Ease of use and behavioral advantages are equally available at both Vanguard and Betterment.

Betterment has no minimums, so is readily accessible to someone who is just getting started with investing. That is the only
clear advantage I see, and not applicable to OP.

OP, unless you really prefer to slice & dice, I suggest you roll your monies to Vanguard and choose a Target Retirement or Lifestrategy fund.    Congrats on leaving Morgan Stanley. :)

"Tilting for small and value may offer better results than total market investing going forward.  Or, it may not. "

This is a true and incomplete statement.  Either may offer better results, but based on all available academic research tilting towards small and value is more likely to offer better results.

One could also easily say "total stock market may offer better results than cash going forward .  Or it may not." 

It's just a question of probablility.  Either you choose to play the probabilities or you don't.

"Ease of use and behavioral advantages are equally available at both Vanguard and Betterment."

This is true.  Unfortunately at vanguard you can not have both a well diversified value and size tilted portfolio and ease of use.

That combination is a unique feature Betterment offers in tax sheltered accounts for a fair price.  For taxable accounts they also offer automated tax loss harvesting which I feel is a major value.

It should be noted that 80% of my portfolio is invested in self directed low cost index funds.  I enjoy designing my own strategy and implementing it, and I am not arguing against using vanguard index funds. 

It just seems to me that Betterment is a very reasonable option, and I have been nothing but impressed with their product which I have used and continue to use personally.
Title: Re: Betterment?
Post by: Dodge on September 05, 2014, 04:47:09 PM
The only free lunch in the Betterment strategy is improved diversification across imperfectly correlated asset classes.

Value is not an asset class.  Even if you believe it is, there is no improved diversification from weighing differently across the same number of stocks.

Betterment only offers 2329 international stocks, whereas the Vanguard "Set it and forget it" funds all have 5673 international stocks.

It cannot be stated that Betterment offers more diversification.

Exposure to the size and value factors represents increased risk and an increased reward.  These asset classes are more volatile than the broad market.  There is nothing free about it, (although some do claim that the value factor is in part behaviorally based because investors prefer owning "good" companies to cheap or "bad," companies.  As an example people are more excited to own amazon stock than Kmart stock which perhaps creates a market inefficiency.)

If it's not free, and the portfolio has less diversification, there is no benefit.
Title: Re: Betterment?
Post by: Dodge on September 05, 2014, 04:50:36 PM
"Tilting for small and value may offer better results than total market investing going forward.  Or, it may not. "

This is a true and incomplete statement.  Either may offer better results, but based on all available academic research tilting towards small and value is more likely to offer better results.

Past performance does not predict future returns.
Title: Re: Betterment?
Post by: Petunia 100 on September 05, 2014, 04:52:33 PM
"This is a true and incomplete statement.  Either may offer better results, but based on all available academic research tilting towards small and value is more likely to offer better results."

Yes, because it increases risk.   Something not everyone wishes to do.   Regards.
Title: Betterment?
Post by: milesdividendmd on September 05, 2014, 04:55:58 PM
The only free lunch in the Betterment strategy is improved diversification across imperfectly correlated asset classes.

Value is not an asset class.  Even if you believe it is, there is no improved diversification from weighing differently across the same number of stocks.

Betterment only offers 2329 international stocks, whereas the Vanguard "Set it and forget it" funds all have 5673 international stocks.

It cannot be stated that Betterment offers more diversification.

Exposure to the size and value factors represents increased risk and an increased reward.  These asset classes are more volatile than the broad market.  There is nothing free about it, (although some do claim that the value factor is in part behaviorally based because investors prefer owning "good" companies to cheap or "bad," companies.  As an example people are more excited to own amazon stock than Kmart stock which perhaps creates a market inefficiency.)

If it's not free, and the portfolio has less diversification, there is no benefit.

What a ridiculous statement.

Berkshire Hathaway is not free and it has less diversification than the total stock market.

By your logic warren buffet has provided no "benefit" to his investors.
Title: Re: Betterment?
Post by: milesdividendmd on September 05, 2014, 05:16:19 PM
"Tilting for small and value may offer better results than total market investing going forward.  Or, it may not. "

This is a true and incomplete statement.  Either may offer better results, but based on all available academic research tilting towards small and value is more likely to offer better results.

Past performance does not predict future returns.

Of course.  But past performance over long periods of time does make some future outcomes more probable than others.

If you don't believe this to be the case then you would equally consider implementing a 100 % stock portfolio to a 100 % bond portfolio for your long term asset  allocation. 
Title: Re: Betterment?
Post by: Dodge on September 05, 2014, 05:53:03 PM
The only free lunch in the Betterment strategy is improved diversification across imperfectly correlated asset classes.

Value is not an asset class.  Even if you believe it is, there is no improved diversification from weighing differently across the same number of stocks.

Betterment only offers 2329 international stocks, whereas the Vanguard "Set it and forget it" funds all have 5673 international stocks.

It cannot be stated that Betterment offers more diversification.

Exposure to the size and value factors represents increased risk and an increased reward.  These asset classes are more volatile than the broad market.  There is nothing free about it, (although some do claim that the value factor is in part behaviorally based because investors prefer owning "good" companies to cheap or "bad," companies.  As an example people are more excited to own amazon stock than Kmart stock which perhaps creates a market inefficiency.)

If it's not free, and the portfolio has less diversification, there is no benefit.

What a ridiculous statement.

Berkshire Hathaway is not free and it has less diversification than the total stock market.

By your logic warren buffet has provided no "benefit" to his investors.

Survivorship Bias (http://www.bogleheads.org/wiki/Survivorship_bias)
Title: Re: Betterment?
Post by: Dodge on September 05, 2014, 05:53:38 PM
"Tilting for small and value may offer better results than total market investing going forward.  Or, it may not. "

This is a true and incomplete statement.  Either may offer better results, but based on all available academic research tilting towards small and value is more likely to offer better results.

Past performance does not predict future returns.

Of course.  But past performance over long periods of time does make some future outcomes more probable than others.

If you don't believe this to be the case then you would equally consider implementing a 100 % stock portfolio to a 100 % bond portfolio for your long term asset  allocation.

Perhaps when looking at an entire asset classes, yes, but not within the asset class.  When looking at the asset class as a whole, you're expecting population growth, and productivity, to increase similarly in the future, as it has in the past.

When you're looking within the asset class, you're expecting a specific strategy to perform better, compared to other strategies, and compared the market as a whole.

This is fundamentally different.
Title: Re: Betterment?
Post by: milesdividendmd on September 05, 2014, 06:06:06 PM
"Tilting for small and value may offer better results than total market investing going forward.  Or, it may not. "

This is a true and incomplete statement.  Either may offer better results, but based on all available academic research tilting towards small and value is more likely to offer better results.

Past performance does not predict future returns.

Of course.  But past performance over long periods of time does make some future outcomes more probable than others.

If you don't believe this to be the case then you would equally consider implementing a 100 % stock portfolio to a 100 % bond portfolio for your long term asset  allocation.

Perhaps when looking at an entire asset classes, yes, but not within the asset class.  When looking at the asset class as a whole, you're expecting population growth, and productivity, to increase similarly in the future, as it has in the past.

When you're looking within the asset class, you're expecting a specific strategy to perform better, compared to other strategies, and compared the market as a whole.

This is fundamentally different.

I am unaware of any evidence to support your claim.  Please provide it if you have it.
 
On the other hand  I am aware of  plenty of academic evidence that refutes your claim.   Over long time periods value has outperformed growth stocks (and the market as a whole), positive momentum has consistently outperformed negative momentum(and the market as a whole), small stocks have consistently outperformed large stocks(and the market as a whole), and high quality stocks have consistently outperformed low quality stocks(and the market as a whole). 

This is  reality.  Now you can argue that hundreds of years of data have no relevance to the future if you like, but this is non statisitical (perhaps) magical thinking to imagine that statistical precedent is only relevant to stock versus bond allocation and not to value stocks versus growth stocks, etc.

Happy to share the studies if you are interested in reading them.
Title: Re: Betterment?
Post by: milesdividendmd on September 05, 2014, 06:08:07 PM
The only free lunch in the Betterment strategy is improved diversification across imperfectly correlated asset classes.

Value is not an asset class.  Even if you believe it is, there is no improved diversification from weighing differently across the same number of stocks.

Betterment only offers 2329 international stocks, whereas the Vanguard "Set it and forget it" funds all have 5673 international stocks.

It cannot be stated that Betterment offers more diversification.

Exposure to the size and value factors represents increased risk and an increased reward.  These asset classes are more volatile than the broad market.  There is nothing free about it, (although some do claim that the value factor is in part behaviorally based because investors prefer owning "good" companies to cheap or "bad," companies.  As an example people are more excited to own amazon stock than Kmart stock which perhaps creates a market inefficiency.)

If it's not free, and the portfolio has less diversification, there is no benefit.

What a ridiculous statement.

Berkshire Hathaway is not free and it has less diversification than the total stock market.

By your logic warren buffet has provided no "benefit" to his investors.

Survivorship Bias (http://www.bogleheads.org/wiki/Survivorship_bias)

Okay,  so you're on the record that you think that Warren Buffet is not a skilled investor and that his outperformance simply reflects survivorship bias.

I'll go on the record that I disagree with you.  I think Buffet is skilled and not just lucky.
Title: Re: Betterment?
Post by: Dodge on September 05, 2014, 06:12:07 PM
"Tilting for small and value may offer better results than total market investing going forward.  Or, it may not. "

This is a true and incomplete statement.  Either may offer better results, but based on all available academic research tilting towards small and value is more likely to offer better results.

Past performance does not predict future returns.

Of course.  But past performance over long periods of time does make some future outcomes more probable than others.

If you don't believe this to be the case then you would equally consider implementing a 100 % stock portfolio to a 100 % bond portfolio for your long term asset  allocation.

Perhaps when looking at an entire asset classes, yes, but not within the asset class.  When looking at the asset class as a whole, you're expecting population growth, and productivity, to increase similarly in the future, as it has in the past.

When you're looking within the asset class, you're expecting a specific strategy to perform better, compared to other strategies, and compared the market as a whole.

This is fundamentally different.

I am unaware of any evidence to support your claim.  Please provide it if you have it.
 
On the other hand  I am aware of  plenty of academic evidence that refutes your claim.   Over long time periods value has outperformed growth stocks (and the market as a whole), positive momentum has consistently outperformed negative momentum(and the market as a whole), small stocks have consistently outperformed large stocks(and the market as a whole), and high quality stocks have consistently outperformed low quality stocks(and the market as a whole). 

This is  reality.  Now you can argue that hundreds of years of data have no relevance to the future if you like, but this is non statisitical (perhaps) magical thinking to imagine that statistical precedent is only relevant to stock versus bond allocation and not to value stocks versus growth stocks, etc.

Happy to share the studies if you are interested in reading them.

Provide evidence that past performance does not predict future returns?

Can you provide evidence that value, or any other factor, has continued to outperform the market on a risk-adjusted basis, after such information was made public?
Title: Re: Betterment?
Post by: Petunia 100 on September 05, 2014, 06:12:58 PM

Perhaps when looking at an entire asset classes, yes, but not within the asset class.  When looking at the asset class as a whole, you're expecting population growth, and productivity, to increase similarly in the future, as it has in the past.

When you're looking within the asset class, you're expecting a specific strategy to perform better, compared to other strategies, and compared the market as a whole.

This is fundamentally different.

I am unaware of any evidence to support your claim.  Please provide it if you have it.
 
On the other hand  I am aware of  plenty of academic evidence that refutes your claim.   Over long time periods value has outperformed growth stocks (and the market as a whole), positive momentum has consistently outperformed negative momentum(and the market as a whole), small stocks have consistently outperformed large stocks(and the market as a whole), and high quality stocks have consistently outperformed low quality stocks(and the market as a whole). 

This is  reality.  Now you can argue that hundreds of years of data have no relevance to the future if you like, but this is non statisitical (perhaps) magical thinking to imagine that statistical precedent is only relevant to stock versus bond allocation and not to value stocks versus growth stocks, etc.

Happy to share the studies if you are interested in reading them.

Then why hold growth and large cap stocks at all?  If the higher return is assured, why not go 100% small value?
Title: Re: Betterment?
Post by: milesdividendmd on September 05, 2014, 06:38:30 PM
Nothing is assured.  Some outcomes are merely more probable.  Diversification has historically and statistically significantly lowered portfolio risk and tilting toward factors that increase returns has statistically improved portfolio returns out of proportion to the portfolio's overall risk.

It's up to you to decide if you want to play the averages and how big of a bet you want to make on any one factor.

But just remember that if you invest in a Life strategy fund you are making a non market cap weighted bet that the US will significantly outperform the rest of the world going forward since you are over-weighting the US.   (If I had to bet I'd guess the converse would be true based on valuations, , but I don't, so my portfolio will be close to 50/50 US/International going forward, in keeping with the actual composition of the world economy.)



Title: Re: Betterment?
Post by: milesdividendmd on September 05, 2014, 06:46:06 PM
"Tilting for small and value may offer better results than total market investing going forward.  Or, it may not. "

This is a true and incomplete statement.  Either may offer better results, but based on all available academic research tilting towards small and value is more likely to offer better results.

Past performance does not predict future returns.

Of course.  But past performance over long periods of time does make some future outcomes more probable than others.

If you don't believe this to be the case then you would equally consider implementing a 100 % stock portfolio to a 100 % bond portfolio for your long term asset  allocation.

Perhaps when looking at an entire asset classes, yes, but not within the asset class.  When looking at the asset class as a whole, you're expecting population growth, and productivity, to increase similarly in the future, as it has in the past.

When you're looking within the asset class, you're expecting a specific strategy to perform better, compared to other strategies, and compared the market as a whole.

This is fundamentally different.

I am unaware of any evidence to support your claim.  Please provide it if you have it.
 
On the other hand  I am aware of  plenty of academic evidence that refutes your claim.   Over long time periods value has outperformed growth stocks (and the market as a whole), positive momentum has consistently outperformed negative momentum(and the market as a whole), small stocks have consistently outperformed large stocks(and the market as a whole), and high quality stocks have consistently outperformed low quality stocks(and the market as a whole). 

This is  reality.  Now you can argue that hundreds of years of data have no relevance to the future if you like, but this is non statisitical (perhaps) magical thinking to imagine that statistical precedent is only relevant to stock versus bond allocation and not to value stocks versus growth stocks, etc.

Happy to share the studies if you are interested in reading them.

Provide evidence that past performance does not predict future returns?

Can you provide evidence that value, or any other factor, has continued to outperform the market on a risk-adjusted basis, after such information was made public?

Easy.

Momentum: 

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2435323

Still waiting for you to support your claim....
Title: Re: Betterment?
Post by: Petunia 100 on September 05, 2014, 07:01:11 PM
Tilting and diversification are not synonymous.  Diversification is achieved by adding an additional asset class.  Tilting is achieved by overweighting an already present asset class.   

Diversification reduces a portfolio's risk.  Tilting increases a portfolio's risk. 

Title: Re: Betterment?
Post by: Dodge on September 05, 2014, 07:05:07 PM
"Tilting for small and value may offer better results than total market investing going forward.  Or, it may not. "

This is a true and incomplete statement.  Either may offer better results, but based on all available academic research tilting towards small and value is more likely to offer better results.

Past performance does not predict future returns.

Of course.  But past performance over long periods of time does make some future outcomes more probable than others.

If you don't believe this to be the case then you would equally consider implementing a 100 % stock portfolio to a 100 % bond portfolio for your long term asset  allocation.

Perhaps when looking at an entire asset classes, yes, but not within the asset class.  When looking at the asset class as a whole, you're expecting population growth, and productivity, to increase similarly in the future, as it has in the past.

When you're looking within the asset class, you're expecting a specific strategy to perform better, compared to other strategies, and compared the market as a whole.

This is fundamentally different.

I am unaware of any evidence to support your claim.  Please provide it if you have it.
 
On the other hand  I am aware of  plenty of academic evidence that refutes your claim.   Over long time periods value has outperformed growth stocks (and the market as a whole), positive momentum has consistently outperformed negative momentum(and the market as a whole), small stocks have consistently outperformed large stocks(and the market as a whole), and high quality stocks have consistently outperformed low quality stocks(and the market as a whole). 

This is  reality.  Now you can argue that hundreds of years of data have no relevance to the future if you like, but this is non statisitical (perhaps) magical thinking to imagine that statistical precedent is only relevant to stock versus bond allocation and not to value stocks versus growth stocks, etc.

Happy to share the studies if you are interested in reading them.

Provide evidence that past performance does not predict future returns?

Can you provide evidence that value, or any other factor, has continued to outperform the market on a risk-adjusted basis, after such information was made public?

Easy.

Momentum: 

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2435323

Still waiting for you to support your claim....

Please point to the specific part of that paper which shows  that value, or any other factor, has continued to outperform the market on a risk-adjusted basis, after such information was made public.
Title: Re: Betterment?
Post by: Dodge on September 05, 2014, 07:08:40 PM
Nothing is assured.  Some outcomes are merely more probable.  Diversification has historically and statistically significantly lowered portfolio risk and tilting toward factors that increase returns has statistically improved portfolio returns out of proportion to the portfolio's overall risk.

It's up to you to decide if you want to play the averages and how big of a bet you want to make on any one factor.

But just remember that if you invest in a Life strategy fund you are making a non market cap weighted bet that the US will significantly outperform the rest of the world going forward since you are over-weighting the US.   (If I had to bet I'd guess the converse would be true based on valuations, , but I don't, so my portfolio will be close to 50/50 US/International going forward, in keeping with the actual composition of the world economy.)

FYI, 50% international might not be ideal.  You're taking on a lot of currency risk, which is uncompensated.  You might benefit from checking out this Vanguard PDF:

https://personal.vanguard.com/pdf/icriecr.pdf
Title: Re: Betterment?
Post by: Dodge on September 05, 2014, 07:12:00 PM
The only free lunch in the Betterment strategy is improved diversification across imperfectly correlated asset classes.

Value is not an asset class.  Even if you believe it is, there is no improved diversification from weighing differently across the same number of stocks.

Betterment only offers 2329 international stocks, whereas the Vanguard "Set it and forget it" funds all have 5673 international stocks.

It cannot be stated that Betterment offers more diversification.

Exposure to the size and value factors represents increased risk and an increased reward.  These asset classes are more volatile than the broad market.  There is nothing free about it, (although some do claim that the value factor is in part behaviorally based because investors prefer owning "good" companies to cheap or "bad," companies.  As an example people are more excited to own amazon stock than Kmart stock which perhaps creates a market inefficiency.)

If it's not free, and the portfolio has less diversification, there is no benefit.

What a ridiculous statement.

Berkshire Hathaway is not free and it has less diversification than the total stock market.

By your logic warren buffet has provided no "benefit" to his investors.

Survivorship Bias (http://www.bogleheads.org/wiki/Survivorship_bias)

Okay,  so you're on the record that you think that Warren Buffet is not a skilled investor and that his outperformance simply reflects survivorship bias.

I'll go on the record that I disagree with you.  I think Buffet is skilled and not just lucky.

Incorrect assessment of my statement.  I believe pointing to Warren Buffet as evidence that a portfolio with less diversification, and no free lunch, has a higher probability to beat the market, is exhibiting a Survivorship Bias, because it discounts the large number of similar funds which failed during this same time period.
Title: Re: Betterment?
Post by: milesdividendmd on September 05, 2014, 07:21:29 PM

The only free lunch in the Betterment strategy is improved diversification across imperfectly correlated asset classes.

Value is not an asset class.  Even if you believe it is, there is no improved diversification from weighing differently across the same number of stocks.

Betterment only offers 2329 international stocks, whereas the Vanguard "Set it and forget it" funds all have 5673 international stocks.

It cannot be stated that Betterment offers more diversification.

Exposure to the size and value factors represents increased risk and an increased reward.  These asset classes are more volatile than the broad market.  There is nothing free about it, (although some do claim that the value factor is in part behaviorally based because investors prefer owning "good" companies to cheap or "bad," companies.  As an example people are more excited to own amazon stock than Kmart stock which perhaps creates a market inefficiency.)

If it's not free, and the portfolio has less diversification, there is no benefit.

What a ridiculous statement.

Berkshire Hathaway is not free and it has less diversification than the total stock market.

By your logic warren buffet has provided no "benefit" to his investors.

Survivorship Bias (http://www.bogleheads.org/wiki/Survivorship_bias)

Okay,  so you're on the record that you think that Warren Buffet is not a skilled investor and that his outperformance simply reflects survivorship bias.

I'll go on the record that I disagree with you.  I think Buffet is skilled and not just lucky.

Incorrect assessment of my statement.  I believe pointing to Warren Buffet as evidence that a portfolio with less diversification, and no free lunch, has a higher probability to beat the market, is exhibiting a Survivorship Bias, because it discounts the large number of similar funds which failed during this same time period.

Then your statement had no relevance to the conversation.

I was not arguing that less diversification, and a portfolio that was not free, led to improved performance.

I was merely pointing out that the following statement that you made was a logical fallacy.

"If it's not free, and the portfolio has less diversification, there is no benefit."

Surely The mere existence of Warren Buffett and Berkshire Hathaway disproves The logic of your statement since Berkshire Hathaway is a portfolio with less diversification, and definite fees, and it has provided benefit above market returns for its investors.

Title: Re: Betterment?
Post by: Dodge on September 05, 2014, 07:26:10 PM

The only free lunch in the Betterment strategy is improved diversification across imperfectly correlated asset classes.

Value is not an asset class.  Even if you believe it is, there is no improved diversification from weighing differently across the same number of stocks.

Betterment only offers 2329 international stocks, whereas the Vanguard "Set it and forget it" funds all have 5673 international stocks.

It cannot be stated that Betterment offers more diversification.

Exposure to the size and value factors represents increased risk and an increased reward.  These asset classes are more volatile than the broad market.  There is nothing free about it, (although some do claim that the value factor is in part behaviorally based because investors prefer owning "good" companies to cheap or "bad," companies.  As an example people are more excited to own amazon stock than Kmart stock which perhaps creates a market inefficiency.)

If it's not free, and the portfolio has less diversification, there is no benefit.

What a ridiculous statement.

Berkshire Hathaway is not free and it has less diversification than the total stock market.

By your logic warren buffet has provided no "benefit" to his investors.

Survivorship Bias (http://www.bogleheads.org/wiki/Survivorship_bias)

Okay,  so you're on the record that you think that Warren Buffet is not a skilled investor and that his outperformance simply reflects survivorship bias.

I'll go on the record that I disagree with you.  I think Buffet is skilled and not just lucky.

Incorrect assessment of my statement.  I believe pointing to Warren Buffet as evidence that a portfolio with less diversification, and no free lunch, has a higher probability to beat the market, is exhibiting a Survivorship Bias, because it discounts the large number of similar funds which failed during this same time period.

Then your statement had no relevance to the conversation.

I was not arguing that less diversification, and a portfolio that was not free, led to improved performance.

I was merely pointing out that the following statement that you made was a logical fallacy.

"If it's not free, and the portfolio has less diversification, there is no benefit."

Surely The mere existence of Warren Buffett and Berkshire Hathaway disproves The logic of your statement since Berkshire Hathaway is a portfolio with less diversification, and definite fees, and it has provided benefit above market returns for its investors.

That depends on how you define benefit.

Edit:  I don't consider high risk leading to high rewards a benefit.  I was referring to a benefit on a risk-reward basis.
Title: Re: Betterment?
Post by: milesdividendmd on September 05, 2014, 07:29:16 PM

Nothing is assured.  Some outcomes are merely more probable.  Diversification has historically and statistically significantly lowered portfolio risk and tilting toward factors that increase returns has statistically improved portfolio returns out of proportion to the portfolio's overall risk.

It's up to you to decide if you want to play the averages and how big of a bet you want to make on any one factor.

But just remember that if you invest in a Life strategy fund you are making a non market cap weighted bet that the US will significantly outperform the rest of the world going forward since you are over-weighting the US.   (If I had to bet I'd guess the converse would be true based on valuations, , but I don't, so my portfolio will be close to 50/50 US/International going forward, in keeping with the actual composition of the world economy.)

FYI, 50% international might not be ideal.  You're taking on a lot of currency risk, which is uncompensated.  You might benefit from checking out this Vanguard PDF:

https://personal.vanguard.com/pdf/icriecr.pdf

Thanks, I've read this paper.

The point was not really about how much international exposure you should have.

The point was that the Vanguard life strategy fund vastly under-weights the international market. And it displays the classic home-field bias in that it aggressively overweight the United States.

This may be right and this may be wrong. But it's a non-market capital weighted decision that will have very real consequences for the portfolio going forward which is really strategically no different from overweighting value or small size.

By your definition this is "active investing in search for a "free lunch."



Title: Re: Betterment?
Post by: milesdividendmd on September 05, 2014, 07:30:40 PM


The only free lunch in the Betterment strategy is improved diversification across imperfectly correlated asset classes.

Value is not an asset class.  Even if you believe it is, there is no improved diversification from weighing differently across the same number of stocks.

Betterment only offers 2329 international stocks, whereas the Vanguard "Set it and forget it" funds all have 5673 international stocks.

It cannot be stated that Betterment offers more diversification.

Exposure to the size and value factors represents increased risk and an increased reward.  These asset classes are more volatile than the broad market.  There is nothing free about it, (although some do claim that the value factor is in part behaviorally based because investors prefer owning "good" companies to cheap or "bad," companies.  As an example people are more excited to own amazon stock than Kmart stock which perhaps creates a market inefficiency.)

If it's not free, and the portfolio has less diversification, there is no benefit.

What a ridiculous statement.

Berkshire Hathaway is not free and it has less diversification than the total stock market.

By your logic warren buffet has provided no "benefit" to his investors.

Survivorship Bias (http://www.bogleheads.org/wiki/Survivorship_bias)

Okay,  so you're on the record that you think that Warren Buffet is not a skilled investor and that his outperformance simply reflects survivorship bias.

I'll go on the record that I disagree with you.  I think Buffet is skilled and not just lucky.

Incorrect assessment of my statement.  I believe pointing to Warren Buffet as evidence that a portfolio with less diversification, and no free lunch, has a higher probability to beat the market, is exhibiting a Survivorship Bias, because it discounts the large number of similar funds which failed during this same time period.

Then your statement had no relevance to the conversation.

I was not arguing that less diversification, and a portfolio that was not free, led to improved performance.

I was merely pointing out that the following statement that you made was a logical fallacy.

"If it's not free, and the portfolio has less diversification, there is no benefit."

Surely The mere existence of Warren Buffett and Berkshire Hathaway disproves The logic of your statement since Berkshire Hathaway is a portfolio with less diversification, and definite fees, and it has provided benefit above market returns for its investors.

That depends on how you define benefit.

I define benefit as more money in the investors pocket. How do you define-benefit?
Title: Re: Betterment?
Post by: Dodge on September 05, 2014, 07:34:45 PM
I define benefit as more money in the investors pocket. How do you define-benefit?

Sorry, sent that last one prematurely.  I was referring to a benefit on a risk-adjusted basis.  If there was no free lunch, then I'd expect the return to be in line with the amount of risk, in which case, there was no benefit compared to the index.
Title: Betterment?
Post by: milesdividendmd on September 05, 2014, 08:15:06 PM
Then just invest 90% intermediate term treasuries. You will get returns in proportion to your risk.
Title: Re: Betterment?
Post by: Beric01 on September 05, 2014, 09:03:32 PM
You guys are really getting off topic - we're talking about Betterment here. Here's the point:


I can't see the value, and thus I can't recommend it to anyone.
Title: Re: Betterment?
Post by: Honest Abe on September 08, 2014, 03:48:03 AM
I like it. It's an all-seeing, never-blinking robot that invests my money optimally at all times. For taxable account the tax management is second to none. I could do this myself but I'm busy. Worth the .15% IMO.
Title: Re: Betterment?
Post by: boognish on September 15, 2014, 10:16:15 AM
Bump for the Mad Fientist's latest post

http://www.madfientist.com/moving-my-money-to-betterment/

Curious what you folks think

Title: Re: Betterment?
Post by: 4alpacas on September 15, 2014, 10:51:40 AM
Bump for the Mad Fientist's latest post

http://www.madfientist.com/moving-my-money-to-betterment/

Curious what you folks think
I'm checking out this thread because of the MF post too.  I'm also unfamiliar with the idea of tax-loss harvesting.  Does anyone have a quick definition or a resource I could check out?

Title: Re: Betterment?
Post by: boognish on September 15, 2014, 10:57:52 AM
Bump for the Mad Fientist's latest post

http://www.madfientist.com/moving-my-money-to-betterment/

Curious what you folks think
I'm checking out this thread because of the MF post too.  I'm also unfamiliar with the idea of tax-loss harvesting.  Does anyone have a quick definition or a resource I could check out?
https://www.betterment.com/resources/tax-loss-harvesting-white-paper/

Here's a breakdown from Betterment
Title: Re: Betterment?
Post by: 4alpacas on September 15, 2014, 11:03:22 AM
Thanks, boognish! 

I'm going to do a lot more research on this process, but I'm starting to warm up to the idea for my brokerage account.
Title: Re: Betterment?
Post by: arebelspy on September 15, 2014, 11:07:09 AM
Bump for the Mad Fientist's latest post

http://www.madfientist.com/moving-my-money-to-betterment/

Curious what you folks think

MFMF has another great post, as he always does.  Algorithmic TLH may actually make Bettermint worth paying them 0.15% to invest in Vanguard for you.  And I like how his sole motivation isn't to make money on referral fees.
Title: Re: Betterment?
Post by: Beric01 on September 15, 2014, 11:38:57 AM
This is kind of interesting I'll admit, but it just doesn't really work for me, at least not pre-FIRE. The problem is, Betterment is a complete solution. However, as an employee with a 401(k), I don't need a complete solution. I can't put my 401(k) in Betterment! And I'm far better off tax-wise putting my more heavily taxed assets (such as my bond funds and my international stock funds) in my 401(k) and my domestic stocks in my taxable. But Betterment doesn't let you buy a specific asset class - you can only buy stocks and/or bonds.

So, already having international stocks and domestic bonds in my 401(k) for tax efficiency, all I need to complete my portfolio is domestic stocks. But since I can't choose just domestic stocks at Betterment, I would be poorly diversified with a 100% stock allocation. My 401(k) doesn't offer a good low-cost domestic stock index like VTSAX (only international and domestic bond) or I could hold 2 fully balanced portfolios. Add the fact the Betterment bond funds in a taxable account will be fully taxed, and I'm in for some trouble.

I don't know how much Betterment will give you with tax-loss harvesting, but it can't be more than I'll lose by adjusting my allocation across my tax-deferred vs taxable accounts and paying more in taxes. Will have to wait and see once they release more data.
Title: Re: Betterment?
Post by: foobar on September 15, 2014, 11:41:40 AM
I like it. It's an all-seeing, never-blinking robot that invests my money optimally at all times. For taxable account the tax management is second to none. I could do this myself but I'm busy. Worth the .15% IMO.

Last time I checked wealthfront was better. Buying an managing a portfolio of 501 stocks is something that only a robo advisor can do easily. Tax loss harvest at the ETF level is something that anyone can do.
Title: Re: Betterment?
Post by: GGNoob on September 15, 2014, 11:48:28 AM
My initial thought with Betterment was to keep my IRA's and taxable investments there. Then my wife's 401k and HSA would be invested in funds that are not the same as the ETFs Betterment uses. Then since Betterment has control of the IRA's, they could do their TLH without creating any wash sales. The benefit from TLH would more than pay for the fees.

But then my wife's 401k funds were updated away from expensive active funds to Vanguard Index funds. Because I wanted to take advantage of those cheap funds (VTSAX) without risking wash sales, I decided I'd move my taxable and IRA accounts to Vanguard so I'd have more control over my asset allocation. I also didn't want to have to choose funds I didn't care to own in the 401k and HSA just to benefit my taxable account.

I now created an investment plan that will allow me to contribute more to tax-advantaged accounts and less to my taxable account anyhow, so TLH won't be as important as I thought it was going to be.

MF's post is very good and moving taxable investments to Betterment can make a lot of sense for some people. If you plan to do TLH, its going to be hard to beat the results that software can give you.
Title: Re: Betterment?
Post by: DollarsAndDissonance on September 15, 2014, 08:39:28 PM
Mad Fientist's endorsement has really piqued my interest.  The tax loss harvesting, automatic rebalancing, and tax-minimized sale accounting seem to be worth the minimal 0.15% fee, in my view.

In order to take advantage of the features, though, I think I would need to sell my positions in those ETFs in my taxable brokerage account.  I'm sitting on a couple thousand dollars of gains in those ETFs, mostly long-term.  My income is also the highest it's ever been and likely ever will be (28% bracket).  Seems like it's not worth incurring those capital gains just to move over.  Any thoughts?
Title: Re: Betterment?
Post by: arebelspy on September 15, 2014, 08:53:08 PM
In order to take advantage of the features, though, I think I would need to sell my positions in those ETFs in my taxable brokerage account.

Why not just start a new account there and put future taxable contributions in it, and leave what you have until you're FIRE'd in a lower tax bracket?
Title: Re: Betterment?
Post by: milesdividendmd on September 15, 2014, 09:51:35 PM
On a granular level, there is no one who's early retirement financial analysis is as insightful and detailed as the mad fientist.

I was thrilled and surprised to read his post today, because his view of Betterment closely mirrors my own.

For taxable accounts greater than $50,000, Betterment is truly a no-brainer. This is particularly true for Mustachians who plan to have lean retirements.

The argument goes that tax loss harvesting is not so valuable because it only delays taxes and does not get rid of them. But for those who plan to never earn above the 15% tax bracket in earned income during retirement, it is possible to not pay taxes now (via TLH) when capital glgains might be taxed due to current income, and not pay taxes and retirement because the capital gains and dividends are not taxed (at least at this point) for those in the 15% and lower tax brackets.

The only negative I can see with the MF approach, is that one cannot tax gain  harvest with Betterment. Of course if you never have to pay taxes in retirement due to your low earned income, this is sort of a non issue.

The final point I would make is less quantitative. But I'm glad to see that someone whose opinion I trust also recognizes quality mission of betterment.

Their transparency, user centered mentality, and commitment to continued improvement become quite obvious when you use their products. In the Robo advisor niche they are the exception, not the rule.
Title: Re: Betterment?
Post by: Beric01 on September 15, 2014, 09:56:56 PM
The only negative I can see with the MF approach, is that one cannot tax gain  harvest with Betterment. Of course if you never have to pay taxes in retirement due to your low earned income, this is sort of a known issue.

What about the negative I brought up, where due to its inflexibility you can't choose certain asset classes? Buying bonds in a taxable account is a major negative, particularly if you plan to avoid taxes on those bonds completely once reaching FIRE? Also, I can't select only domestic stocks due to having international stocks in my 401(k).

I don't need a complete solution. If I have a fully allocated portfolio with Betterment, that doesn't match up with my limited-option 401(k), and it also doesn't allow for tax optimization across multiple accounts, which means it doesn't matter what is available in your 401(k).

I only way I can see this being a good idea is if your income is so high that maxing out your 401(k) contributions is a drop in the bucket.
Title: Re: Betterment?
Post by: DollarsAndDissonance on September 15, 2014, 10:00:38 PM
Why not just start a new account there and put future taxable contributions in it, and leave what you have until you're FIRE'd in a lower tax bracket?

Betterment recommends against holding any of the ETFs in their portfolio in any other accounts to avoid issues with tax loss harvesting and wash sales.  Now that I think about it, though, I suppose that would only be a problem if I bought or sold those ETFs in my other account, which I could avoid.
Title: Re: Betterment?
Post by: milesdividendmd on September 15, 2014, 10:06:05 PM
One thing I would say is that Betterment optimizes your portfolio based on whether it is a taxable or nontaxable account. If you choose to have bonds in your account, and it is a taxable account, They will place the majority of your bonds in tax efficient bond funds such as municipal bond funds.

In addition you can always choose to have 100% stocks invested in your Betterment account.

From my experience investing a small amount of my portfolio with them I can report how very investor focused they are.

After you invest, if they see a way to improve your portfolio, they will call you and ask if it is okay for them to do so (like moving bonds into tax efficient bond funds).

Although you can't pick out individual investments, their portfolio checks all the boxes in modern portfolio theory.

And in terms of not messing up their TLH algorithm with your retirement account holdings, this is actually quite easy to avoid.  Simply choose not to own ETFs in your non-Betterment accounts, since they invest in ETFs only and not mutual funds.
Title: Re: Betterment?
Post by: arebelspy on September 15, 2014, 10:35:27 PM
And in terms of not messing up their TLH algorithm with your retirement account holdings, this is actually quite easy to avoid.  Simply choose not to own ETFs in your non-Betterment accounts, since they invest in ETFs only and not mutual funds.

The problem was that you already own them and don't want to sell due to capital gains, thus why you aren't just moving those funds to Bettermint.  So selling them and buying mutual funds isn't a solution to that problem.
Title: Re: Betterment?
Post by: milesdividendmd on September 15, 2014, 10:50:13 PM
And in terms of not messing up their TLH algorithm with your retirement account holdings, this is actually quite easy to avoid.  Simply choose not to own ETFs in your non-Betterment accounts, since they invest in ETFs only and not mutual funds.

The problem was that you already own them and don't want to sell due to capital gains, thus why you aren't just moving those funds to Bettermint.  So selling them and buying mutual funds isn't a solution to that problem.

That is a good point if you already own the same ETFS in a taxable account. In a retirement account there is no tax cost to switch investments.

In this specific case the move would be to change future elections to mutual funds, and turn off dividend reinvestment for the ETFs in question.

Title: Re: Betterment?
Post by: arebelspy on September 15, 2014, 11:29:03 PM
And in terms of not messing up their TLH algorithm with your retirement account holdings, this is actually quite easy to avoid.  Simply choose not to own ETFs in your non-Betterment accounts, since they invest in ETFs only and not mutual funds.

The problem was that you already own them and don't want to sell due to capital gains, thus why you aren't just moving those funds to Bettermint.  So selling them and buying mutual funds isn't a solution to that problem.

That is a good point if you already own the same ETFS in a taxable account. In a retirement account there is no tax cost to switch investments.

In this specific case the move would be to change future elections to mutual funds, and turn off dividend reinvestment for the ETFs in question.

Yeah, turning off dividend reinvestment is correct, but I think the move would be for future contributions to go to Bettermint, not mutual funds the other account, under the above assumptions (one wants to change to BM for some specific reason like TLH).
Title: Re: Betterment?
Post by: GGNoob on September 16, 2014, 06:50:56 AM
And in terms of not messing up their TLH algorithm with your retirement account holdings, this is actually quite easy to avoid.  Simply choose not to own ETFs in your non-Betterment accounts, since they invest in ETFs only and not mutual funds.

Betterment says that it doesn't matter if its an ETF or MF, but as long as it tracks the same index, it could cause wash sales: http://support.betterment.com/customer/portal/articles/1595496-can-i-still-use-tax-loss-harvesting-if-i-have-overlapping-securities-in-other-accounts-what-are-those-overlapping-securities-?_ga=1.131222090.49694029.1406129446
Title: Re: Betterment?
Post by: Dodge on September 16, 2014, 08:10:07 AM

You guys are really getting off topic - we're talking about Betterment here. Here's the point:

  • Betterment offers no better returns that just buying standard Vanguard Funds, and also charges an extra fee on top.
  • Betterment offers less flexibility in choosing one's investments, and Betterment could change their allocation, even if undesired by the participant.
  • Betterment carries the additional risk of Betterment itself, and not just the risk of the Vanguard funds. What if the company goes under?
  • Betterment's entire business model is to make it easier to invest. This might save someone 1 hour when setting up their initial investments. However, simply investing in Betterment requires one to do due diligence to make certain the company is not a scam, negating any time saved.

I can't see the value, and thus I can't recommend it to anyone.

Not to mention the fact that you can't choose your own individual investments. You have to trust they do the right thing with your money. Apparently their 100% stock portfolio is flat in the last few months (or so I've heard), whereas the S&P500 and VTSAX are up 2.5%, and an 80/20 stock/bond 3-Fund portfolio is up 1.5%

Of course a few months worth of data is meaningless, but that's the point. These startups (Wealthfront and Betterment) are new, and there's no telling if their back testing of the Tax Loss Harvesting robot will perform well into the future. There's no telling if their portfolio decisions and asset allocation will backfire, or change. There's no telling if these companies will even still be around in 5-10 years. Would you be forced to take your money out, incurring a huge tax bill, if the company goes under?

There has already been one case of these companies completely changing their investment strategy. What happens if 10 years from now they need more profit and switch to active funds? Will you take all your money out and incur 10 years of capital gains taxes, or trust their active traders know what they're doing? It doesn't seem to be possible to transfer your VTI holdings to another company if you want to leave, but correct me if I'm wrong.

While I'm glad there are choices out there, I personally feel more comfortable putting my money in a company like Vanguard, where the company is owned by us, and there are no stock owners or investors (who want to maximize profit) to please. If a company like Betterment sees their tax loss harvesting robot actually offers no gain, but is important in bringing in customers, they will be more likely to keep it around vs a company like Vanguard.

My life savings, and ability to retire, simply isn't worth it.
Title: Re: Betterment?
Post by: DollarsAndDissonance on September 16, 2014, 08:36:27 AM
Interesting points, Dodge.

To me, one of the biggest causes for concern is that the Betterment "robot" makes rebalancing and tax loss harvesting trades without any human approval.  That's probably fine 99.9% of the time, but you're counting on their algorithm to be written perfectly, even in bizarre situations like the 2010 flash crash.  Not sure I'm comfortable betting most of my retirement savings on that.
Title: Re: Betterment?
Post by: milesdividendmd on September 16, 2014, 08:52:51 AM

And in terms of not messing up their TLH algorithm with your retirement account holdings, this is actually quite easy to avoid.  Simply choose not to own ETFs in your non-Betterment accounts, since they invest in ETFs only and not mutual funds.

Betterment says that it doesn't matter if its an ETF or MF, but as long as it tracks the same index, it could cause wash sales: http://support.betterment.com/customer/portal/articles/1595496-can-i-still-use-tax-loss-harvesting-if-i-have-overlapping-securities-in-other-accounts-what-are-those-overlapping-securities-?_ga=1.131222090.49694029.1406129446

I had missed this.

Thanks for clarifying.

AZ
Title: Re: Betterment?
Post by: brooklynguy on September 16, 2014, 09:58:20 AM
Is there a source of data to indicate that Betterment's algorithmic tax loss harvesting actually produces beneficial results in light of the increased trading and jumping around into different investments?  The data in the Mad Fientist's post seem to speak only to absolute dollar amounts of tax losses harvested, without accounting for any differential in the performance between the original investment and the comparable position taken to avoid wash sales.  The average numbers included in the post for tax losses harvested this year seem like small enough percentages of the total portfolio values that they may be more than offset by the opportunity costs of being in different (but similar/comparable) investments.
Title: Re: Betterment?
Post by: foobar on September 16, 2014, 12:24:54 PM
Is there a source of data to indicate that Betterment's algorithmic tax loss harvesting actually produces beneficial results in light of the increased trading and jumping around into different investments?  The data in the Mad Fientist's post seem to speak only to absolute dollar amounts of tax losses harvested, without accounting for any differential in the performance between the original investment and the comparable position taken to avoid wash sales.  The average numbers included in the post for tax losses harvested this year seem like small enough percentages of the total portfolio values that they may be more than offset by the opportunity costs of being in different (but similar/comparable) investments.

Other companies have done studies and yes there is a gain. The difference between VTI and SCHB for example is pretty much zero so it doesn't matter if you hold 100k of VTI and 0k of SCHB or 50k of VTI And 50k of SCHB. The other ones are a little less correlated but the ERs.

That being said the value of tax loss harvesting depends a bit on the period. 2000-2013 is above average (i.e. those huge losses at the  start and middle) for the benefit of tax loss harvesting. And it depends on your current income and future ones. Tax loss harvesting in 2008 to save 15% wasn't a win if you had to sell in 2014 and had to pay  24%. Or in a more common case, you generate enough income to cause you SS to be taxed at 27% or 46% due to added income.  You would need to put in your exact projections (i.e. if you plan on donating your stock, the value of TLH goes way up. Plan on being rich in retirement, it goes down).

It is worth doing in my opinion but it isn't some magical tool that will lead to some great outperformance. If you lucky you will get another .25-.5% (that is definitely nice. Paying .15%+ for it though is borderline).
Title: Re: Betterment?
Post by: brooklynguy on September 16, 2014, 01:34:52 PM
Other companies have done studies and yes there is a gain. The difference between VTI and SCHB for example is pretty much zero so it doesn't matter if you hold 100k of VTI and 0k of SCHB or 50k of VTI And 50k of SCHB. The other ones are a little less correlated but the ERs.

Google Finance says the differential in performance between VTI and SCHB over the past year was 0.16%.  I suppose the performance differences could cut either way and therefore should on average cancel each other out, but if the benefits are small enough that Betterment's small fee makes it a borderline call then performance differentials in the wrong direction seem like they can completely erase the benefits.
Title: Re: Betterment?
Post by: foobar on September 16, 2014, 07:20:02 PM
Other companies have done studies and yes there is a gain. The difference between VTI and SCHB for example is pretty much zero so it doesn't matter if you hold 100k of VTI and 0k of SCHB or 50k of VTI And 50k of SCHB. The other ones are a little less correlated but the ERs.

Google Finance says the differential in performance between VTI and SCHB over the past year was 0.16%.  I suppose the performance differences could cut either way and therefore should on average cancel each other out, but if the benefits are small enough that Betterment's small fee makes it a borderline call then performance differentials in the wrong direction seem like they can completely erase the benefits.

Over 3 years (longest SCHB goes back) the difference is .03 in the NAV and .01 in the price. I would consider that in the random noise factor. The do hold slightly different stocks (turns out picking a total market isn't 100% passive) but they are similar and I actually expect the different to drop even more as SCHB assets grow. The value ETFs do vary more (personally I hate the Russell 2k value ones). You would have to run some 4 factor analysis to decide what you losing or gaining when you switch. It should be pointed out that some of the indexes that the alternative funds use are the same one that vanguard used to follow (they changed up to save  money is my understanding).

One other thing to remember about tax loss harvesting is that the longer you are invested, the less it matters. If you invested 100k in 2000, you had a lot of losses to harvest. If you invested that 100k in 1995 on the other hand, you are probably never going to tax harvest most of that money.  Once you start having 100%+ appreciation in your ETF shares, they basically no longer are useful for tax loss harvesting (well unless the great depression happens).
Title: Betterment?
Post by: Dodge on September 16, 2014, 09:39:48 PM

You guys are really getting off topic - we're talking about Betterment here. Here's the point:

  • Betterment offers no better returns that just buying standard Vanguard Funds, and also charges an extra fee on top.
  • Betterment offers less flexibility in choosing one's investments, and Betterment could change their allocation, even if undesired by the participant.
  • Betterment carries the additional risk of Betterment itself, and not just the risk of the Vanguard funds. What if the company goes under?
  • Betterment's entire business model is to make it easier to invest. This might save someone 1 hour when setting up their initial investments. However, simply investing in Betterment requires one to do due diligence to make certain the company is not a scam, negating any time saved.

I can't see the value, and thus I can't recommend it to anyone.

Not to mention the fact that you can't choose your own individual investments. You have to trust they do the right thing with your money. Apparently their 100% stock portfolio is flat in the last few months (or so I've heard), whereas the S&P500 and VTSAX are up 2.5%, and an 80/20 stock/bond 3-Fund portfolio is up 1.5%

Of course a few months worth of data is meaningless, but that's the point. These startups (Wealthfront and Betterment) are new, and there's no telling if their back testing of the Tax Loss Harvesting robot will perform well into the future. There's no telling if their portfolio decisions and asset allocation will backfire, or change. There's no telling if these companies will even still be around in 5-10 years. Would you be forced to take your money out, incurring a huge tax bill, if the company goes under?

There has already been one case of these companies completely changing their investment strategy. What happens if 10 years from now they need more profit and switch to active funds? Will you take all your money out and incur 10 years of capital gains taxes, or trust their active traders know what they're doing? It doesn't seem to be possible to transfer your VTI holdings to another company if you want to leave, but correct me if I'm wrong.

While I'm glad there are choices out there, I personally feel more comfortable putting my money in a company like Vanguard, where the company is owned by us, and there are no stock owners or investors (who want to maximize profit) to please. If a company like Betterment sees their tax loss harvesting robot actually offers no gain, but is important in bringing in customers, they will be more likely to keep it around vs a company like Vanguard.

My life savings, and ability to retire, simply isn't worth it.

Just read that Betterment allows In-Kind transfers, with no fee. This means you can transfer your money out of VTI for example, and move it over to your Vanguard account if you ever want to leave.

Unfortunately, I also read that in order to avoid wash sales, you can't own any similar investments in any account, including retirement accounts. MadFientist is moving his 401k and IRA money around, to accommodate Betterment's tax loss harvesting robot, likely into higher fee funds, further eating into any gains.

Does this mean the ERs in his tax advantaged accounts will increase? If so, how much will that eat into his gains? Since ER is percentage based, and tax loss harvesting has a yearly max of $3,000, I can see this getting away from him very quickly.
Title: Re: Betterment?
Post by: arebelspy on September 16, 2014, 10:14:28 PM
Does this mean the ERs in his tax advantaged accounts will increase? If so, how much will that eat into his gains? Since ER is percentage based, and tax loss harvesting has a yearly max of $3,000, I can see this getting away from him very quickly.

If TLH is capped at 3k and an expense ratio of 0.15% is added on top, one would need 2MM for the latter to surpass the former, assuming you have that much TLH.

I think the MF will have far less than that, especially given how much of a proponent he is of tax-advantaged accounts, and that he's only going to use BM for taxable.
Title: Re: Betterment?
Post by: Dodge on September 16, 2014, 10:36:42 PM

Does this mean the ERs in his tax advantaged accounts will increase? If so, how much will that eat into his gains? Since ER is percentage based, and tax loss harvesting has a yearly max of $3,000, I can see this getting away from him very quickly.

If TLH is capped at 3k and an expense ratio of 0.15% is added on top, one would need 2MM for the latter to surpass the former, assuming you have that much TLH.

I think the MF will have far less than that, especially given how much of a proponent he is of tax-advantaged accounts, and that he's only going to use BM for taxable.

That doesn't take into account the tax bracket. If you're in the 25% tax bracket, the $3,000 deductible would save you $750 a year in taxes. With an additional 0.15 ER, you hit break even at $500,000. With an additional 0.20 ER, it breaks even at $375,000. With an additional 0.25 ER the break even point is $300,000...etc.unfortunately many 401K's don't have too many low cost options which would avoid a wash sale. I wonder how he handles this.

Also, I was referring to the additional ER he might incur, by being forced to change the holdings I'm his *tax advantaged* accounts, to avoid wash sales in his *after tax* Betterment account. Let's see how this adds up, assume:

1.  Additional 0.15 ER in taxable
2.  Additional 0.15 ER in 401k stock funds to avoid wash sale
3.  25% tax bracket

If this is the scenario, he would have to have less than $500,000 combined in taxable + 401k stock funds, in order to benefit from tax loss harvesting, under the ideal tax loss harvesting situation.
Title: Re: Betterment?
Post by: milesdividendmd on September 16, 2014, 11:25:30 PM
Is there a source of data to indicate that Betterment's algorithmic tax loss harvesting actually produces beneficial results in light of the increased trading and jumping around into different investments?  The data in the Mad Fientist's post seem to speak only to absolute dollar amounts of tax losses harvested, without accounting for any differential in the performance between the original investment and the comparable position taken to avoid wash sales.  The average numbers included in the post for tax losses harvested this year seem like small enough percentages of the total portfolio values that they may be more than offset by the opportunity costs of being in different (but similar/comparable) investments.

With Betterment there are no trading costs above and beyond the additional Betterment expense ratio (0.35% to 0.15% depending on the amount of assets under management. )

This makes the math pretty easy. If tax loss harvesting saves you more than 0.35% annually, you come out ahead by investing taxable investments with Betterment.
Title: Re: Betterment?
Post by: milesdividendmd on September 16, 2014, 11:30:21 PM
Does this mean the ERs in his tax advantaged accounts will increase? If so, how much will that eat into his gains? Since ER is percentage based, and tax loss harvesting has a yearly max of $3,000, I can see this getting away from him very quickly.

If TLH is capped at 3k and an expense ratio of 0.15% is added on top, one would need 2MM for the latter to surpass the former, assuming you have that much TLH.

I think the MF will have far less than that, especially given how much of a proponent he is of tax-advantaged accounts, and that he's only going to use BM for taxable.

TLH is not capped at $3000.

You simply cannot use tax loss harvesting to write off more than $3000 of earned income on any given year.

You can however use tax loss harvesting to write off unlimited amounts of capital gains. And you can also carry forward tax losses to future years to avoid paying taxes on earned income and capital gains in the future.

(This is why Romney had to really bend over backwards to pay even 13% taxes in 2011.) he was still harvesting losses from 2008.
Title: Re: Betterment?
Post by: foobar on September 17, 2014, 06:35:06 AM
People should also remember tax loss harvesting isn't rocket science. Yes the daily stuff that wealthfront and betterment due is better than sitting down once a quarter(or monthly) and doing this manually but not by a ton.  TLH is one of those things that sounds awesome when you first hear about it but in reality it is just one of those nice things. Once you even things out (i.e. liquidate the portfolio) a ton of that so called tax alpha just vanishes. Definitely tax harvest. But paying .15% for it is stupid. If you need the hand holding for investing (or it makes you feel better/more able to stay the course), then you might get value for your AUM fee.
Title: Re: Betterment?
Post by: brooklynguy on September 17, 2014, 07:16:50 AM
Miles, in "costs" I'm including not just trading expenses but performance differentials in being in the alternate securities during the wash sale period, underlying expense ratio differentials of those alternate securities, etc.

The $3K cap acts as an effective total cap for those of us (like the MF) who won't have much in the way of capital gains until after the accumulation phase, when earnings become low enough for taxes not to matter (and the carried over tax losses to do no good).

That's why I suspect that in a true apples to apples comparison of a Betterment portfolio with algorithmic TLH to a normal Vanguard portfolio with human-performed TLH, the benefits of Betterment will start to look negligible.  I've made all these same points in the comments to MF's post.
Title: Re: Betterment?
Post by: foobar on September 17, 2014, 07:27:25 AM
Miles, in "costs" I'm including not just trading expenses but performance differentials in being in the alternate securities during the wash sale period, underlying expense ratio differentials of those alternate securities, etc.

The $3K cap acts as an effective total cap for those of us (like the MF) who won't have much in the way of capital gains until after the accumulation phase, when earnings become low enough for taxes not to matter (and the carried over tax losses to do no good).

That's why I suspect that in a true apples to apples comparison of a Betterment portfolio with algorithmic TLH to a normal Vanguard portfolio with human-performed TLH, the benefits of Betterment will start to look negligible.  I've made all these same points in the comments to MF's post.

That 3k carries over (i.e. so you might have need of it against OI in a some other year) AND it allows you to potentially do some rebalancing tax free if needed.  I will agree that the advantage you get over just tax loss harvesting when the market is down 10% is going to be very small.
Title: Re: Betterment?
Post by: milesdividendmd on September 18, 2014, 02:12:09 PM
Miles, in "costs" I'm including not just trading expenses but performance differentials in being in the alternate securities during the wash sale period, underlying expense ratio differentials of those alternate securities, etc.

The $3K cap acts as an effective total cap for those of us (like the MF) who won't have much in the way of capital gains until after the accumulation phase, when earnings become low enough for taxes not to matter (and the carried over tax losses to do no good).

That's why I suspect that in a true apples to apples comparison of a Betterment portfolio with algorithmic TLH to a normal Vanguard portfolio with human-performed TLH, the benefits of Betterment will start to look negligible.  I've made all these same points in the comments to MF's post.

If it were possible to know the performance differential of different funds before investing, then noone would ever invest in any fund other than the future best performing fund.  In the end the switches will likely be close to random, and cancel each other out in terms of loss/gain.  TLH+ switches from cheap index ETFs to cheap ETFs so there are really no significant costs to switching in terms of expense ratios.

The benefits of TLH savings will not be any more "negligable" than the effect of switching from an expensive to a cheap index fund.  In other words, if you save 30 basis points a year with TLH, or 30 basis points a year by buying lower cost index funds the effect on your ultimate stash will be identical.

Title: Re: Betterment?
Post by: brooklynguy on September 18, 2014, 03:38:15 PM
If it were possible to know the performance differential of different funds before investing, then noone would ever invest in any fund other than the future best performing fund.  In the end the switches will likely be close to random, and cancel each other out in terms of loss/gain.  TLH+ switches from cheap index ETFs to cheap ETFs so there are really no significant costs to switching in terms of expense ratios.

The benefits of TLH savings will not be any more "negligable" than the effect of switching from an expensive to a cheap index fund.  In other words, if you save 30 basis points a year with TLH, or 30 basis points a year by buying lower cost index funds the effect on your ultimate stash will be identical.

Yes, I agree the performance differentials should cancel each other out on average.

And I agree that whatever savings you get from TLH are just as good as savings from lower expense ratios (or any other source).

But I question whether those savings will be materially greater than zero for someone in the MF's shoes, who most likely won't benefit from tax loss harvests in excess of $3K.  At a 25% marginal tax rate, Betterment's 0.15% fee completely erases the savings on a portfolio of $500K.

For those of us in the MF's shoes, maybe what makes the most sense is to invest the smallest amount necessary with Betterment to enable algorithmic TLH to achieve $3k of tax loss harvests per year for as long as we have taxable ordinary income (or, alternatively, invest a larger amount and pull out once you have a sufficient harvest to carry-over for every subsequent year that you expect to have taxable ordinary income).  If the numbers that Boris from Betterment provided in MF's post are accurate, it looks like $3k of harvests can be achieved with portfolios of less than $100k (although those numbers are skewed by higher than usual volatility in the two months since the launch of TLH+).  But I'm still not sure if the savings are worth the effort and potential costs; it would be too easy to screw up management of your non-Betterment portfolio to avoid wash sales.  And if we have any market drops significant enough to enable manual TLH at sufficient levels, the benefits of Betterment's TLH+ completely disappear.
Title: Re: Betterment?
Post by: milesdividendmd on September 18, 2014, 03:48:56 PM
First of all, To pay 3000 in fees on an expense ratio of 0.15% you would have to have two million dollars invested!.  So if you have less than 2 million taxable invested and more than $100,000, and you harvest 3K in TLH then you come out ahead.

Second of all if you have more than 2,000,000 invested in a taxable account at betterment, then you can use TLH amounts in excess of 3000 to counteract the capital gains that you would inevitably have to pay in order to rebalance your portfolio.

Either way, its value added.

Title: Re: Betterment?
Post by: brooklynguy on September 18, 2014, 03:54:03 PM
No, that's treating the $3k harvest as if it were a tax credit rather than a tax deduction.  If you're in the 25% marginal tax bracket, you would need a portfolio of $500k for the .15% fee to completely offset savings.
Title: Re: Betterment?
Post by: milesdividendmd on September 18, 2014, 04:00:45 PM
No, that's treating the $3k harvest as if it were a tax credit rather than a tax deduction.  If you're in the 25% marginal tax bracket, you would need a portfolio of $500k for the .15% fee to completely offset savings.

I think you misunderstand.

What I'm saying is that in order to pay 3000 in fees assuming Betterments assets under management fee of 0.15% you would have to have 2 million invested in betterment.  The marginal rate is irrelevant to this calculation.


EDIT:  I see your point and it is well taken.  At a 25% tax rate a 3000$ deduction would only save you $750 in federal taxes.
Title: Re: Betterment?
Post by: brooklynguy on September 18, 2014, 07:48:38 PM
EDIT:  I see your point and it is well taken.  At a 25% tax rate a 3000$ deduction would only save you $750 in federal taxes.

Right.  I'm curious to hear the MF's take on this when he gets around to responding (some of us made these same points in the comments section of his post).
Title: Re: Betterment?
Post by: milesdividendmd on September 18, 2014, 10:48:45 PM
EDIT:  I see your point and it is well taken.  At a 25% tax rate a 3000$ deduction would only save you $750 in federal taxes.

Right.  I'm curious to hear the MF's take on this when he gets around to responding (some of us made these same points in the comments section of his post).

But even with a $500,000 portfolio, the fact remains you will need to sell some winners to rebalance yearly  md the resultant long and short term capital gains can be negated by tax losses over 3K.

And by the way betterment's white paper claims an average tax alpha of 1.94% not 0.15 %!  So you can carry forward an awful lot of losses which can offset thousands of dollars of gains in the future.

Would you buy an index with an expense ratio 2% (or even 0.5 %) higher than your current mutual funds?  I know I wouldn't.
Title: Re: Betterment?
Post by: brooklynguy on September 19, 2014, 10:24:55 AM
But even with a $500,000 portfolio, the fact remains you will need to sell some winners to rebalance yearly  md the resultant long and short term capital gains can be negated by tax losses over 3K.

And by the way betterment's white paper claims an average tax alpha of 1.94% not 0.15 %!  So you can carry forward an awful lot of losses which can offset thousands of dollars of gains in the future.

Would you buy an index with an expense ratio 2% (or even 0.5 %) higher than your current mutual funds?  I know I wouldn't.

I suppose I'm biased by my own particular situation (which I think probably closely mirrors the MF's).  All of my rebalancing occurs inside tax-advantaged accounts, so TLH really can't help me in excess of $3k per year (and may even harm me after FIRE if I'm struggling to find enough income to qualify for ACA tax credits -- or can you simply elect not to use carried-over losses?).  I'm in the 28% bracket, so the most I can save is $840 (not counting state taxes, but I'll ignore that detail for now).  And Betterment's .15% fee would cost me about $450 on the taxable portion of my portfolio.  So the most value I could get is $390 ($840 - $450), and that's only if we continue to have a market environment with so little volatility that I can't manually tax harvest.  If we experience even a modest market correction, I can easily harvest $3k of losses manually (in which case I would be losing $450 of value by using Betterment).  Plus, with Betterment, I would need to manage my tax-advantaged accounts to dovetail with Betterment's TLH+, potentially requiring me to move into more expensive funds in order to avoid wash sales.  It just doesn't seem worth it. 

For the MF, Betterment's referral bonuses probably skew the numbers back in his favor (not to suggest that I believe the referral bonuses are influencing his recommendation; I have the highest regard for his integrity).
Title: Re: Betterment?
Post by: milesdividendmd on September 19, 2014, 10:50:34 AM
$390 saved on a 300K taxable portfolio (using your numbers) is equivalent to a decrease in your yearly expense ratio on your taxable accounts of 0.13%.

Thats enough to have a significant impact on your portfolio value 20 years from now.

And betterment requires zero rebalancing going forward so in the end it would likely mean less hassle.
Title: Re: Betterment?
Post by: brooklynguy on September 19, 2014, 11:25:06 AM
It would only be $390 saved each year for a few years until FIRE (not indefinitely), and even then, only if no opportunities arise for manual TLH.  It's just as likely that such opportunities will arise, in which case I will have lost $450 each year on my $300k taxable portfolio (the equivalent of increasing my expense ratio by 0.15%).  And as the portfolio grows, the more Betterment's fee will eat into any savings.

I like having control over my investments, but even putting that aside, the "no hassle" factor of Betterment really only applies if you have all your funds with them and can truly set it and forget it.  Having tax-advantaged accounts outside Betterment that need to be separately managed in light of what's going on inside Betterment, in my view, increases the hassle (besides potentially increasing expenses if you need to move into more expensive funds in order to get the benefit of TLH+).

But I am starting to be convinced that TLH+ alone could make Betterment an optimal choice for someone who is able to take full advantage of the harvested losses (as long as their .15% fee doesn't go up).
Title: Re: Betterment?
Post by: Beric01 on September 19, 2014, 12:22:40 PM
I like having control over my investments, but even putting that aside, the "no hassle" factor of Betterment really only applies if you have all your funds with them and can truly set it and forget it.  Having tax-advantaged accounts outside Betterment that need to be separately managed in light of what's going on inside Betterment, in my view, increases the hassle

Well said. This is exactly my analysis. Betterment for me would increase my work required, ruin my asset allocation across my multiple investment accounts, and also hurt my tax optimization due to differing taxes on various asset classes.

This article is simply not up to caliber compared to MF's previous work. It seems like he just forgot that people also have 401(k)'s (based on his advice!), and that they're not just buying target date funds in them, but specifically funds that benefit from being in a tax-advantaged account, such as bonds!
Title: Re: Betterment?
Post by: milesdividendmd on September 19, 2014, 02:17:29 PM
It's an excellent article, perfectly in line with his prior work.

It's data driven, logical, and perfectly consistent with his prior goals of increasing take home returns on investments with tax efficiency, asset placement, and withdrawl strategy.

If anything I respect his thinking ability even more because he does not pigeon hole his strategy into overly simplistic "just invest in one vanguard mutual fund," philosophies.

Of course I was a fan of betterment (and MF) for similar reasons long before I ever read this article, so all of what I (and you) just wrote is likely nothing more than confirmation bias!

But the idea that it is more work to invest taxable investments with betterment is, in most cases, pure fantasy.

I enrolled in TLH+ a couple of months ago and had to change exactly none of my retirement account investment elections.  It took about 5 minutes to review the list of betterment funds and make sure that none on my mutual funds were tracking the same indexes.

I will never have to spend another 5 minutes reviewing investments again unless I consider a new workplace fund (which I won't) or if Betterment changes their choice of ETFs (which they probably wont.)
Title: Re: Betterment?
Post by: brooklynguy on September 19, 2014, 02:53:44 PM
I agree that it is excellent article in line with the exceedingly high standards that MF has set for himself.

Beric01, I'm not sure why you say it seems like he forgot that people have money in tax-advantaged accounts when, as he described in the article, he is structuring his entire strategy around the fact that his portfolio is split between taxable and tax-advantaged accounts (and he is upfront about that fact that moving only taxable accounts to Betterment will require him to monitor his tax-advantaged accounts in light of what's going on inside Betterment).

But, given that (i) I can only effectively make use of $3k of tax losses per year (and only for a few years until FIRE) and (ii) I think there is a relatively high likelihood of being able to manually harvest some or all of those losses, I have not reached the same conclusion as MF that Betterment is the optimal choice (for me).
Title: Re: Betterment?
Post by: milesdividendmd on September 19, 2014, 03:18:25 PM
Brooklyn Guy,

If I were in your shoes, I probably wouldn't switch over either.  For your particular instance it likely doesn't make sense. 

On the other hand I don't think it would not be at all irrational or harmful for you to make the switch.

MD
Title: Re: Betterment?
Post by: Dodge on September 19, 2014, 04:13:51 PM


But, given that (i) I can only effectively make use of $3k of tax losses per year (and only for a few years until FIRE) and (ii) I think there is a relatively high likelihood of being able to manually harvest some or all of those losses, I have not reached the same conclusion as MF that Betterment is the optimal choice (for me).

Agreed, tax loss harvesting seems like a bad reason to pay a higher ER for the rest of your life, and go through all the hassle of avoiding the wash rule, making sure Betterment doesn't start making bad decisions with your money over the next 50+ years...etc, especially for someone who will be FIRE soon.

The main problem though is that if you tax loss harvested the S&P 500 just twice over the 14 year period they mention, you probably would have gotten the same TLH benefit as their continuous (or whenever) rebalancing, since it would have generated enough loss carry forwards to offset the $3K of income indefinitely.

A few minutes of my time when rebalancing is definitely worth the $100,000 dollars or so the 0.15 ER Betterment would take, over my expected lifetime.
Title: Re: Betterment?
Post by: Beric01 on September 19, 2014, 04:53:25 PM
I agree that it is excellent article in line with the exceedingly high standards that MF has set for himself.

Beric01, I'm not sure why you say it seems like he forgot that people have money in tax-advantaged accounts when, as he described in the article, he is structuring his entire strategy around the fact that his portfolio is split between taxable and tax-advantaged accounts (and he is upfront about that fact that moving only taxable accounts to Betterment will require him to monitor his tax-advantaged accounts in light of what's going on inside Betterment).

But, given that (i) I can only effectively make use of $3k of tax losses per year (and only for a few years until FIRE) and (ii) I think there is a relatively high likelihood of being able to manually harvest some or all of those losses, I have not reached the same conclusion as MF that Betterment is the optimal choice (for me).

As I have explained 3-4 times in this thread (though everyone seems to be ignoring it), Betterment does not let you adjust your type of asset allocation based on the funds you have in your tax-advantaged account. I can only conclude that MF has a completely balanced portfolio in his tax-advantaged account, and has an identical balanced portfolio in his Betterment account. This is not very good tax-wise (http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement), as bonds have much worse taxes than stocks. You want to put all of your bonds in your tax-advantaged account! In addition, while I do not have a  low-cost domestic total stock market fund in my 401(k), I do have an international one. But I can't select only domestic stocks in Betterment!

Betterment is fundamentally a bad option for me based on the offerings in my 401(k), as well as the funds available in my 401(k) (and maximizing the amount of money I put in those accounts). And I can't be the only person who is optimizing their taxes by placing high-taxed funds in tax-deferred accounts. When I retire I will be paying no capital gains and dividends taxes due to my low tax bracket, so I need to optimize my taxes for now.
Title: Re: Betterment?
Post by: milesdividendmd on September 19, 2014, 05:04:54 PM
Beric01

There is a lot of misinformation in your statement

Bonds should not necessarily be kept in your tax sheltered accounts.  Muni bonds are very reasonable in taxable accounts  and even treasuries are usually more tax efficient than high growth/high dividend stock funds which will have both taxable dividends and more capital gains.  Reits are the worst and should never be kept in taxable accounts.  (Betterment has none.) 

Also worth noting that Betterment switches asset allocation for taxable and non taxable accounts.

Your particular reasons for not using Betterment seem rational but have more to do with the bizarre investment options in your particular retirement account, than anything that MF should have addressed in his post.



Title: Re: Betterment?
Post by: Beric01 on September 19, 2014, 05:49:23 PM
Beric01

There is a lot of misinformation in your statement

Bonds should not necessarily be kept in your tax sheltered accounts.  Muni bonds are very reasonable in taxable accounts  and even treasuries are usually more tax efficient than high growth/high dividend stock funds which will have both taxable dividends and more capital gains.  Reits are the worst and should never be kept in taxable accounts.  (Betterment has none.) 

Also worth noting that Betterment switches asset allocation for taxable and non taxable accounts.

Your particular reasons for not using Betterment seem rational but have more to do with the bizarre investment options in your particular retirement account, than anything that MF should have addressed in his post.

So if you look at Betterment's portfolio (https://www.betterment.com/portfolio/), are you truly going to say that their bond holdings are no worse in a taxable than in a tax-deferred account? I don't see solely municipal bonds in the taxable portfolio.

Also, if I have additional "space" in my 401(k) beyond my bond allocation, what should I buy, if not the best funds available? My 401(k), FYI, has only an S&P 500 fund (all other total market funds available are at 1% expense ratio and greater), so I don't think I'm making a mistake by putting the Vanguard total international index in my 401(k) and buying total domestic in my taxable account.

You're not see much about this type of thinking outside the FIRE community because of the tax bracket issues. I expect to have as low as a 0% tax bracket in FIRE. I will not pay any dividend or capital gains taxes either, so putting all my bonds in my 401(k) won't be an issue later on.
Title: Re: Betterment?
Post by: milesdividendmd on September 19, 2014, 06:39:11 PM
Almost every asset class performs better in a tax sheltered account than in a taxable account, bonds included.

The question is which assets receive the most benefit from being tax sheltered.

I am in no way criticizing what you have selected in your 401(k) fund. I am merely pointing out that your limited choices are quite specific to your own personal situation and are  hardly universal.
Title: Re: Betterment?
Post by: KBecks2 on September 19, 2014, 07:29:44 PM
I have invested with Vanguard for 15 years and have been very pleased with the service, low fees and variety of investments available.

Didn't hear of Betterment until recently and I do not see the value.  Why would I pay to have a service to invest my money in funds for me?

I pay about $100/month for specific individual stock and option investing advice and education, but funds are a total piece of cake.  Rebalancing your funds?  It's really no big hairy deal.

People should learn how to manage their own money, not just hand it over and forget it. You should watch your assets.
Title: Re: Betterment?
Post by: KBecks2 on September 19, 2014, 07:32:38 PM
I *almost* signed up for Betterment. Then I realized I was just being lazy. It only takes a little more work to buy the funds yourself, and avoid the fees completely. And then you avoid the institutional risk of Betterment going down, and also give yourself more options for the future.

Institutional risk is a real concern.  How long has this Web site been around?   I would be careful about where and with whom you place  your assets. 
Title: Re: Betterment?
Post by: foobar on September 19, 2014, 08:16:21 PM
I *almost* signed up for Betterment. Then I realized I was just being lazy. It only takes a little more work to buy the funds yourself, and avoid the fees completely. And then you avoid the institutional risk of Betterment going down, and also give yourself more options for the future.

Institutional risk is a real concern.  How long has this Web site been around?   I would be careful about where and with whom you place  your assets.

That really isn't a risk. Betterment doesn't own your assets. If betterment folds, your assets are protected. You will be able to transfer them to whatever broker you like. The only part that might be messy is cost basis tracking. I haven't transferred a etf between brokerages recently so I can't tell you if that just works or not.

I suppose their is some risk of them massively changing their AA or funds (i.e. fidelity buys them out and switches everyone to the fidelity index funds) and causing you to realize gains. Seems unlikely.
Title: Re: Betterment?
Post by: milesdividendmd on September 19, 2014, 08:42:59 PM

I have invested with Vanguard for 15 years and have been very pleased with the service, low fees and variety of investments available.

Didn't hear of Betterment until recently and I do not see the value.  Why would I pay to have a service to invest my money in funds for me?

I pay about $100/month for specific individual stock and option investing advice and education, but funds are a total piece of cake.  Rebalancing your funds?  It's really no big hairy deal.

People should learn how to manage their own money, not just hand it over and forget it. You should watch your assets.

Why "should" people learn how to manage their money?  Is there data to support this assertion? 

Are you implying that you are more knowledgable and thoughtful about investing than the mad fientist?

Behavioral finance tells us that when it comes to prediction, algorithms consistently outperform experts who consistently outperform amateurs.

And you to pay $1200 a year for a stock picking/options newsletter so that you can function as an amateur stock picker/options trader?

C'mon now.
Title: Re: Betterment?
Post by: Dodge on September 19, 2014, 11:29:09 PM
I have invested with Vanguard for 15 years and have been very pleased with the service, low fees and variety of investments available.

Didn't hear of Betterment until recently and I do not see the value.  Why would I pay to have a service to invest my money in funds for me?

I pay about $100/month for specific individual stock and option investing advice and education, but funds are a total piece of cake.  Rebalancing your funds?  It's really no big hairy deal.

People should learn how to manage their own money, not just hand it over and forget it. You should watch your assets.

Most in this thread agree, there are just a few active posters who are defending it.  It's very hard to see the value here.  Just invest in Vanguard directly.  Especially if you live in Massachusetts, California, New Jersey, New York, Ohio, or Pennsylvania, and intend on holding bonds in a taxable account.  Vanguard offers muni bond funds in these states which are both federal and state tax exempt.  This is not possible with Betterment.
Title: Re: Betterment?
Post by: Dodge on September 19, 2014, 11:35:55 PM
I *almost* signed up for Betterment. Then I realized I was just being lazy. It only takes a little more work to buy the funds yourself, and avoid the fees completely. And then you avoid the institutional risk of Betterment going down, and also give yourself more options for the future.

Institutional risk is a real concern.  How long has this Web site been around?   I would be careful about where and with whom you place  your assets.

Yes, yes it is.  If there is ever a situation where institutional risk is a concern, it's with a new tech startup, who employs robots to automatically trade our account on their behalf.  I won't be recommending anyone put their life savings, money they will be counting on for possibly the next 50+ years, into such an account.  Too much risk.
Title: Re: Betterment?
Post by: Dodge on September 19, 2014, 11:49:32 PM
I agree that it is excellent article in line with the exceedingly high standards that MF has set for himself.

Beric01, I'm not sure why you say it seems like he forgot that people have money in tax-advantaged accounts when, as he described in the article, he is structuring his entire strategy around the fact that his portfolio is split between taxable and tax-advantaged accounts (and he is upfront about that fact that moving only taxable accounts to Betterment will require him to monitor his tax-advantaged accounts in light of what's going on inside Betterment).

But, given that (i) I can only effectively make use of $3k of tax losses per year (and only for a few years until FIRE) and (ii) I think there is a relatively high likelihood of being able to manually harvest some or all of those losses, I have not reached the same conclusion as MF that Betterment is the optimal choice (for me).

As I have explained 3-4 times in this thread (though everyone seems to be ignoring it), Betterment does not let you adjust your type of asset allocation based on the funds you have in your tax-advantaged account. I can only conclude that MF has a completely balanced portfolio in his tax-advantaged account, and has an identical balanced portfolio in his Betterment account. This is not very good tax-wise (http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement), as bonds have much worse taxes than stocks. You want to put all of your bonds in your tax-advantaged account! In addition, while I do not have a  low-cost domestic total stock market fund in my 401(k), I do have an international one. But I can't select only domestic stocks in Betterment!

Betterment is fundamentally a bad option for me based on the offerings in my 401(k), as well as the funds available in my 401(k) (and maximizing the amount of money I put in those accounts). And I can't be the only person who is optimizing their taxes by placing high-taxed funds in tax-deferred accounts. When I retire I will be paying no capital gains and dividends taxes due to my low tax bracket, so I need to optimize my taxes for now.

Yes, a huge deal considering their 100% stock allocation is over 50% international.  Combined with the possible higher ER funds you'll have to choose to avoid the wash sale issues, it becomes much harder to manage your accounts.
Title: Re: Betterment?
Post by: KBecks2 on September 20, 2014, 10:07:04 AM

I have invested with Vanguard for 15 years and have been very pleased with the service, low fees and variety of investments available.

Didn't hear of Betterment until recently and I do not see the value.  Why would I pay to have a service to invest my money in funds for me?

I pay about $100/month for specific individual stock and option investing advice and education, but funds are a total piece of cake.  Rebalancing your funds?  It's really no big hairy deal.

People should learn how to manage their own money, not just hand it over and forget it. You should watch your assets.

Why "should" people learn how to manage their money?  Is there data to support this assertion? 

Are you implying that you are more knowledgable and thoughtful about investing than the mad fientist?

Behavioral finance tells us that when it comes to prediction, algorithms consistently outperform experts who consistently outperform amateurs.

And you to pay $1200 a year for a stock picking/options newsletter so that you can function as an amateur stock picker/options trader?

C'mon now.

--People should learn to handle their money because nobody else cares about it as much as they will.  Everyone should take time to become informed, read different points of view, learn the rules about taxes and retirement account types, and, as much as they want, learn about different kinds of investments to see what will best suit *their* wants and needs.

-- I am not claiming to be better than anyone else.  I enjoy stock market investing and make time for it.  I try to do it well, and I believe in active management (for me personally).  If I did not have time or interest, I would do index funds with Vanguard and be happy with that.

There is not *one right way to invest*.  There are many ways to be a successful investor.  I prefer that people use their own brains and make their own decisions about their money, rather than hand it over and forget it.  Investments should not be forgotten.  They can be put on autopilot but like an airplane, you want someone (you) to be present at the controls.  We're talking about too much money to "set it and forget it".

-- My investments are making money and I'm very satisfied with how it's going.  I hope that everyone can find satisfaction and enjoyment in their investments, whatever path they choose.

Title: Re: Betterment?
Post by: milesdividendmd on September 20, 2014, 11:14:13 AM
I agree wholeheartedly that people should learn to handle their money.

It's just that your quoted post implied that people who use betterment haven't learned to handle their money, whereas those who spent $1200 a year on stock picking newsletters were making rational decisions.

That's the part that lost me. 
Title: Re: Betterment?
Post by: KBecks2 on September 21, 2014, 12:18:16 PM
I was just sharing what I do, and it's something different, and that is OK.   People will have individual preferences and should find their own style, and what works for them.  To me, betterment looks like a service where you delegate most of the decision making to an online service.  It does not sound like it adds value *to me*, but people do get to make their own choices. 
Title: Re: Betterment?
Post by: jstash on September 22, 2014, 02:07:13 AM
Glad to see more people are becoming less knee-jerk dismissive of Betterment. I've been with them over a year and like the experience a lot. And I've never asked for referrals, either.
Title: Re: Betterment?
Post by: boarder42 on September 22, 2014, 05:50:22 AM
just a quck note on this.  The tax lost harvesting they do is worth a ton.  so much that the mad fientist has moved his taxable accounts over.  and MMM even responded saying he was going to have a write up doing the same thing.  so if you have 50k to get the TLH benefits i think its probably worth it to go with betterment.  I'm moving my taxable account over b/c Etrade is costing me far too much. 
Title: Re: Betterment?
Post by: Dodge on September 22, 2014, 07:03:12 AM

just a quck note on this.  The tax lost harvesting they do is worth a ton.  so much that the mad fientist has moved his taxable accounts over.  and MMM even responded saying he was going to have a write up doing the same thing.  so if you have 50k to get the TLH benefits i think its probably worth it to go with betterment.  I'm moving my taxable account over b/c Etrade is costing me far too much.

Mrmoneymustache has been beating the market average with LendingClub too. Will you be investing with them as well? If not, why not?
Title: Re: Betterment?
Post by: milesdividendmd on September 22, 2014, 09:47:49 AM

just a quck note on this.  The tax lost harvesting they do is worth a ton.  so much that the mad fientist has moved his taxable accounts over.  and MMM even responded saying he was going to have a write up doing the same thing.  so if you have 50k to get the TLH benefits i think its probably worth it to go with betterment.  I'm moving my taxable account over b/c Etrade is costing me far too much.

Mrmoneymustache has been beating the market average with LendingClub too. Will you be investing with them as well? If not, why not?

Poor analogy.

Lending club has an expense ratio of 1% and is impossible to backtest because it's such a new financial product.

Betterment uses a Black Litterman optimized portfolio of low cost funds and has an expense ratio of 0.15-0.35%. You can back test a similar portfolio going back to the 70s with ease.



Title: Re: Betterment?
Post by: Dodge on September 22, 2014, 11:17:13 AM


just a quck note on this.  The tax lost harvesting they do is worth a ton.  so much that the mad fientist has moved his taxable accounts over.  and MMM even responded saying he was going to have a write up doing the same thing.  so if you have 50k to get the TLH benefits i think its probably worth it to go with betterment.  I'm moving my taxable account over b/c Etrade is costing me far too much.

Mrmoneymustache has been beating the market average with LendingClub too. Will you be investing with them as well? If not, why not?

Poor analogy.

Lending club has an expense ratio of 1% and is impossible to backtest because it's such a new financial product.

Betterment uses a Black Litterman optimized portfolio of low cost funds and has an expense ratio of 0.15-0.35%. You can back test a similar portfolio going back to the 70s with ease.

Oh I agree for sure. You are 100% correct.
Title: Re: Betterment?
Post by: RapmasterD on September 24, 2014, 07:49:23 PM
I am 100% knee jerk dismissive of Betterment.
Title: Re: Betterment?
Post by: milesdividendmd on September 24, 2014, 10:57:43 PM
I am 100% knee jerk dismissive of Betterment.

That's 100% obvious!

But its always good to honestly recognize your own biases.
Title: Re: Betterment?
Post by: arebelspy on September 24, 2014, 11:26:44 PM
But its always good to honestly recognize your own biases.

That's a good point.

Tell me how you feel about WalMart.

;)
Title: Re: Betterment?
Post by: milesdividendmd on September 24, 2014, 11:27:40 PM

But its always good to honestly recognize your own biases.

That's a good point.

Tell me how you feel about WalMart.

;)

You made my day ARS!
Title: Re: Betterment?
Post by: arebelspy on September 24, 2014, 11:30:57 PM
You made my day ARS!

(https://i.imgur.com/2SZHP7J.gif)
Title: Re: Betterment?
Post by: Beric01 on November 04, 2014, 11:33:52 AM
Well, now it looks like MMM sold out to Betterment, complete with the referral link, which will certainly cover his $150 fee and more.
Title: Re: Betterment?
Post by: usmarine1975 on November 04, 2014, 11:39:18 AM
I think it's crazy to say that Mr. MMM sold out to Betterment.  He has been making money on his Blog way before Betterment.  I knew that when I started reading it.  It doesn't mean that some of the information isn't worth while.  Many people charge for what they do.  If you thought this was a free Blog and advice you were just sadly mistaken or ill informed.  Even Vanguard Charges for their services.
Title: Re: Betterment?
Post by: Beric01 on November 04, 2014, 11:49:13 AM
I think it's crazy to say that Mr. MMM sold out to Betterment.  He has been making money on his Blog way before Betterment.  I knew that when I started reading it.  It doesn't mean that some of the information isn't worth while.  Many people charge for what they do.  If you thought this was a free Blog and advice you were just sadly mistaken or ill informed.  Even Vanguard Charges for their services.

Recommending a product of already dubious value, before MMM has even proven he's earned enough to cover the $150 fee, right along with a flashy referral banner at the bottom of the post is WAY more blatant that anything I've seen. This latest post is a level beyond anything else on this site.

Vanguard is non profit and investor-owned. It's just a tiny a bit different than a for-profit company like Betterment. ;)
Title: Re: Betterment?
Post by: pzxc on November 04, 2014, 11:54:40 AM
One of the best things about Betterment is that you can get started right away even if you have no savings.  Vanguard, and most other places, require $3k or more minimum deposit.  That shouldn't be ignored.
Title: Re: Betterment?
Post by: usmarine1975 on November 04, 2014, 11:55:15 AM
Yes certainly Vanguard isn't about making money.

http://www.celebritynetworth.com/richest-businessmen/wall-street/john-bogle-net-worth/

I will concede that at first that was my initial thought but then I remembered that almost every recommendation on the website benefits Mr. MMM


I think it's crazy to say that Mr. MMM sold out to Betterment.  He has been making money on his Blog way before Betterment.  I knew that when I started reading it.  It doesn't mean that some of the information isn't worth while.  Many people charge for what they do.  If you thought this was a free Blog and advice you were just sadly mistaken or ill informed.  Even Vanguard Charges for their services.

Recommending a product of already dubious value, before MMM has even proven he's earned enough to cover the $150 fee, right along with a flashy referral banner at the bottom of the post is WAY more blatant that anything I've seen. This latest post is a level beyond anything else on this site.

Vanguard is non profit and investor-owned. It's just a tiny a bit different than a for-profit company like Betterment. ;)
Title: Re: Betterment?
Post by: Beric01 on November 04, 2014, 11:57:33 AM
Yes certainly Vanguard isn't about making money.

http://www.celebritynetworth.com/richest-businessmen/wall-street/john-bogle-net-worth/


I think it's crazy to say that Mr. MMM sold out to Betterment.  He has been making money on his Blog way before Betterment.  I knew that when I started reading it.  It doesn't mean that some of the information isn't worth while.  Many people charge for what they do.  If you thought this was a free Blog and advice you were just sadly mistaken or ill informed.  Even Vanguard Charges for their services.

Recommending a product of already dubious value, before MMM has even proven he's earned enough to cover the $150 fee, right along with a flashy referral banner at the bottom of the post is WAY more blatant that anything I've seen. This latest post is a level beyond anything else on this site.

Vanguard is non profit and investor-owned. It's just a tiny a bit different than a for-profit company like Betterment. ;)

I said non-profit and investor-owned. Nowhere did I say it wasn't about making money for investors - that's the entire point of the company. The guy's made his money investing in the funds the company offers. Don't put words in my mouth.
Title: Re: Betterment?
Post by: boognish on November 04, 2014, 12:04:58 PM
Jesse from YNAB, MF, and MMM touting Betterment really have me re-evaluating my initial reaction to it.

I know they all likely receive referral bonuses, but I'm naive enough to believe that all three are smart honest guys who would only back a product/company they truly believe in.

Title: Re: Betterment?
Post by: juuustin on November 04, 2014, 01:47:07 PM
Betterment just added a snazzy tax estimator tool as well, which I have been wanting for awhile.  I have my taxable account in Betterment and I have never made a withdrawal, but I really wanted to know what the "Net Realizable Value" of my account was after taxes.  Because I have been with them since Oct. 2012, it is awesome to see how much I can take out and not have to worry about short term cap gains.  I know there are people staunchly against the platform, but I think it is fantastic for the entry-level to intermediate investor!
Title: Re: Betterment?
Post by: RapmasterD on November 04, 2014, 01:53:04 PM
I think it's crazy to say that Mr. MMM sold out to Betterment.  He has been making money on his Blog way before Betterment.  I knew that when I started reading it.  It doesn't mean that some of the information isn't worth while.  Many people charge for what they do.  If you thought this was a free Blog and advice you were just sadly mistaken or ill informed.  Even Vanguard Charges for their services.

Recommending a product of already dubious value, before MMM has even proven he's earned enough to cover the $150 fee, right along with a flashy referral banner at the bottom of the post is WAY more blatant that anything I've seen. This latest post is a level beyond anything else on this site.

Vanguard is non profit and investor-owned. It's just a tiny a bit different than a for-profit company like Betterment. ;)

Beric01 - You're clearly mostly alone on this one. But I'm in your camp. I'd like to hear from some people who have MILLIONS invested with Betterment (not 100K) and can justify their fees for what might take 30 minutes per year to do on your own...and that's ONLY if you believe in immediate asset reallocation to the tenth of a percentage point ... which I do not.

I find it interesting that on Pete's chart, he places Buffett at the tippy top. Buffett clearly and repeatedly recommends a 90% S&P 500/10% short term bond allocation -- and would most likely scoff at the notion of paying a service as a "front end" to what SHOULD be a 'set it and forget it' investment strategy with Vanguard.
Title: Re: Betterment?
Post by: VirginiaBob on November 04, 2014, 01:56:47 PM
Looked into it and appears to be a total rip-off.  Huge fee for something you can do by yourself.  For MMM to advocate do-it-yourself for so many other aspects of our lives, it seems weird that he would advocate paying huge fees for something that takes you maybe 15 minutes per month at most.  Change your oil, do all your own renovations, ride your bike, etc., but when it comes to your investments, please click on my referral link and have someone else do it for you.

Fishy
Title: Re: Betterment?
Post by: usmarine1975 on November 04, 2014, 02:00:12 PM
I didn't put words in your mouth.  Sorry but non-profit implies that profit or making money whatever you want to call it is not the reason the company or whatever was started.  I have nothing against Vanguard or John Bogle his office is just over an hour from my house and I know people that work for the company.  But to imply that a for profit company is all about making money and a non profit is not is just plain silly.  Hospitals make a mad amount of cash and most of them are non-profit. 

Sorry I didn't mean to offend you, my point was merely that this post is no different then any other.  Mr. MMM has gotten perks for every product or company he has recommended.  I haven't seen Vanguard as being one of them but who knows if he sent enough people to them he may have gotten something.

Mr.  MMM is not in my opinion Retired.  He is Financially Independent they are both very different things.

[/quote]

I said non-profit and investor-owned. Nowhere did I say it wasn't about making money for investors - that's the entire point of the company. The guy's made his money investing in the funds the company offers. Don't put words in my mouth.
[/quote]
Title: Re: Betterment?
Post by: RapmasterD on November 04, 2014, 02:08:43 PM
Looked into it and appears to be a total rip-off.  Huge fee for something you can do by yourself.  For MMM to advocate do-it-yourself for so many other aspects of our lives, it seems weird that he would advocate paying huge fees for something that takes you maybe 15 minutes per month at most.  Change your oil, do all your own renovations, ride your bike, etc., but when it comes to your investments, please click on my referral link and have someone else do it for you.

Fishy

+1

I'm REALLY not getting this one...for the reasons you mention.
Title: Re: Betterment?
Post by: usmarine1975 on November 04, 2014, 02:19:29 PM
I don't disagree with you.  I only pointed out that every other Recommendation for the most part has in one way or another paid Mr. MMM.  Credit Card Links, Lender, Republic & other cell phone companies.  Do some have better qualities while others worse qualities.  Certainly, but it doesn't change anything.  He is still recommending Products that benefit him.
Title: Re: Betterment?
Post by: arebelspy on November 04, 2014, 04:00:34 PM
I'm with you guys.

I haven't read the post, but I was disappointed to see the title in my RSS feed this morning.

Brandon at MadFIentest at least gave a good explanation as to why, but I think it's an inferior product.

Besides people being paid to push it (won't mention names here, but I'm sure they'll post very quickly on this thread to defend Betterment), I don't see a lot of people who love it.
Title: Re: Betterment?
Post by: seattlecyclone on November 04, 2014, 04:06:49 PM
I too was a bit surprised to see the Betterment post today. It seems like a decent enough service for what it is, and it would be a vast improvement over the average person's investment strategy and advisory fees, but we Mustachians are supposed to be more badass than that. We shouldn't need to pay someone 0.15% to do tax-loss harvesting and rebalancing for us. I did both of those things myself this morning, saving perhaps $500 on this year's taxes and redeploying the proceeds in a way that makes my portfolio better match my desired asset allocation.
Title: Re: Betterment?
Post by: Dodge on November 04, 2014, 04:22:15 PM
Looked into it and appears to be a total rip-off.  Huge fee for something you can do by yourself.  For MMM to advocate do-it-yourself for so many other aspects of our lives, it seems weird that he would advocate paying huge fees for something that takes you maybe 15 minutes per month at most.  Change your oil, do all your own renovations, ride your bike, etc., but when it comes to your investments, please click on my referral link and have someone else do it for you.

Fishy

Indeed, I am unimpressed.  I find even 15 minutes a month is overstating the time required, and if you don't want to rebalance just get a Vanguard life strategy fund.

Ending it with the "I'm glad I did" made me feel like I was reading an ad.  Very unimpressed.
Title: Re: Betterment?
Post by: matchewed on November 04, 2014, 04:51:04 PM
(http://i.minus.com/ikoWHG9tLAsKm.gif)
Title: Re: Betterment?
Post by: VirginiaBob on November 04, 2014, 04:55:39 PM
(http://i.minus.com/ikoWHG9tLAsKm.gif)

Mr. Money mustache in 10 years?
Title: Re: Betterment?
Post by: matchewed on November 04, 2014, 05:04:34 PM
*snipped for slower PC's*

Mr. Money mustache in 10 years?

Heh, nah just my general reaction to this sort of thing. I'm in the camp of it being a bit silly for badass DIY financial bloggers to suddenly be crowing about paying people to do things for you.
Title: Re: Betterment?
Post by: Beric01 on November 04, 2014, 06:43:53 PM
I'm waiting for MMM to post an article about choosing a house-cleaning or gardening service next, or perhaps what personal chef you should choose to cook your meals. First the electric bikes and now this. MMM is a lot less Badass lately.
Title: Re: Betterment?
Post by: VirginiaBob on November 05, 2014, 06:53:28 AM
I'm waiting for MMM to post an article about choosing a house-cleaning or gardening service next, or perhaps what personal chef you should choose to cook your meals. First the electric bikes and now this. MMM is a lot less Badass lately.

Lol, I'm surprised I didn't see an outsourcing your laundry article. 
Title: Re: Betterment?
Post by: pzxc on November 05, 2014, 02:34:49 PM
Rebalancing yourself is certainly easy -- but how do you guys propose to do tax loss harvesting yourself with minimal time/effort?  I'm a smart technical guy, and I don't think I would be very effective at it. (let alone most people who are not as good at math as I)
Title: Re: Betterment?
Post by: gimp on November 05, 2014, 02:35:33 PM
How often does automatic rebalancing occur? What fees, if any, are incurred by betterment to rebalance?

Honestly, the difference between a 0.15% and 0.05% expense ratio is... low. Low enough that a small but consistent increase in post-tax income can offset it easily. That alone makes me slightly interested. Or is it .15% on top of vanguard fees?

With that said, chances are I'll keep on my current path - vanguard. Currently have just the one fund in two accounts (roth / taxable), and as the cash pile grows enough to hit over 10k per fund, I'll add one a couple more while remaining all-stock. Small optimizations from betterment versus small changes in expense ratio are boring.
Title: Re: Betterment?
Post by: pzxc on November 05, 2014, 02:51:04 PM
It's 0.15% on top of vanguard fees, and only if you have $100k minimum balance.  It's 0.35% (on top of the fund fees) with no minimum balance if you autodeposit $100/mo or more.

2 things make it worth it as an alternative to self-managed vanguard in my opinion:  Opening an account at vanguard has a $3k minimum, this has no minimum to get started. And I understand the concept of tax loss harvesting but I'm definitely not confident in my ability to sell some things for a capital loss to offset capital gains and then repurchase the same thing in another fund in such a way that the IRS doesn't consider it a wash sale.  Rebalancing I could certainly do myself, though.

Rebalancing occurs whenever your asset allocation drift reaches 5%, since you asked.
Title: Re: Betterment?
Post by: brooklynguy on November 05, 2014, 03:02:03 PM
Rebalancing yourself is certainly easy -- but how do you guys propose to do tax loss harvesting yourself with minimal time/effort?  I'm a smart technical guy, and I don't think I would be very effective at it. (let alone most people who are not as good at math as I)

When opportunities for traditional tax loss harvesting present themselves (i.e., big market drops), tax loss harvesting is easy.  The supposed advantage of Betterment's algorithmic tax loss harvesting is that it can do it even in the absence of big market drops.  But, as discussed at length further up in this thread, I don't think that is really much of an advantage for the average mustachian who is taking advantage of tax-advantaged investment accounts and can't benefit from more than $3k of tax losses per year anyway (which means the costs of using Betterment will quickly eclipse the benefits).
Title: Re: Betterment?
Post by: seattlecyclone on November 05, 2014, 03:37:23 PM
Rebalancing yourself is certainly easy -- but how do you guys propose to do tax loss harvesting yourself with minimal time/effort?  I'm a smart technical guy, and I don't think I would be very effective at it. (let alone most people who are not as good at math as I)

No math is needed if your brokerage has a decent website. You should be able to see a screen that details all of your tax lots for each fund and how much unrealized gain/loss is attributable to each tax lot. Then all you need to do is go into your account occasionally to view the cost basis of each of your funds, detailed by tax lots. If you have some lots with a higher cost basis than the current price, you have unrealized losses. Check that you haven't purchased any of that fund in the last month (to avoid wash sales), and sell the shares from the lots with losses. Then use the proceeds to buy a similar but not "substantially identical" replacement fund, and remember not to buy any more of the fund you just sold for at least a month afterwards.

Betterment has the advantage that they can do this every day and they probably have some sort of formula to determine how much of a loss is worth bothering with. This allows them to optimize past what anyone but the most committed do-it-yourselfer can achieve. Even so, I believe you won't do too much worse by checking in a few times a year, claiming some losses, and calling it good.
Title: Re: Betterment?
Post by: gimp on November 05, 2014, 06:57:10 PM
It's 0.15% on top of vanguard fees, and only if you have $100k minimum balance.  It's 0.35% (on top of the fund fees) with no minimum balance if you autodeposit $100/mo or more.


Fuuuuuuuuuck thaaaaaaaat.
Title: Re: Betterment?
Post by: Johnez on November 06, 2014, 04:23:13 AM
Interesting link about a similar company (Wealthfront) on the downfalls of tax loss harvesting and the flawed methods of calculating the actual benefit:

http://www.kitces.com/blog/wealthfront-tax-loss-harvesting-white-paper-how-not-to-calculate-tax-alpha/

I'm a novice here, but it doesn't seem very difficult to follow. Lowering cost basis increases potential capital gains, and any actual economic value seems to be erased through their fees. I realize this isn't betterment but the principle remains the same as Wealthfront uses a similar process.
Title: Re: Betterment?
Post by: Overseas Stache on November 06, 2014, 05:27:22 AM
I am very new to index investing and so far only have a small taxable account index fund with Vanguard. Because I don't have any declarable earned income the only way I can invest is in a taxable fund so would Betterment be good for me? How much would Betterment be projected to save best case scenario on 10K 50k or 100K in a taxable account? I had no idea about tax harvesting at all until I read the MMM article so I am just wondering what the limits are and how big is the potential benefit?
Title: Re: Betterment?
Post by: matchewed on November 06, 2014, 05:32:03 AM
I am very new to index investing and so far only have a small taxable account index fund with Vanguard. Because I don't have any declarable earned income the only way I can invest is in a taxable fund so would Betterment be good for me? How much would Betterment be projected to save best case scenario on 10K 50k or 100K in a taxable account? I had no idea about tax harvesting at all until I read the MMM article so I am just wondering what the limits are and how big is the potential benefit?

It's 0.15% on top of vanguard fees, and only if you have $100k minimum balance.  It's 0.35% (on top of the fund fees) with no minimum balance if you autodeposit $100/mo or more.

Do you want to pay additional .35% in fees until you hit 100k? As for the benefits of tax loss harvesting it all depends on how the market goes. Betterment themselves should have some numbers on it, if they don't it's a bit suspicious.
Title: Re: Betterment?
Post by: Overseas Stache on November 06, 2014, 06:16:34 AM
I am very new to index investing and so far only have a small taxable account index fund with Vanguard. Because I don't have any declarable earned income the only way I can invest is in a taxable fund so would Betterment be good for me? How much would Betterment be projected to save best case scenario on 10K 50k or 100K in a taxable account? I had no idea about tax harvesting at all until I read the MMM article so I am just wondering what the limits are and how big is the potential benefit?

It's 0.15% on top of vanguard fees, and only if you have $100k minimum balance.  It's 0.35% (on top of the fund fees) with no minimum balance if you autodeposit $100/mo or more.

Do you want to pay additional .35% in fees until you hit 100k? As for the benefits of tax loss harvesting it all depends on how the market goes. Betterment themselves should have some numbers on it, if they don't it's a bit suspicious.

What you want me to go do my own research??? I thought that this forum was supposed to provide all the answers so I didn't have to do anything but come here, read, and get rich.

Ok fine, I looked at their website I'm still not sure about tax harvesting so I will try to explain what I understood and you guys can just correct or fill in the blanks.

1. 50K is minimum investment to qualify for their tax loss harvesting so that is a fee of $175 per year.
2. Tax loss harvesting can only be used to defer taxes of up to $3000 /year on earned income. The taxes must be paid eventually so it is really the gain of using the taxes to invest while it is being deferred that is the benefit, not actually saving $3000/ year.
3. This strategy will only provide a higher return IF there are some big market down turns in the early investment years.
4. It is not very beneficial for someone in the lower tax bracket because the short term gains are taxed at the individuals income tax bracket.


So basically this product would not help me very much and could easily cost more than it is worth if we don't have a big market crash to take advantage of.
Title: Re: Betterment?
Post by: matchewed on November 06, 2014, 11:04:44 AM
I am very new to index investing and so far only have a small taxable account index fund with Vanguard. Because I don't have any declarable earned income the only way I can invest is in a taxable fund so would Betterment be good for me? How much would Betterment be projected to save best case scenario on 10K 50k or 100K in a taxable account? I had no idea about tax harvesting at all until I read the MMM article so I am just wondering what the limits are and how big is the potential benefit?

It's 0.15% on top of vanguard fees, and only if you have $100k minimum balance.  It's 0.35% (on top of the fund fees) with no minimum balance if you autodeposit $100/mo or more.

Do you want to pay additional .35% in fees until you hit 100k? As for the benefits of tax loss harvesting it all depends on how the market goes. Betterment themselves should have some numbers on it, if they don't it's a bit suspicious.

What you want me to go do my own research??? I thought that this forum was supposed to provide all the answers so I didn't have to do anything but come here, read, and get rich.

Ok fine, I looked at their website I'm still not sure about tax harvesting so I will try to explain what I understood and you guys can just correct or fill in the blanks.

1. 50K is minimum investment to qualify for their tax loss harvesting so that is a fee of $175 per year.
2. Tax loss harvesting can only be used to defer taxes of up to $3000 /year on earned income. The taxes must be paid eventually so it is really the gain of using the taxes to invest while it is being deferred that is the benefit, not actually saving $3000/ year.
3. This strategy will only provide a higher return IF there are some big market down turns in the early investment years.
4. It is not very beneficial for someone in the lower tax bracket because the short term gains are taxed at the individuals income tax bracket.


So basically this product would not help me very much and could easily cost more than it is worth if we don't have a big market crash to take advantage of.

As you may have read in this thread there are some who feel this product is worth their money. There are others who don't believe that the benefits are greater than the costs. I could have told you exactly what I thought but it's already in the thread. I'm more of a fan of people making up their own minds with their own information gathering. It proves to be a better way to learn and one I highly advocate. :)
Title: Re: Betterment?
Post by: Kaspian on November 06, 2014, 02:28:06 PM
So basically this product would not help me very much and could easily cost more than it is worth if we don't have a big market crash to take advantage of.

You know what Bogle would say to all this?  "Oh, it doesn't really matter very much.  Keep your fees as low as possible, just buy the indexes, rebalance occasionally, and forget all about it." 
Title: Re: Betterment?
Post by: arebelspy on November 07, 2014, 06:49:49 AM
So basically this product would not help me very much and could easily cost more than it is worth if we don't have a big market crash to take advantage of.

You know what Bogle would say to all this?  "Oh, it doesn't really matter very much.  Keep your fees as low as possible, just buy the indexes, rebalance occasionally, and forget all about it."

Agreed. And adding a 0.15% Betterment fee on top of the other fees seems like a bad way to do this.
Title: Re: Betterment?
Post by: brooklynguy on November 07, 2014, 07:31:11 AM
So basically this product would not help me very much and could easily cost more than it is worth if we don't have a big market crash to take advantage of.

Just to clarify, Betterment's argument is that unlike human-performed tax loss harvesting, their algorithmic tax loss harvesting doesn't need big market drops (because their computer-controlled trading can harvest losses even in market periods with relatively low volatility).  But I still don't think it's worth paying their fee (and losing control over your own investments in the process), because, among other reasons, opportunities for traditional human-performed tax loss harvesting are not so infrequent to justify it.
Title: Re: Betterment?
Post by: RapmasterD on November 07, 2014, 03:24:49 PM
So basically this product would not help me very much and could easily cost more than it is worth if we don't have a big market crash to take advantage of.

You know what Bogle would say to all this?  "Oh, it doesn't really matter very much.  Keep your fees as low as possible, just buy the indexes, rebalance occasionally, and forget all about it."

Agreed. And adding a 0.15% Betterment fee on top of the other fees seems like a bad way to do this.

He'd also say, "In 20 years, I'll be dead and long gone. And it's a safe bet that Betterment will be dead and long gone. What's tried and true is tried and true. Now get Vanguarding, you mutha fuckahs!!" OK, maybe not the last sentence....
Title: Re: Betterment?
Post by: Beric01 on November 07, 2014, 03:51:00 PM
So basically this product would not help me very much and could easily cost more than it is worth if we don't have a big market crash to take advantage of.

You know what Bogle would say to all this?  "Oh, it doesn't really matter very much.  Keep your fees as low as possible, just buy the indexes, rebalance occasionally, and forget all about it."

Agreed. And adding a 0.15% Betterment fee on top of the other fees seems like a bad way to do this.

He'd also say, "In 20 years, I'll be dead and long gone. And it's a safe bet that Betterment will be dead and long gone. What's tried and true is tried and true. Now get Vanguarding, you mutha fuckahs!!" OK, maybe not the last sentence....

Yup, pretty much! Vanguard is tried and true. I wouldn't bet a cent on Betterment still being around in 20 years.

Straight Vanguard FTW!
Title: Re: Betterment?
Post by: sobezen on November 07, 2014, 04:24:37 PM
I'm with you guys.

I haven't read the post, but I was disappointed to see the title in my RSS feed this morning.

Brandon at MadFIentest at least gave a good explanation as to why, but I think it's an inferior product.

Besides people being paid to push it (won't mention names here, but I'm sure they'll post very quickly on this thread to defend Betterment), I don't see a lot of people who love it.

I concur.  I am still not sold on the value of the services that Betterment provides.  Also I don't like their UI since it doesn't even allow users to add external accounts.  I feel excluding those accounts only creates an inaccurate picture.  Having a holistic overview of all of your finances is essential. 

On a somewhat related note, not sure if anyone else uses PersonalCapital's tool even if they don't pay for their services, but I feel it is much more helpful than most RoboAdvisors and Betterment too.  Does anyone else use PC? :)
Title: Re: Betterment?
Post by: Overseas Stache on November 08, 2014, 05:19:23 AM
So basically this product would not help me very much and could easily cost more than it is worth if we don't have a big market crash to take advantage of.

Just to clarify, Betterment's argument is that unlike human-performed tax loss harvesting, their algorithmic tax loss harvesting doesn't need big market drops (because their computer-controlled trading can harvest losses even in market periods with relatively low volatility).  But I still don't think it's worth paying their fee (and losing control over your own investments in the process), because, among other reasons, opportunities for traditional human-performed tax loss harvesting are not so infrequent to justify it.

Well that is what they might want you to believe but according to their white paper they only get good tax harvests in the market down turns. the other years don't even make enough to cover the fee.
Title: Re: Betterment?
Post by: Cyrano on November 08, 2014, 07:32:49 AM
So basically this product would not help me very much and could easily cost more than it is worth if we don't have a big market crash to take advantage of.

You know what Bogle would say to all this?  "Oh, it doesn't really matter very much.  Keep your fees as low as possible, just buy the indexes, rebalance occasionally, and forget all about it."

Bogle doesn't rebalance his own portfolio.
Title: Re: Betterment?
Post by: BEN_BANNED on November 08, 2014, 01:50:38 PM
So basically this product would not help me very much and could easily cost more than it is worth if we don't have a big market crash to take advantage of.

You know what Bogle would say to all this?  "Oh, it doesn't really matter very much.  Keep your fees as low as possible, just buy the indexes, rebalance occasionally, and forget all about it."

Agreed. And adding a 0.15% Betterment fee on top of the other fees seems like a bad way to do this.

He'd also say, "In 20 years, I'll be dead and long gone. And it's a safe bet that Betterment will be dead and long gone. What's tried and true is tried and true. Now get Vanguarding, you mutha fuckahs!!" OK, maybe not the last sentence....

Yup, pretty much! Vanguard is tried and true. I wouldn't bet a cent on Betterment still being around in 20 years.

Straight Vanguard FTW!

Betterment might not be around in 20 years but they seem to be stirring things up a bit with low cost Robo-Investing by attempting to appeal to the average Joe and Jane.

Schwab is introducing their own no cost Robo-Investing algorithm next year. Look for the other big brokerage firms to follow suit in the near future.
Title: Re: Betterment?
Post by: tyd450 on November 09, 2014, 07:06:45 PM
Man betterment must be paying mad referrals because all these guys are pushing it lately-  I just saw an article on the simple dollar today too.  I understand MMM has to pay the bills but stuff like this really leaves a bad taste in my mouth.  How much do you think his referral is?
Title: Re: Betterment?
Post by: milesdividendmd on November 09, 2014, 10:39:52 PM
Here are facts.

I have 60K in a betterment taxable account.

I am in the top marginal tax bracket.

I have been enrolled fo 3 months in TLH+ and have already harvested 550$ in tax losses whole staying fully invested and not lifting my finger.

I have already saved $100 over and above the $150 in betterment fees that u will owe this year. So this portfolio is cheaper than a Buy and hold vanguard portfolio for me. And it is also much easier, and less prone to behavioral errors.

It's not greed that makes MMM and Mad Fientist advocate for Betterment. It's intelligence. Or as Clinton would say, "it's arithmetic. "
Title: Re: Betterment?
Post by: Overseas Stache on November 10, 2014, 12:03:23 AM
Here are facts.

I have 60K in a betterment taxable account.

I am in the top marginal tax bracket.

I have been enrolled fo 3 months in TLH+ and have already harvested 550$ in tax losses whole staying fully invested and not lifting my finger.

I have already saved $100 over and above the $150 in betterment fees that u will owe this year. So this portfolio is cheaper than a Buy and hold vanguard portfolio for me. And it is also much easier, and less prone to behavioral errors.

It's not greed that makes MMM and Mad Fientist advocate for Betterment. It's intelligence. Or as Clinton would say, "it's arithmetic. "

I'm glad it's working for you but I think your fees will be $210/year (.35%*60K), not $150 like you stated.
Title: Re: Betterment?
Post by: brooklynguy on November 10, 2014, 07:06:51 AM
Here are facts.

I have 60K in a betterment taxable account.

I am in the top marginal tax bracket.

I have been enrolled fo 3 months in TLH+ and have already harvested 550$ in tax losses whole staying fully invested and not lifting my finger.

I have already saved $100 over and above the $150 in betterment fees that u will owe this year. So this portfolio is cheaper than a Buy and hold vanguard portfolio for me. And it is also much easier, and less prone to behavioral errors.

It's not greed that makes MMM and Mad Fientist advocate for Betterment. It's intelligence. Or as Clinton would say, "it's arithmetic. "

But how much could you have harvested (for free) if you would have lifted a finger (using a Vanguard portfolio)?  Depending on when you made your investments, we have had some easy conventional tax loss harvesting opportunities this year, including a 7% drop in September/October.
Title: Re: Betterment?
Post by: arebelspy on November 10, 2014, 08:00:26 AM
And you've had to worry about wash sales, unless that 60k is your whole portfolio.
Title: Re: Betterment?
Post by: juuustin on November 10, 2014, 08:19:52 AM
Here are facts.

I have 60K in a betterment taxable account.

I am in the top marginal tax bracket.

I have been enrolled fo 3 months in TLH+ and have already harvested 550$ in tax losses whole staying fully invested and not lifting my finger.

I have already saved $100 over and above the $150 in betterment fees that u will owe this year. So this portfolio is cheaper than a Buy and hold vanguard portfolio for me. And it is also much easier, and less prone to behavioral errors.

It's not greed that makes MMM and Mad Fientist advocate for Betterment. It's intelligence. Or as Clinton would say, "it's arithmetic. "

I'm glad it's working for you but I think your fees will be $210/year (.35%*60K), not $150 like you stated.

$60,000 portfolio is charged .25, not .35.  That is $150.
Title: Re: Betterment?
Post by: milesdividendmd on November 10, 2014, 09:25:38 AM
I could have harvested losses, but that would required constant monitoring, and multiple opportunities not to stick to the plan. I doubt I would have harvested as much even if I tried and was disciplined. Their algorithm is really good and totally effortless. I am never tempted to change allocation because the whole portfolio is efficient and effortless.

Keeping track of 8-12 assets with continuous contributions constantly and harvesting losses the moment they come up may sound easy but it Isn't.

Also betterment harvested losses outside of the "obvious" 7 point correction.

Finally a little bit of shuffling of my retirement accounts at the outset, and I have no overlapping indexes. So wash sales are not a problem.

As mentioned above, the ER on betterment is 0.25% not 0.35%. Above 100k it is %0.15.

And for me, with TLH, it is cheaper than Vanguard by a long shot.
Title: Re: Betterment?
Post by: notsofast on November 10, 2014, 11:28:26 AM
I checked out Betterment after MMM's article.  I am still pondering how I would use it in my portfolio.  The main benefit of their service is the Tax Loss Harvesting but how do I utilize that when I am dollar cost averaging and I want to buy the dips, not sell them?  As of right now I think I will stick with my low cost index funds in Schwab and Vanguard.
Title: Re: Betterment?
Post by: Dodge on November 10, 2014, 12:03:05 PM

So basically this product would not help me very much and could easily cost more than it is worth if we don't have a big market crash to take advantage of.

Just to clarify, Betterment's argument is that unlike human-performed tax loss harvesting, their algorithmic tax loss harvesting doesn't need big market drops (because their computer-controlled trading can harvest losses even in market periods with relatively low volatility).  But I still don't think it's worth paying their fee (and losing control over your own investments in the process), because, among other reasons, opportunities for traditional human-performed tax loss harvesting are not so infrequent to justify it.

Well that is what they might want you to believe but according to their white paper they only get good tax harvests in the market down turns. the other years don't even make enough to cover the fee.

At least they are honest with their inability to tax loss harvest anything useful in most years (embedded the chart for you)

(http://i.imgur.com/ZCJwkZT.png)
Title: Re: Betterment?
Post by: gimp on November 10, 2014, 12:17:44 PM
So much vitriol...

I've thought more about this, and it looks like a simple solution to two problems:

- Some people want to do fancy things like rebalancing and tax-loss harvesting, but don't want to spend any time doing it themselves for various reasons
- Some people think indexes are too simple / too lazy and are uncomfortable with that, and want something just a little more active that doesn't cost them much

It's not for me but I think we should agree that it's not terrible, and there's a decent chance they can deliver on their promise and their extra 0.15% at the top investment bracket is offset or more than offset by their automatic trades on your behalf versus buy-and-hold without any further action. Why not just wait and see? No reason to call each other shills and simpletons. In my opinion, the worst-case scenario is a few grand lost over the years compared to straight index and manual actions (or no actions). The best-case is a few grand more gained. Not worth getting massively upset about or slinging barbed insults...

Edit: I also think it's a great way to wean people off active management. "This one does active management too, but since it's all computers it costs less!" Et voila, 2% changes to 0.5% or less.
Title: Re: Betterment?
Post by: matchewed on November 10, 2014, 01:05:45 PM
I checked out Betterment after MMM's article.  I am still pondering how I would use it in my portfolio.  The main benefit of their service is the Tax Loss Harvesting but how do I utilize that when I am dollar cost averaging and I want to buy the dips, not sell them?  As of right now I think I will stick with my low cost index funds in Schwab and Vanguard.

I think you need to understand what tax loss harvesting is within the overall investing context and strategy. It too is buying during dips, just buying different things.

See this article - http://www.madfientist.com/tax-loss-harvesting/
Title: Re: Betterment?
Post by: dungoofed on November 10, 2014, 03:18:38 PM
Betterment/Wealthfront/etc are not available to non-US me, but I was wondering what was in place to stop them from robo-front-running besides a promise? 

I think people coming from actively managed mutual funds are not the ones who need to worry about Betterment as they are already used to being screwed by offshore fund managers. It's the naive passive investors who switch who will feel the pain the most of not rolling their own.
Title: Re: Betterment?
Post by: milesdividendmd on November 10, 2014, 03:32:07 PM
First of all, frontrunning individual investors is a poor way to make money.and even if you as an individual investor got front run, it would only cost you fractions of pennies per transaction.

Second of all why specify that this is a concern for betterment? Why do you not have the exact same concern when you execute any ETF purchase or sale at Vanguard?
Title: Re: Betterment?
Post by: Dodge on November 10, 2014, 03:43:46 PM

First of all, frontrunning individual investors is a poor way to make money.and even if you as an individual investor got front run, it would only cost you fractions of pennies per transaction.

Second of all why specify that this is a concern for betterment? Why do you not have the exact same concern when you execute any ETF purchase or sale at Vanguard?

Perhaps if the market is down, and it is known that Betterment will be selling VTI and buying the schwab version for tax loss harvesting for all their clients perhaps? I'm not too familiar with front running, but I know  Vanguard tries to protect against this when rebalancing their all in one funds.
Title: Re: Betterment?
Post by: Dodge on November 10, 2014, 03:48:26 PM

So much vitriol...

I've thought more about this, and it looks like a simple solution to two problems:

- Some people want to do fancy things like rebalancing and tax-loss harvesting, but don't want to spend any time doing it themselves for various reasons
- Some people think indexes are too simple / too lazy and are uncomfortable with that, and want something just a little more active that doesn't cost them much

It's not for me but I think we should agree that it's not terrible, and there's a decent chance they can deliver on their promise and their extra 0.15% at the top investment bracket is offset or more than offset by their automatic trades on your behalf versus buy-and-hold without any further action. Why not just wait and see? No reason to call each other shills and simpletons. In my opinion, the worst-case scenario is a few grand lost over the years compared to straight index and manual actions (or no actions). The best-case is a few grand more gained. Not worth getting massively upset about or slinging barbed insults...

Edit: I also think it's a great way to wean people off active management. "This one does active management too, but since it's all computers it costs less!" Et voila, 2% changes to 0.5% or less.

When I did the math for someone, the difference was something like $100,000 lost in extra fees over 30 years. And they weren't even a big saver! For big savers it was in the many hundreds of thousands.
Title: Re: Betterment?
Post by: milesdividendmd on November 10, 2014, 03:59:31 PM


First of all, frontrunning individual investors is a poor way to make money.and even if you as an individual investor got front run, it would only cost you fractions of pennies per transaction.

Second of all why specify that this is a concern for betterment? Why do you not have the exact same concern when you execute any ETF purchase or sale at Vanguard?

Perhaps if the market is down, and it is known that Betterment will be selling VTI and buying the schwab version for tax loss harvesting for all their clients perhaps? I'm not too familiar with front running, but I know  Vanguard tries to protect against this when rebalancing their all in one funds.

It's not a monolithic Mutual fund like a vanguard all-in-one fund. At the same time they sell out of one security in one investors account to buy a parallel security they will likely make the reverse transaction for another investors account.

it would make sense to front run gigantic mutual fund like a Vanguard Index because they deal in such large volume.  it makes much less sense to worry about this with a diverse group of investors such as those invested in betterment taxable accounts.
Title: Re: Betterment?
Post by: dungoofed on November 10, 2014, 08:40:18 PM
Hi milesdividendmd - thanks for the reply.

Please let me point out that I didn't intend to compare with Vanguard funds. If anything I'd be inclined to compare with placing the trades yourself with a discount broker.

Let me give a little more detail:

Panic grips the markets overnight and stocks take a significant hit; bonds are slightly up.

The robo-balancer contacts the robo-trader with the position it wants - sell bonds, buy stocks - and the robo-trader goes to work.

The main question I have is, what is stopping an internal "robo-front-running" module front running the day's trades?

A secondary concern (not really a question) is that if the formula is known, what is stopping other people front-running the trades? "Ah, big drop in stocks overnight. Good chance for me to ride the Betterment stock-buying wave until noon!" and then like clockwork they're out of a position that afternoon at the expense of the Betterment customers.

Title: Re: Betterment?
Post by: milesdividendmd on November 10, 2014, 11:23:54 PM

Hi milesdividendmd - thanks for the reply.

Please let me point out that I didn't intend to compare with Vanguard funds. If anything I'd be inclined to compare with placing the trades yourself with a discount broker.

Let me give a little more detail:

Panic grips the markets overnight and stocks take a significant hit; bonds are slightly up.

The robo-balancer contacts the robo-trader with the position it wants - sell bonds, buy stocks - and the robo-trader goes to work.

The main question I have is, what is stopping an internal "robo-front-running" module front running the day's trades?

A secondary concern (not really a question) is that if the formula is known, what is stopping other people front-running the trades? "Ah, big drop in stocks overnight. Good chance for me to ride the Betterment stock-buying wave until noon!" and then like clockwork they're out of a position that afternoon at the expense of the Betterment customers.

Again,  it's s question of scale. Selling a 5k position in my account is likely not worth the bother to front run.

It's worth  it to me, but not worth the transaction cost for a high frequency trader.

And betterment will likely able to rebalance internally, without even selling and buying. For the most part  they can trade one borrowers ETF for Another's with out selling on the open  market.
Title: Re: Betterment?
Post by: milesdividendmd on November 11, 2014, 12:29:27 AM

Hi milesdividendmd - thanks for the reply.

Please let me point out that I didn't intend to compare with Vanguard funds. If anything I'd be inclined to compare with placing the trades yourself with a discount broker.

Let me give a little more detail:

Panic grips the markets overnight and stocks take a significant hit; bonds are slightly up.

The robo-balancer contacts the robo-trader with the position it wants - sell bonds, buy stocks - and the robo-trader goes to work.

The main question I have is, what is stopping an internal "robo-front-running" module front running the day's trades?

A secondary concern (not really a question) is that if the formula is known, what is stopping other people front-running the trades? "Ah, big drop in stocks overnight. Good chance for me to ride the Betterment stock-buying wave until noon!" and then like clockwork they're out of a position that afternoon at the expense of the Betterment customers.

Again,  it's s question of scale. Selling a 5k position in my account is likely not worth the bother to front run.

It's worth  it to me, but not worth the transaction cost for a high frequency trader.

And betterment will likely able to rebalance internally, without even selling and buying. For the most part  they can trade one borrowers ETF for Another's with out selling on the open  market.
Title: Re: Betterment?
Post by: dungoofed on November 11, 2014, 01:15:01 AM
Ok but the point is, when it's time for Betterment to buy one user's VT, it's time for them to buy all their users' VTs.  That the strategy.

Granted, I can force myself to think of an example where they could net internally, but apart from the case where someone was selling shares in the fund it feels contrived and unrealistic eg.

Person A holds VEIEX and VOO, but no bonds
Person B holds VOO and bonds

Market moves, VEIEX increases more than VOO (which also increases). Bonds don't move

In this case Betterment will:

Person A: Sell their VEIEX and buy more VOO
Person B: Sell their VOO and buy more bonds.

and Betterment would be able to cross internally. But if Person A has bonds or Person B has VEIEX then it doesn't work, and Betterment is back out purchasing on the open market.

Of course, it's possible (very likely? lol) my understanding is wrong. Have Betterment published what percentage of total trades are netted internally?

This is why it's different to a Vanguard fund: the trigger for Vanguard going to the market is an investor pumping more money into the fund, or selling out of it. It's also the reason Vanguard can cross internally at a greater rate I believe than Betterment will ever be able to do.

The exception of course would be if Betterment selectively rebalanced in order to maximize internal crosses, but then that would raise more questions.
Title: Re: Betterment?
Post by: milesdividendmd on November 11, 2014, 09:41:46 AM
Your logic makes sense only if every investor enrolls in TLH at the exact same time, which of course they do not.

Since enrollment is not monolithic, at the same time that one investor sells investment A to invest in investment B, another sells investment B to buy investment A.

Even if the trades are not balanced it is very difficult to know in which direction the trade goes in net.

So even if you were able to predict the exact time that betterment was going to harvest emerging markets stock indices, (a difficult prospect in and of itself) you would not know if betterment was a net buyer of VWO or SCHE.

Add to this the fact that other roboadvisors have different TLH algorithms and asset allocations, and the complexity becomes exponential, making prediction almost impossible.

Compare this to a company being replaced in the S&P. The new company will be bid up, and the exiting company will be bid down as soon as the news is released. An excellent opportunity to front run vanguard and every other passive index.


Title: Re: Betterment?
Post by: Chuck on November 11, 2014, 06:13:15 PM
I'm glad I found this thead. After I saw MadFientist and MMM recommend this service I was seriously giving it a look.

In hindsight it should have made me very suspicious that 15+ financial blogs should all recommend it at the same time.

Don't fault them for getting paid, but I wish those articles came with an asterisk. You're talking about real money people will be throwing down the drain...
Title: Re: Betterment?
Post by: milesdividendmd on November 11, 2014, 08:07:49 PM
Throwing money down the drain, retrieving money from the drain...what's the difference?
Title: Re: Betterment?
Post by: dungoofed on November 11, 2014, 08:48:35 PM
Hi milesdividendmd - Thanks again for your reply. I disagree but we're kinda talking past each other now.

If anyone else wants to have a stab at pulling apart my criticisms please go ahead. Otherwise my current verdict is "marginal benefit, if any. Pay fees for the opportunity to potentially be front-run by Betterment."
Title: Re: Betterment?
Post by: brooklynguy on November 11, 2014, 09:13:58 PM
I'm confused by all the comments about ulterior motives behind the Betterment recommendations.  The fact that we're four pages of healthy debate into this thread alone should be pretty good evidence that reasonable minds can differ on the subject.  MMM, the Mad Fientist and MilesDividend have all earned my respect, so even though I disagree with them about Betterment's value I don't harbor any suspicions that referral commissions are the driving force behind their recommendations (at least not on a conscious level).  And maybe I'm mistaken, but I don't believe Miles (probably Betterment's most zealous advocate on this board) is getting any commissions.
Title: Re: Betterment?
Post by: dungoofed on November 11, 2014, 10:17:12 PM
Betterment also have a fair-sized advertising budget, I hear.

http://www.crunchbase.com/organization/betterment
Title: Re: Betterment?
Post by: Beric01 on November 11, 2014, 10:32:27 PM
Betterment also have a fair-sized advertising budget, I hear.

http://www.crunchbase.com/organization/betterment

Only way to fund all those referrals to those bloggers.
Title: Re: Betterment?
Post by: Dodge on November 12, 2014, 12:33:38 AM

I'm confused by all the comments about ulterior motives behind the Betterment recommendations.  The fact that we're four pages of healthy debate into this thread alone should be pretty good evidence that reasonable minds can differ on the subject.  MMM, the Mad Fientist and MilesDividend have all earned my respect, so even though I disagree with them about Betterment's value I don't harbor any suspicions that referral commissions are the driving force behind their recommendations (at least not on a conscious level).  And maybe I'm mistaken, but I don't believe Miles (probably Betterment's most zealous advocate on this board) is getting any commissions.

Hmm, that's an interesting point! Now that I think about it, and I know someone alluded to this earlier, pretty much the only people strongly supporting Betterment...are financial bloggers.

Mr. Money Mustache
Mad Fientist
MilesDividend

I just looked it up, and yes, all three are positioned to profit from this advice, as they all have articles claiming how fantastic Betterment is...then push their referral link for commissions at the end.
Title: Re: Betterment?
Post by: Dodge on November 12, 2014, 12:42:57 AM

I'm glad I found this thead. After I saw MadFientist and MMM recommend this service I was seriously giving it a look.

In hindsight it should have made me very suspicious that 15+ financial blogs should all recommend it at the same time.

Don't fault them for getting paid, but I wish those articles came with an asterisk. You're talking about real money people will be throwing down the drain...

Indeed. In hindsight it makes sense now that I look back and read how strongly some people on this forum have defended this company. I feel people should give a disclaimer when giving advice to invest with a company they are attempting to earn commissions from.
Title: Re: Betterment?
Post by: Beric01 on November 12, 2014, 12:55:29 AM

I'm glad I found this thead. After I saw MadFientist and MMM recommend this service I was seriously giving it a look.

In hindsight it should have made me very suspicious that 15+ financial blogs should all recommend it at the same time.

Don't fault them for getting paid, but I wish those articles came with an asterisk. You're talking about real money people will be throwing down the drain...

Indeed. In hindsight it makes sense now that I look back and read how strongly some people on this forum have defended this company. I feel people should give a disclaimer when giving advice to invest with a company they are attempting to earn commissions from.

As they say, follow the money...

I do think it would be cool if Vanguard offered something more automated built into their program, but it's really very small amounts we're talking about here.
Title: Re: Betterment?
Post by: brooklynguy on November 12, 2014, 05:14:31 AM
Ok, I have now dug deeper and I see that Miles is indeed also positioned to profit from recommending Betterment.  Initially I had looked at his blog's tax loss harvesting post (and a few more recent ones), which make no mention of his conflict of interest.  (MMM and Mad Fientish are both pretty upfront about it, with MF's disclaimer being a little better than MMM's.)  I had even remembered reading a post on Miles' blog about his lack of profit motive and conflict of interest.  Now I've gone back and reread it:

http://www.milesdividendmd.com/painting-portfolios/

In it, he debates the pros and con of monetizing the site, and he states that if he does ever choose to, then:

"I will be conflicted. And all that I can vow now,  is that I will announce my conflicts of interest whenever Iím aware of them.

And I welcome you  to call me out on any future conflicts in my writing should you become aware of them.

But it strikes me that one thing that I should do prior to accepting any advertisers is to advocate for the products that I truly believe to be excellent.

After all I am still unconflicted. So I thought I would take advantage of my own lack of ulterior motives to talk about a product that I think is quality [Betterment]."

Well, Miles, I am taking you up on your invitation and calling you out.  You failed to disclose your conflict of interest in every subsequent post on your site recommending Betterment, ironically including the above referenced post in which you promised full disclosure.  I consider myself a careful reader yet I still missed the fact that you actually do have a financial motive for pushing Betterment.

(Hopefully I'm not derailing this thread, but in light of the turn this discussion has taken and Miles' zealous advocacy for Betterment in this thread, I thought it would be appropriate to post this here.)


Title: Re: Betterment?
Post by: dungoofed on November 12, 2014, 06:04:35 AM
I think the internet is over the stage of caring about whether a blogger uses an affiliate link or not - it's well within their rights, and if it's a product they genuinely recommend and maybe get the reader a discount too (such as for YNAB) then it passes the "fairness" threshold IMHO.

Milesdividendmd on his site gives a balanced review.

My concern lies with the product itself. All Betterment has to do is beat "buying and rebalancing your own ETFs using an online broker" but I'm not convinced it does. It does, however, beat a lot of the crap out there, crap which MMM readers most likely aren't using in the first place.
Title: Re: Betterment?
Post by: Dodge on November 12, 2014, 10:20:04 AM


I'm glad I found this thead. After I saw MadFientist and MMM recommend this service I was seriously giving it a look.

In hindsight it should have made me very suspicious that 15+ financial blogs should all recommend it at the same time.

Don't fault them for getting paid, but I wish those articles came with an asterisk. You're talking about real money people will be throwing down the drain...

Indeed. In hindsight it makes sense now that I look back and read how strongly some people on this forum have defended this company. I feel people should give a disclaimer when giving advice to invest with a company they are attempting to earn commissions from.

As they say, follow the money...

I do think it would be cool if Vanguard offered something more automated built into their program, but it's really very small amounts we're talking about here.

Honestly, I hope Vanguard stays out of this altogether. I'd rather they don't spend time and resources on something like this, time and resources which could be spent to *lower* their ER, especially when they already have funds which auto rebalance.
Title: Re: Betterment?
Post by: juuustin on November 12, 2014, 10:29:14 AM
I think the internet is over the stage of caring about whether a blogger uses an affiliate link or not - it's well within their rights, and if it's a product they genuinely recommend and maybe get the reader a discount too (such as for YNAB) then it passes the "fairness" threshold IMHO.

Milesdividendmd on his site gives a balanced review.

My concern lies with the product itself. All Betterment has to do is beat "buying and rebalancing your own ETFs using an online broker" but I'm not convinced it does. It does, however, beat a lot of the crap out there, crap which MMM readers most likely aren't using in the first place.
Like the Royal London 360?
Title: Re: Betterment?
Post by: Emanonrog on November 12, 2014, 01:59:56 PM
I'm not a big fan of posting on these message boards, though I do read them fairly regularly and appreciate what others have to say, but I feel the need to defend MMM here.  I'm pretty shocked that none of the regular posters have come to his defense.  Are people really concerned that MMM is so corrupt as to endorse a product that he doesn't believe in for a purely financial gain?  The guy is beyond financial secure.  My understanding is that he donates most of the blog's income to charity and plans to donate a sizable portion of his personal wealth to charity.  This is a blog that he writes in his spare time with the goal of educating people about financial security and living a rewarding life.  Endorsing a product that he doesn't believe in or thinks is inferior doesn't seem likely to further that goal.  I also believe that MMM has turned down sponsorship opportunities in the past that would have brought in significant money.

I assume that the regular posters here are those that subscribe to his message of minimalism, saving a sizable portion of your salary, and pursuing the things in life that truly make us happy.  I also assume that most of you would also credit MMM with expanding your perspective on life and significantly improving your financial situation.  We all owe him a huge debt of gratitude. 

I'm not saying you have to agree with everything the guy says, but maybe you should think twice before you question his motives?  I've noticed recently that the comments section of new blog posts have been getting more and more negative, as have the comments in the forum.  I suppose that's just a symptom of him reaching a larger audience.  Hopefully it doesn't dishearten him from continuing to work on this amazing blog that we all benefit immensely from.

Just my 2 cents.  Note that I have no plans of posting any further replies on the subject.
Title: Re: Betterment?
Post by: milesdividendmd on November 12, 2014, 02:07:13 PM
Ok, I have now dug deeper and I see that Miles is indeed also positioned to profit from recommending Betterment.  Initially I had looked at his blog's tax loss harvesting post (and a few more recent ones), which make no mention of his conflict of interest.  (MMM and Mad Fientish are both pretty upfront about it, with MF's disclaimer being a little better than MMM's.)  I had even remembered reading a post on Miles' blog about his lack of profit motive and conflict of interest.  Now I've gone back and reread it:

http://www.milesdividendmd.com/painting-portfolios/

In it, he debates the pros and con of monetizing the site, and he states that if he does ever choose to, then:

"I will be conflicted. And all that I can vow now,  is that I will announce my conflicts of interest whenever Iím aware of them.

And I welcome you  to call me out on any future conflicts in my writing should you become aware of them.

But it strikes me that one thing that I should do prior to accepting any advertisers is to advocate for the products that I truly believe to be excellent.

After all I am still unconflicted. So I thought I would take advantage of my own lack of ulterior motives to talk about a product that I think is quality [Betterment]."

Well, Miles, I am taking you up on your invitation and calling you out.  You failed to disclose your conflict of interest in every subsequent post on your site recommending Betterment, ironically including the above referenced post in which you promised full disclosure.  I consider myself a careful reader yet I still missed the fact that you actually do have a financial motive for pushing Betterment.

(Hopefully I'm not derailing this thread, but in light of the turn this discussion has taken and Miles' zealous advocacy for Betterment in this thread, I thought it would be appropriate to post this here.)

It's tough to answer a "call out" like this without getting defensive, but I'll try.

I have never been paid a cent by Betterment.  And I have no business relationship with them aside from my personal investments with them.
My so called conflict of interest is a "share with friends" link available to anyone who uses betterment.  I believe you now get something like a month free if someone enrolls via your link.  Not exactly lucrative.
Ironically today was the first time anyone clicked on the Betterment link on my site and enrolled  (It must have been in response to you posting the link, Brooklyn.)
I did not disclose my "conflict of interest," in subsequent posts, because I had forgotten that I had included the link in my original post.
If my primary goal was to shill for Betterment, wouldn't I have included a link in subsequent posts?
My honest opinion is that my "zeal" for Betterment has nothing to do with any financial conflict of interest, real or imagined.  It is a great product, and one that I have increased my own stake in recently and recommended to both of my parents.
I am equally "zealous" in my criticism of P2P lending, despite the absence of any conflict of interest or imaginable ulterior motive.  To misquote John Lennon, "I'm just a zealous guy."
You will notice tht my site is still add free, as I remain deeply ambivalent about monetizing my site, despite its increasing readership.
I will happily remove the link from my original post, but this is more symbolic than anything, since it  has lain dormant for all of this time.



Title: Re: Betterment?
Post by: dungoofed on November 12, 2014, 02:54:49 PM
I think the internet is over the stage of caring about whether a blogger uses an affiliate link or not - it's well within their rights, and if it's a product they genuinely recommend and maybe get the reader a discount too (such as for YNAB) then it passes the "fairness" threshold IMHO.

Milesdividendmd on his site gives a balanced review.

My concern lies with the product itself. All Betterment has to do is beat "buying and rebalancing your own ETFs using an online broker" but I'm not convinced it does. It does, however, beat a lot of the crap out there, crap which MMM readers most likely aren't using in the first place.
Like the Royal London 360?

It's darkest before dawn.
Title: Re: Betterment?
Post by: brooklynguy on November 12, 2014, 03:15:43 PM
It's tough to answer a "call out" like this without getting defensive, but I'll try.

I have never been paid a cent by Betterment.  And I have no business relationship with them aside from my personal investments with them.
My so called conflict of interest is a "share with friends" link available to anyone who uses betterment.  I believe you now get something like a month free if someone enrolls via your link.  Not exactly lucrative.
Ironically today was the first time anyone clicked on the Betterment link on my site and enrolled  (It must have been in response to you posting the link, Brooklyn.)
I did not disclose my "conflict of interest," in subsequent posts, because I had forgotten that I had included the link in my original post.
If my primary goal was to shill for Betterment, wouldn't I have included a link in subsequent posts?
My honest opinion is that my "zeal" for Betterment has nothing to do with any financial conflict of interest, real or imagined.  It is a great product, and one that I have increased my own stake in recently and recommended to both of my parents.
I am equally "zealous" in my criticism of P2P lending, despite the absence of any conflict of interest or imaginable ulterior motive.  To misquote John Lennon, "I'm just a zealous guy."
You will notice tht my site is still add free, as I remain deeply ambivalent about monetizing my site, despite its increasing readership.
I will happily remove the link from my original post, but this is more symbolic than anything, since it  has lain dormant for all of this time.

Fair enough.  For what it's worth, I still stand by my first statement that reasonable minds can differ on this topic and that I don't believe referral bonuses are driving you (or MMM or Mad Fientist) to recommend the product, but I am a strong believer in full disclosure and letting the reader make up his or her own mind on a fully informed basis.  But your explanation is plausible and in my mind you've earned the benefit of the doubt.

But again, for anyone reading only the most recent posts, for all the reasons that have been articulated throughout this thread (going back several months), I don't believe Betterment provides value for the typical reader of this forum.
Title: Re: Betterment?
Post by: dungoofed on November 12, 2014, 03:32:20 PM
I don't believe Betterment provides value for the typical reader of this forum.

So it begs the question, what would a MMM reader/Boglehead's perfect tool look like?

I agree that 0.15% is an expense you want to try and save, and from observation the average MMM reader is fundamentally against a management fee as a percentage of the portfolio no matter how small. Seems like the current tool of choice is a combination of home-made spreadsheets, discount brokers and "feeling," but I'm not convinced that this is the best tool for the job.

I think Betterment could have been a decent tool if it charged a one-off, like YNAB, or a fixed monthly fee instead of a percentage of your portfolio. And it needs something to avoid the concerns highlighted by myself and others in this thread.
Title: Re: Betterment?
Post by: Beric01 on November 12, 2014, 03:55:00 PM
I think Betterment could have been a decent tool if it charged a one-off, like YNAB, or a fixed monthly fee instead of a percentage of your portfolio.

I agree. And yet I would never invest 45 million (http://www.crunchbase.com/organization/betterment) in a more niche company with a fee-only business model. It's not scalable.
Title: Re: Betterment?
Post by: Dodge on November 12, 2014, 03:59:25 PM

I don't believe Betterment provides value for the typical reader of this forum.

So it begs the question, what would a MMM reader/Boglehead's perfect tool look like?

I agree that 0.15% is an expense you want to try and save, and from observation the average MMM reader is fundamentally against a management fee as a percentage of the portfolio no matter how small. Seems like the current tool of choice is a combination of home-made spreadsheets, discount brokers and "feeling," but I'm not convinced that this is the best tool for the job.

I think Betterment could have been a decent tool if it charged a one-off, like YNAB, or a fixed monthly fee instead of a percentage of your portfolio. And it needs something to avoid the concerns highlighted by myself and others in this thread.

I'd pay $100 a year to have Betterment login, rebalance, and tax loss harvest my own 3 fund portfolio, across ALL of my and DW's accounts. Like a Mint account on steroids :)
Title: Re: Betterment?
Post by: MikeBear on November 12, 2014, 04:07:29 PM
I'm not a big fan of posting on these message boards, though I do read them fairly regularly and appreciate what others have to say, but I feel the need to defend MMM here.  I'm pretty shocked that none of the regular posters have come to his defense.  Are people really concerned that MMM is so corrupt as to endorse a product that he doesn't believe in for a purely financial gain?  The guy is beyond financial secure.  My understanding is that he donates most of the blog's income to charity and plans to donate a sizable portion of his personal wealth to charity.  This is a blog that he writes in his spare time with the goal of educating people about financial security and living a rewarding life.  Endorsing a product that he doesn't believe in or thinks is inferior doesn't seem likely to further that goal.  I also believe that MMM has turned down sponsorship opportunities in the past that would have brought in significant money.

I assume that the regular posters here are those that subscribe to his message of minimalism, saving a sizable portion of your salary, and pursuing the things in life that truly make us happy.  I also assume that most of you would also credit MMM with expanding your perspective on life and significantly improving your financial situation.  We all owe him a huge debt of gratitude. 

I'm not saying you have to agree with everything the guy says, but maybe you should think twice before you question his motives?  I've noticed recently that the comments section of new blog posts have been getting more and more negative, as have the comments in the forum.  I suppose that's just a symptom of him reaching a larger audience.  Hopefully it doesn't dishearten him from continuing to work on this amazing blog that we all benefit immensely from.

Just my 2 cents.  Note that I have no plans of posting any further replies on the subject.

I've tried to defend him a bit on this, but certain people here seem bound and determined to demonize MMM lately, and no amount of talking about the good MMM has done convinces them one bit that he hasn't sold out. Since he did a full disclosure up front, I hardly think he has "sold out". Let him risk HIS $100k and find out if Betterment is good or bad for the masses, and we'll go from there.

I'm older, and only found MMM earlier this year, and I have nowhere near the amount of resources that would ever allow me to use Betterment or other services such as this. I use the info from MMM I need applied in my case, and discard the rest as of no worth to me. However I AM extremely grateful in general to MMM for giving me the face punch I needed to get back on track to pull my finances out of the gutter before REAL retirement. The apparent hypocrisy around here lately by certain posters just flabbergasts me.

Once their minds are made up, apparently there's no turning them back. They continue to use the site for the good it can do, so it beats me why they keep pushing it, or perhaps they do have a hidden agenda on the demonization of MMM. He is human like the rest of us, and maybe this is a mistake. How do we know until he tries it? Nobody is FORCING anybody to use Betterment or any referral link, so I just don't get it, why has THIS particular issue set off so many people?
Title: Re: Betterment?
Post by: Beric01 on November 12, 2014, 04:09:39 PM

I don't believe Betterment provides value for the typical reader of this forum.

So it begs the question, what would a MMM reader/Boglehead's perfect tool look like?

I agree that 0.15% is an expense you want to try and save, and from observation the average MMM reader is fundamentally against a management fee as a percentage of the portfolio no matter how small. Seems like the current tool of choice is a combination of home-made spreadsheets, discount brokers and "feeling," but I'm not convinced that this is the best tool for the job.

I think Betterment could have been a decent tool if it charged a one-off, like YNAB, or a fixed monthly fee instead of a percentage of your portfolio. And it needs something to avoid the concerns highlighted by myself and others in this thread.

I'd pay $100 a year to have Betterment login, rebalance, and tax loss harvest my own 3 fund portfolio, across ALL of my and DW's accounts. Like a Mint account on steroids :)

Oh, I agree. That's another big weakness of Betterment - it don't compute asset allocation and rebalancing based on 401(k)'s or other accounts. It's just not a complete product.
Title: Re: Betterment?
Post by: rmendpara on November 12, 2014, 09:21:15 PM

I don't believe Betterment provides value for the typical reader of this forum.

So it begs the question, what would a MMM reader/Boglehead's perfect tool look like?

I agree that 0.15% is an expense you want to try and save, and from observation the average MMM reader is fundamentally against a management fee as a percentage of the portfolio no matter how small. Seems like the current tool of choice is a combination of home-made spreadsheets, discount brokers and "feeling," but I'm not convinced that this is the best tool for the job.

I think Betterment could have been a decent tool if it charged a one-off, like YNAB, or a fixed monthly fee instead of a percentage of your portfolio. And it needs something to avoid the concerns highlighted by myself and others in this thread.

I'd pay $100 a year to have Betterment login, rebalance, and tax loss harvest my own 3 fund portfolio, across ALL of my and DW's accounts. Like a Mint account on steroids :)

Oh, I agree. That's another big weakness of Betterment - it don't compute asset allocation and rebalancing based on 401(k)'s or other accounts. It's just not a complete product.

A more complete product like Future Advisor? This platform actually allows you to upload data on all your financial accounts, and will only charge a fee on the portion which you give to them to manage.

The kicker is that this platform charges 0.5% of invested assets..
Title: Re: Betterment?
Post by: rmendpara on November 12, 2014, 09:31:39 PM
Not sure exactly why people are getting all wound up over disclosure on the internet.

Here's a secret: Any website you visit is making someone money.

For those of you whining about 0.35% to 0.15%... how little money do you have that you are totally against paying a fair (debatable, of course) fee for a service? Should they do this for free?

If you prefer to do it yourself, then so be it. Some people would be perfectly happy to pay $150/yr on a sizable chunk of investments to be invested and rebalanced automatically rather than fiddle around with it... some may even prefer that to doing it on their own.

A service like this, or one of the handful of other related services that have popped up in recent years are a result of a continuing desire of many people to be more 'hands off' with their investments. Some of us have better things to do with our time.
Title: Re: Betterment?
Post by: Dodge on November 12, 2014, 11:30:54 PM
Not sure exactly why people are getting all wound up over disclosure on the internet.

Here's a secret: Any website you visit is making someone money.

For those of you whining about 0.35% to 0.15%... how little money do you have that you are totally against paying a fair (debatable, of course) fee for a service? Should they do this for free?

If you prefer to do it yourself, then so be it. Some people would be perfectly happy to pay $150/yr on a sizable chunk of investments to be invested and rebalanced automatically rather than fiddle around with it... some may even prefer that to doing it on their own.

A service like this, or one of the handful of other related services that have popped up in recent years are a result of a continuing desire of many people to be more 'hands off' with their investments. Some of us have better things to do with our time.

I love it when people say $150 a year, regarding a service meant for long-term investing, when the fee is percentage based.  It lets me say things like this:

If my grandparents invested $20,000 sixty years ago in Betterment for my father's retirement, that fund would have $1,000,000 (one million) less dollars today, than if they invested it in a Vanguard Life Strategy automatic rebalancing fund, and $1,800,000 less dollars than if they had the standard 3 fund portfolio.

If my grandparents invested $20,000 sixty years ago, plus $100 a month, in Betterment for my father's retirement, that fund would have $1,500,000 (one point five million) less dollars today, than if they invested it in a Vanguard Life Strategy automatic rebalancing fund, and $2,600,000 less dollars than if they had the standard 3 fund portfolio.

Cfiresim also shows the portfolio would have a 15% increased chance of failure with the standard 4% withdraw rate.

Even if they only kept it for 5 years, and got the average growth rate, going with Betterment would cost about $400 in fees after 5 years. That's the equivalent of a 1.25% Load on your investment.
Title: Betterment?
Post by: milesdividendmd on November 13, 2014, 12:26:11 AM
Not sure exactly why people are getting all wound up over disclosure on the internet.

Here's a secret: Any website you visit is making someone money.

For those of you whining about 0.35% to 0.15%... how little money do you have that you are totally against paying a fair (debatable, of course) fee for a service? Should they do this for free?

If you prefer to do it yourself, then so be it. Some people would be perfectly happy to pay $150/yr on a sizable chunk of investments to be invested and rebalanced automatically rather than fiddle around with it... some may even prefer that to doing it on their own.

A service like this, or one of the handful of other related services that have popped up in recent years are a result of a continuing desire of many people to be more 'hands off' with their investments. Some of us have better things to do with our time.

I love it when people say $150 a year, regarding a service meant for long-term investing, when the fee is percentage based.  It lets me say things like this:

If my grandparents invested $20,000 sixty years ago in Betterment for my father's retirement, that fund would have $1,000,000 (one million) less dollars today, than if they invested it in a Vanguard Life Strategy automatic rebalancing fund, and $1,800,000 less dollars than if they had the standard 3 fund portfolio.

If my grandparents invested $20,000 sixty years ago, plus $100 a month, in Betterment for my father's retirement, that fund would have $1,500,000 (one point five million) less dollars today, than if they invested it in a Vanguard Life Strategy automatic rebalancing fund, and $2,600,000 less dollars than if they had the standard 3 fund portfolio.

Cfiresim also shows the portfolio would have a 15% increased chance of failure with the standard 4% withdraw rate.

Even if they only kept it for 5 years, and got the average growth rate, going with Betterment would cost about $400 in fees after 5 years. That's the equivalent of a 1.25% Load on your investment.

Calling BS on this one.

Please share your backtesting strategy that allows you compare Betterment's specific collection of ETFs with a life strategy fund over 60 years.

You are aware that index mutual funds (let alone ETFs) were not around 60 years ago, right?

Even before TLH is taken into account I would bet that Betterments portfolio would beat a vanguard life strategy fund over the past 60 years because of its tilt towards the small and value factors (even after the highest possible 0.35% fee levels are included. )

Whether or not small and value tilting will outperform over the next 60 years is debatable. That the small and value factors have outperformed over the past 60 years is not debatable.
Title: Re: Betterment?
Post by: BEN_BANNED on November 13, 2014, 06:32:09 AM

Even before TLH is taken into account I would bet that Betterments portfolio would beat a vanguard life strategy fund over the past 60 years because of its tilt towards the small and value factors (even after the highest possible 0.35% fee levels are included. )



Betterment's portfolio is tilted toward overseas developed markets as well as the developing markets.

My overall return from when I opened the account in March was negative on a 90/10 stock/bond ratio. Any gains on Wall Street were negated by the Euro-Asian economies being in such a state of uncertainty.

I recently closed my account at Betterment put the money into WiseBanyan whose portfolio is tilted more towards North America.
Title: Re: Betterment?
Post by: Dodge on November 13, 2014, 07:46:28 AM

Not sure exactly why people are getting all wound up over disclosure on the internet.

Here's a secret: Any website you visit is making someone money.

For those of you whining about 0.35% to 0.15%... how little money do you have that you are totally against paying a fair (debatable, of course) fee for a service? Should they do this for free?

If you prefer to do it yourself, then so be it. Some people would be perfectly happy to pay $150/yr on a sizable chunk of investments to be invested and rebalanced automatically rather than fiddle around with it... some may even prefer that to doing it on their own.

A service like this, or one of the handful of other related services that have popped up in recent years are a result of a continuing desire of many people to be more 'hands off' with their investments. Some of us have better things to do with our time.

I love it when people say $150 a year, regarding a service meant for long-term investing, when the fee is percentage based.  It lets me say things like this:

If my grandparents invested $20,000 sixty years ago in Betterment for my father's retirement, that fund would have $1,000,000 (one million) less dollars today, than if they invested it in a Vanguard Life Strategy automatic rebalancing fund, and $1,800,000 less dollars than if they had the standard 3 fund portfolio.

If my grandparents invested $20,000 sixty years ago, plus $100 a month, in Betterment for my father's retirement, that fund would have $1,500,000 (one point five million) less dollars today, than if they invested it in a Vanguard Life Strategy automatic rebalancing fund, and $2,600,000 less dollars than if they had the standard 3 fund portfolio.

Cfiresim also shows the portfolio would have a 15% increased chance of failure with the standard 4% withdraw rate.

Even if they only kept it for 5 years, and got the average growth rate, going with Betterment would cost about $400 in fees after 5 years. That's the equivalent of a 1.25% Load on your investment.

Calling BS on this one.

Please share your backtesting strategy that allows you compare Betterment's specific collection of ETFs with a life strategy fund over 60 years.

You are aware that index mutual funds (let alone ETFs) were not around 60 years ago, right?

Even before TLH is taken into account I would bet that Betterments portfolio would beat a vanguard life strategy fund over the past 60 years because of its tilt towards the small and value factors (even after the highest possible 0.35% fee levels are included. )

Whether or not small and value tilting will outperform over the next 60 years is debatable. That the small and value factors have outperformed over the past 60 years is not debatable.

I understand your viewpoint Miles. I was mostly responding to his assertion that paying a company $150 a year so your money is "invested and rebalanced automatically", because "Some of us have better things to do with our time" is a much bigger price than it seems.
Title: Re: Betterment?
Post by: Dodge on November 13, 2014, 07:54:40 AM


Even before TLH is taken into account I would bet that Betterments portfolio would beat a vanguard life strategy fund over the past 60 years because of its tilt towards the small and value factors (even after the highest possible 0.35% fee levels are included. )



Betterment's portfolio is tilted toward overseas developed markets as well as the developing markets.

My overall return from when I opened the account in March was negative on a 90/10 stock/bond ratio. Any gains on Wall Street were negated by the Euro-Asian economies being in such a state of uncertainty.

I recently closed my account at Betterment put the money into WiseBanyan whose portfolio is tilted more towards North America.

Do you see Miles? This is why this type of thinking is dangerous. I mentioned this on one of the first pages of the thread, it adds more variables for people to doubt, leading to more behavioral errors.

Ben, you would be much better off if you stopped trying to beat the market, or optimizing your tilt based on 8 months of performance. If you don't want to rebalance, get a Vanguard LifeStrategy fund and call it a day. Either way, if you can't stay the course, you will almost certainly underperform.
Title: Re: Betterment?
Post by: BEN_BANNED on November 13, 2014, 08:32:09 AM



Ben, you would be much better off if you stopped trying to beat the market, or optimizing your tilt based on 8 months of performance. If you don't want to rebalance, get a Vanguard LifeStrategy fund and call it a day. Either way, if you can't stay the course, you will almost certainly underperform.

WiseBanyan also has auto-re-balancing plus ZERO fees.

I merely opened the Betterment account with a small amount of play money to get a feel on how Betterment's robo-investing algorithm worked.

I've had/have no intention of trying to time the markets nor trying to beat them. My issue was the overweight tilt on foreign equities in light of Japans and the EU plan to inflate stocks by flooding the markets with funny money ala The Fed's Quantitative Easing smoke and mirrors scheme.

Betterment's returns were lagging far behind my other investments so I decided to look elsewhere to stash my money.
Title: Re: Betterment?
Post by: milesdividendmd on November 13, 2014, 09:50:34 AM



Even before TLH is taken into account I would bet that Betterments portfolio would beat a vanguard life strategy fund over the past 60 years because of its tilt towards the small and value factors (even after the highest possible 0.35% fee levels are included. )



Betterment's portfolio is tilted toward overseas developed markets as well as the developing markets.

My overall return from when I opened the account in March was negative on a 90/10 stock/bond ratio. Any gains on Wall Street were negated by the Euro-Asian economies being in such a state of uncertainty.

I recently closed my account at Betterment put the money into WiseBanyan whose portfolio is tilted more towards North America.

Do you see Miles? This is why this type of thinking is dangerous. I mentioned this on one of the first pages of the thread, it adds more variables for people to doubt, leading to more behavioral errors.

Ben, you would be much better off if you stopped trying to beat the market, or optimizing your tilt based on 8 months of performance. If you don't want to rebalance, get a Vanguard LifeStrategy fund and call it a day. Either way, if you can't stay the course, you will almost certainly underperform.

Dodge,

This is an example of performance chasing, the most basic of investment errors. Complexity has nothing to do with it.

If he had compared VTI to an active 3X leverage etf/option/ package that happened to perform better over the past 9 months, by similar logic he would have determined that passive investing was a bad bet.

AZ
Title: Re: Betterment?
Post by: brooklynguy on November 13, 2014, 10:07:40 AM
Not sure exactly why people are getting all wound up over disclosure on the internet.

Here's a secret: Any website you visit is making someone money.

Nobody is upset about websites making money.  People are upset about perceived conflicts of interest.  If a financial blogger is being paid by Procter & Gamble to place advertisements for toothpaste on their site, there is no need for disclosure.  If a financial blogger is being paid commissions for recommending a financial product, there is a need for disclosure.
Title: Re: Betterment?
Post by: milesdividendmd on November 13, 2014, 11:01:50 AM




Ben, you would be much better off if you stopped trying to beat the market, or optimizing your tilt based on 8 months of performance. If you don't want to rebalance, get a Vanguard LifeStrategy fund and call it a day. Either way, if you can't stay the course, you will almost certainly underperform.

WiseBanyan also has auto-re-balancing plus ZERO fees.

I merely opened the Betterment account with a small amount of play money to get a feel on how Betterment's robo-investing algorithm worked.

I've had/have no intention of trying to time the markets nor trying to beat them. My issue was the overweight tilt on foreign equities in light of Japans and the EU plan to inflate stocks by flooding the markets with funny money ala The Fed's Quantitative Easing smoke and mirrors scheme.

Betterment's returns were lagging far behind my other investments so I decided to look elsewhere to stash my money.

Based on your comments, at this point, what brokerage platform you choose is largely irrelevant.

Your next investment should be in a basic investment book.

I like this one for those starting out...

http://www.amazon.com/Think-Invest-Like-Warren-Buffett/dp/0071809953

Good luck.
Title: Betterment?
Post by: Dodge on November 13, 2014, 11:03:42 AM



Even before TLH is taken into account I would bet that Betterments portfolio would beat a vanguard life strategy fund over the past 60 years because of its tilt towards the small and value factors (even after the highest possible 0.35% fee levels are included. )



Betterment's portfolio is tilted toward overseas developed markets as well as the developing markets.

My overall return from when I opened the account in March was negative on a 90/10 stock/bond ratio. Any gains on Wall Street were negated by the Euro-Asian economies being in such a state of uncertainty.

I recently closed my account at Betterment put the money into WiseBanyan whose portfolio is tilted more towards North America.

Do you see Miles? This is why this type of thinking is dangerous. I mentioned this on one of the first pages of the thread, it adds more variables for people to doubt, leading to more behavioral errors.

Ben, you would be much better off if you stopped trying to beat the market, or optimizing your tilt based on 8 months of performance. If you don't want to rebalance, get a Vanguard LifeStrategy fund and call it a day. Either way, if you can't stay the course, you will almost certainly underperform.

Dodge,

This is an example of performance chasing, the most basic of investment errors. Complexity has nothing to do with it.

If he had compared VTI to an active 3X leverage etf/option/ package that happened to perform better over the past 9 months, by similar logic he would have determined that passive investing was a bad bet.

AZ

When I'm talking to my Dad, or someone who doesn't know about investing (happens often), it's important to watch my words. If I recommend he move to Betterment, because the tilts have beaten the market in the past, and I believe it will beat the market in the future, that's a dangerous seed to plant. He might, as Ben did above, feel the need to bail out because, "The tilts aren't beating the market anymore, I'm DOWN this year!!!"

Or he might feel the need to bail out, because "I've done some research, and if I put all my money into the Healthcare fund (or your 3X leverage fund), I would have DESTROYED the market over the last 5 years! I'm putting my money there!"

I don't believe the general public, or people who don't know much about the market, will do well with that information. If we recommend they tilt a certain way based on past performance, and the results aren't what they expect ("the TV says the market is up today, but I checked online and my portfolio is DOWN 5%!"), it's natural for them to start thinking about ways to tinker with the formula, which can lead to bailing out at a market low.

Recommending total market index funds, or Vanguard LifeStrategy funds, doesn't have that problem. When recommending this to a friend, I stress this is the best way forward, not because of past performance, but because math. Since you can't know what the future will bring, going with an index (the average) mathematically ensures you will either beat, or match, at least half of all dollars invested in the market.

This is a very different mindset.
Title: Re: Betterment?
Post by: milesdividendmd on November 13, 2014, 11:47:13 AM




Even before TLH is taken into account I would bet that Betterments portfolio would beat a vanguard life strategy fund over the past 60 years because of its tilt towards the small and value factors (even after the highest possible 0.35% fee levels are included. )



Betterment's portfolio is tilted toward overseas developed markets as well as the developing markets.

My overall return from when I opened the account in March was negative on a 90/10 stock/bond ratio. Any gains on Wall Street were negated by the Euro-Asian economies being in such a state of uncertainty.

I recently closed my account at Betterment put the money into WiseBanyan whose portfolio is tilted more towards North America.

Do you see Miles? This is why this type of thinking is dangerous. I mentioned this on one of the first pages of the thread, it adds more variables for people to doubt, leading to more behavioral errors.

Ben, you would be much better off if you stopped trying to beat the market, or optimizing your tilt based on 8 months of performance. If you don't want to rebalance, get a Vanguard LifeStrategy fund and call it a day. Either way, if you can't stay the course, you will almost certainly underperform.

Dodge,

This is an example of performance chasing, the most basic of investment errors. Complexity has nothing to do with it.

If he had compared VTI to an active 3X leverage etf/option/ package that happened to perform better over the past 9 months, by similar logic he would have determined that passive investing was a bad bet.

AZ

When I'm talking to my Dad, or someone who doesn't know about investing (happens often), it's important to watch my words. If I recommend he move to Betterment, because the tilts have beaten the market in the past, and I believe it will beat the market in the future, that's a dangerous seed to plant. He might, as Ben did above, feel the need to bail out because, "The tilts aren't beating the market anymore, I'm DOWN this year!!!"

Or he might feel the need to bail out, because "I've done some research, and if I put all my money into the Healthcare fund (or your 3X leverage fund), I would have DESTROYED the market over the last 5 years! I'm putting my money there!"

I don't believe the general public, or people who don't know much about the market, will do well with that information. If we recommend they tilt a certain way based on past performance, and the results aren't what they expect ("the TV says the market is up today, but I checked online and my portfolio is DOWN 5%!"), it's natural for them to start thinking about ways to tinker with the formula, which can lead to bailing out at a market low.

Recommending total market index funds, or Vanguard LifeStrategy funds, doesn't have that problem. When recommending this to a friend, I stress this is the best way forward, not because of past performance, but because math. Since you can't know what the future will bring, going with an index (the average) mathematically ensures you will either beat, or match, at least half of all dollars invested in the market.

This is a very different mindset.

I see your point But a life strategy fund will underperform the market most days too, since stocks outperform bonds more often than not.

If tracking error is your prime concern then you should only recommend investing in single index funds which track the DJIA.

In the end there are no universals.  All One can reasonably report is their own experience. And based on my own psychology and biases, Betterment is the easiest product for me to avoid behavioral errors. Since I never have to rebalance or lift a finger, I am never tempted to fiddle.

This behavioral aspect is not so different from a life strategy fund, it's just that based on my own investing philosophy, I feel that Betterments asset allocation (with its tilt towards value, small size, and EM) is far superior to the life strategy funds'.

And when I add in TLH, it is also better than free for Betterment to manage my taxable accounts, as opposed to life strategy funds which have expense ratios of 0.17%.

As you pointed out above 0.17% compounded over long time periods is not trivial.

So in my particular instance betterment is an absolute no brainer.

Title: Re: Betterment?
Post by: Dodge on November 13, 2014, 12:47:27 PM





Even before TLH is taken into account I would bet that Betterments portfolio would beat a vanguard life strategy fund over the past 60 years because of its tilt towards the small and value factors (even after the highest possible 0.35% fee levels are included. )



Betterment's portfolio is tilted toward overseas developed markets as well as the developing markets.

My overall return from when I opened the account in March was negative on a 90/10 stock/bond ratio. Any gains on Wall Street were negated by the Euro-Asian economies being in such a state of uncertainty.

I recently closed my account at Betterment put the money into WiseBanyan whose portfolio is tilted more towards North America.

Do you see Miles? This is why this type of thinking is dangerous. I mentioned this on one of the first pages of the thread, it adds more variables for people to doubt, leading to more behavioral errors.

Ben, you would be much better off if you stopped trying to beat the market, or optimizing your tilt based on 8 months of performance. If you don't want to rebalance, get a Vanguard LifeStrategy fund and call it a day. Either way, if you can't stay the course, you will almost certainly underperform.

Dodge,

This is an example of performance chasing, the most basic of investment errors. Complexity has nothing to do with it.

If he had compared VTI to an active 3X leverage etf/option/ package that happened to perform better over the past 9 months, by similar logic he would have determined that passive investing was a bad bet.

AZ

When I'm talking to my Dad, or someone who doesn't know about investing (happens often), it's important to watch my words. If I recommend he move to Betterment, because the tilts have beaten the market in the past, and I believe it will beat the market in the future, that's a dangerous seed to plant. He might, as Ben did above, feel the need to bail out because, "The tilts aren't beating the market anymore, I'm DOWN this year!!!"

Or he might feel the need to bail out, because "I've done some research, and if I put all my money into the Healthcare fund (or your 3X leverage fund), I would have DESTROYED the market over the last 5 years! I'm putting my money there!"

I don't believe the general public, or people who don't know much about the market, will do well with that information. If we recommend they tilt a certain way based on past performance, and the results aren't what they expect ("the TV says the market is up today, but I checked online and my portfolio is DOWN 5%!"), it's natural for them to start thinking about ways to tinker with the formula, which can lead to bailing out at a market low.

Recommending total market index funds, or Vanguard LifeStrategy funds, doesn't have that problem. When recommending this to a friend, I stress this is the best way forward, not because of past performance, but because math. Since you can't know what the future will bring, going with an index (the average) mathematically ensures you will either beat, or match, at least half of all dollars invested in the market.

This is a very different mindset.

I see your point But a life strategy fund will underperform the market most days too, since stocks outperform bonds more often than not.

If tracking error is your prime concern then you should only recommend investing in single index funds which track the DJIA.

In the end there are no universals.  All One can reasonably report is their own experience. And based on my own psychology and biases, Betterment is the easiest product for me to avoid behavioral errors. Since I never have to rebalance or lift a finger, I am never tempted to fiddle.

This behavioral aspect is not so different from a life strategy fund, it's just that based on my own investing philosophy, I feel that Betterments asset allocation (with its tilt towards value, small size, and EM) is far superior to the life strategy funds'.

And when I add in TLH, it is also better than free for Betterment to manage my taxable accounts, as opposed to life strategy funds which have expense ratios of 0.17%.

As you pointed out above 0.17% compounded over long time periods is not trivial.

So in my particular instance betterment is an absolute no brainer.

Indeed, the inclusion of bonds will likely have that tracking effect, but if you have the right mindset, you won't care. I'm 100% sure you have the right mindset, but I think it's harder for the average person to get there, and in my opinion recommending a tilt is a step away from that.

I sincerely hope TLH works for you. Unfortunately, I fear you might be getting an imbalanced view of its effectiveness. I understand you made a lump sum investment, and have already seen some impressive tax loss harvesting. It's easy to tax loss harvest right after investing a large lump sum, but after a few years of gains I don't think you'll be seeing much TLH going on in your account unless there's a huge crash, or you keep investing large amounts.

Indeed, their own chart referenced above shows this. After the first few years, tax loss harvesting dropped to almost 0, until the 2008 crash, then dropped to almost 0 again.

And if you keep investing those large amounts, after a few years you'll reach the break-even point where even the maximum amount of tax loss harvesting won't overcome the additional fee Betterment charges.

Title: Re: Betterment?
Post by: milesdividendmd on November 13, 2014, 01:00:45 PM
Actually not a large lump sum at all. I have >60K invested in Betterment, of which 15k was new this year.

I will continue to invest at similar or higher levels for the next 10-15 years.

7% corrections are far from rare, even during secular bull markets.

One of the nice things about Betterments slice and dice portfolio is that it offers exposure to a wide array of markets of varying correlations. (and it is always a bear market somewhere.)

Compare this to a life strategy fund, where if the international market crashes by less than the domestic gains, there is no opportunity to harvest losses.
Title: Re: Betterment?
Post by: tj on November 13, 2014, 07:26:06 PM
Actually not a large lump sum at all. I have >60K invested in Betterment, of which 15k was new this year.

I will continue to invest at similar or higher levels for the next 10-15 years.

7% corrections are far from rare, even during secular bull markets.

One of the nice things about Betterments slice and dice portfolio is that it offers exposure to a wide array of markets of varying correlations. (and it is always a bear market somewhere.)

Compare this to a life strategy fund, where if the international market crashes by less than the domestic gains, there is no opportunity to harvest losses.

TLH is not wihtout its risks. See http://www.etf.com/sections/blog/23212-inside-robo-advisor-tax-loss-harvesting.html?fullart=1&start=5

Title: Re: Betterment?
Post by: seattlecyclone on November 13, 2014, 08:50:47 PM
Actually not a large lump sum at all. I have >60K invested in Betterment, of which 15k was new this year.

I will continue to invest at similar or higher levels for the next 10-15 years.

7% corrections are far from rare, even during secular bull markets.

One of the nice things about Betterments slice and dice portfolio is that it offers exposure to a wide array of markets of varying correlations. (and it is always a bear market somewhere.)

Compare this to a life strategy fund, where if the international market crashes by less than the domestic gains, there is no opportunity to harvest losses.

TLH is not wihtout its risks. See http://www.etf.com/sections/blog/23212-inside-robo-advisor-tax-loss-harvesting.html?fullart=1&start=5



That article is full of so much fail. Yes, of course if your eventual capital gains tax rate is the same as your current capital loss tax rate, you'll see little to no benefit from harvesting your losses. The whole point is to have calendar years where you have a net loss (which counts against your income up to $3k and saves you tax at your marginal rate) in order to defer the eventual gains to a year when you have a low to nonexistent capital gains tax rate.

And they were flat-out wrong with this passage:

Quote
At the extreme, if Joe were in the 15 percent federal tax bracket, he would pay zero percent on capital gains. In that case, Joe should harvest gains, and reset his basis, lowering future tax bills. He should never harvest losses.

Harvesting gains is fine if you're in a low bracket. Even better: harvest $3,000 of losses this year at a -15% tax rate and harvest a bunch of long-term gains next year. Harvest losses the year after that, and gains the year after that. Repeat indefinitely.
Title: Re: Betterment?
Post by: milesdividendmd on November 14, 2014, 12:31:42 AM

Actually not a large lump sum at all. I have >60K invested in Betterment, of which 15k was new this year.

I will continue to invest at similar or higher levels for the next 10-15 years.

7% corrections are far from rare, even during secular bull markets.

One of the nice things about Betterments slice and dice portfolio is that it offers exposure to a wide array of markets of varying correlations. (and it is always a bear market somewhere.)

Compare this to a life strategy fund, where if the international market crashes by less than the domestic gains, there is no opportunity to harvest losses.

TLH is not wihtout its risks. See http://www.etf.com/sections/blog/23212-inside-robo-advisor-tax-loss-harvesting.html?fullart=1&start=5



That article is full of so much fail. Yes, of course if your eventual capital gains tax rate is the same as your current capital loss tax rate, you'll see little to no benefit from harvesting your losses. The whole point is to have calendar years where you have a net loss (which counts against your income up to $3k and saves you tax at your marginal rate) in order to defer the eventual gains to a year when you have a low to nonexistent capital gains tax rate.

And they were flat-out wrong with this passage:

Quote
At the extreme, if Joe were in the 15 percent federal tax bracket, he would pay zero percent on capital gains. In that case, Joe should harvest gains, and reset his basis, lowering future tax bills. He should never harvest losses.

Harvesting gains is fine if you're in a low bracket. Even better: harvest $3,000 of losses this year at a -15% tax rate and harvest a bunch of long-term gains next year. Harvest losses the year after that, and gains the year after that. Repeat indefinitely.

Well said.

Plus if you can harvest losses when your marginal rate is high (at peak earned income) and take your gains in retirement (when your capital gains rate may very well be zero) then you can...

1. Avoid ever paying capital gains taxes.

And

2. Compound wealth on the unpaid taxes for years and years.

Both of these effects are financially powerful, and realistic for many Mustachians. 
Title: Re: Betterment?
Post by: ltruitt on March 06, 2017, 02:24:54 PM
I really questioned Betterment, as well -- how could it be as simple as it says it is. But the technology and psychology are what attracted me to this company. At the core, Betterment is just a fancy frontend for Vanguard funds Ė when you invest with Betterment, you end up owning Vanguard funds just like a wise person would already do. But they add value by automating two things that actually allow you to earn and keep more money: automatic portfolio rebalancing, and tax loss harvesting.

One article that helped me out a lot with understanding Betterment and what they can offer is, [MOD EDIT: Spam link removed.]
Title: Re: Betterment?
Post by: wscott on March 07, 2017, 04:43:24 AM
Betterment pretty much lost me this year when they raised the fees 30% for people with larger accounts.  I originally did a rollover of 401k from an old job because it was just so easy, but TLH doesn't help at all in an IRA. So everything is moving to Vanguard.

My struggle now is about if I should recommend betterment to young people who are new to investing. All the graphs and encouraging emails really help some people to stay the course and keep contributing. And the cost of the service isn't too bad when your balance is small.

BTW, you will find lots of blogs recommending Betterment, but they are kinda like the Casper mattress and provide lots of kickbacks.
Title: Re: Betterment?
Post by: Indexer on March 07, 2017, 06:19:31 AM
Betterment is just a collection of tools, most of which can be found for free elsewhere, and they charge you for the convenience of having them in one place.

Automatic rebalancing:
1. you can use a Vanguard Lifestrategy or Target Retirement fund to do the same thing. Downside, great for IRAs, not for taxable.
2. this isn't a time intensive activity. Look at it once a quarter or even twice a year. Is everything close? Yes, leave it alone. No, then fix it.

Tax Loss harvesting:
If anything has ever been overhyped in the investing world it is this. Yes, it works, not disputing that. If you harvest your losses and then reinvest the tax savings(make sure you do that part!) then you have more money working for you. The problem is the results are normally inflated with rosy assumptions to make it look more appealing. Betterment for instance assumes you are a California resident(high state tax), in the 28% Federal tax bracket, and they assume you NEVER liquidate the account. That last assumption significantly inflates the results. When you harvest losses you are really harvesting your own cost basis. That means when you sell the holding in the future at a gain your capital gain is actually larger than it would have been if you hadn't used TLH.

Example. Buy at $100,000, after a 20% down market harvest at $80,000, reinvest the $3,000(20k*0.15%) you saved on taxes so you have $83,000 working for you, and 20 years later sell for $500,000. You pay taxes on $420,000 in gains instead of $400,000 in gains, which means you pay $3,000(20k*.15%) more in taxes upon sale.

If you eventually liquidate the account you still end up paying taxes on the gains. The real perk of TLH was that extra $3,000 working for you during that 20 years, but you paid Betterment 0.25% which on $100,000 is $250/year. At 8% growth $3,000 would generate an extra $240 a year in growth.

If you avoid the rosy assumptions like high state taxes, high personal taxes, and if you actually plan on spending the taxable account(which you should since you spend it in FIRE before IRAs) then TLH isn't as great as it appears. It is still good if you want to do it yourself(you can do this yourself!), but I don't think it alone is worth paying Betterment.

My other concern with TLH is what the IRS does with it long term. If you read the tax code on wash sales it uses the verbiage, "substantially identical," for determining if you get to realize losses. The spirit of the law it to prevent exactly what TLH does, realizing losses without changing the composition of the portfolio. This has traditionally been used to say you can't trade Apple stock for Apple stock and take the loss, but you could trade it for Microsoft stock. You also can't trade VTI for VTI and realize the loss. Betterment is basically taking the Vanguard 500 index and switching it for Schwab's 500 index. These securities aren't identical because they have different names and ticker symbols, but if the IRS decided to enforce "substantially identical" I wouldn't want to have to justify in court how two 500 index funds issued by different companies aren't "substantially identical." Conclusion: IMO the IRS could make this go away at any time based on their existing rules.
Title: Re: Betterment?
Post by: drio on March 07, 2017, 06:24:26 AM
One thing I didn't like about BM is that the fees did not include the underlying cost of the transactions.
I believe now the fees include them also (they increased the fees), but a few months back they did not.
I don't think they explained that clearly on their website. I am wondering if wealthfront explained
those "hidden" costs in up front or not.
Title: Re: Betterment?
Post by: tj on March 07, 2017, 07:30:39 AM
One thing I didn't like about BM is that the fees did not include the underlying cost of the transactions.
I believe now the fees include them also (they increased the fees), but a few months back they did not.
I don't think they explained that clearly on their website. I am wondering if wealthfront explained
those "hidden" costs in up front or not.

Neither betterment nor wealthfront havr charged transaction costs. Betterment did not charge any a few months ago either.
Title: Re: Betterment?
Post by: drio on March 09, 2017, 11:36:01 AM
> fees did not include the underlying cost of the transactions.

I apologize if that was not the case. I should have looked better.

I guess then you paying a 0.25% fee on the assets your have with them (unless
you have > 2M; at that point, there are no fees).