Author Topic: Betterment?  (Read 83432 times)

brooklynguy

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Re: Betterment?
« Reply #150 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).

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Re: Betterment?
« Reply #151 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.

gimp

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Re: Betterment?
« Reply #152 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.

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Re: Betterment?
« Reply #153 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.
« Last Edit: November 06, 2014, 04:25:25 AM by Johnez »

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Re: Betterment?
« Reply #154 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?

matchewed

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Re: Betterment?
« Reply #155 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.

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Re: Betterment?
« Reply #156 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.

matchewed

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Re: Betterment?
« Reply #157 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. :)

Kaspian

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Re: Betterment?
« Reply #158 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." 

arebelspy

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Re: Betterment?
« Reply #159 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.
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brooklynguy

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Re: Betterment?
« Reply #160 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.

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Re: Betterment?
« Reply #161 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....

Beric01

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Re: Betterment?
« Reply #162 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!

sobezen

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Re: Betterment?
« Reply #163 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? :)

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Re: Betterment?
« Reply #164 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.

Cyrano

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Re: Betterment?
« Reply #165 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.

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Re: Betterment?
« Reply #166 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.

tyd450

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Re: Betterment?
« Reply #167 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?

milesdividendmd

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Re: Betterment?
« Reply #168 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. "
« Last Edit: November 09, 2014, 10:42:05 PM by milesdividendmd »

Overseas Stache

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Re: Betterment?
« Reply #169 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.

brooklynguy

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Re: Betterment?
« Reply #170 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.

arebelspy

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Re: Betterment?
« Reply #171 on: November 10, 2014, 08:00:26 AM »
And you've had to worry about wash sales, unless that 60k is your whole portfolio.
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Re: Betterment?
« Reply #172 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.

milesdividendmd

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Re: Betterment?
« Reply #173 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.

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Re: Betterment?
« Reply #174 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.

Dodge

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Re: Betterment?
« Reply #175 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)


gimp

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Re: Betterment?
« Reply #176 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.

matchewed

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Re: Betterment?
« Reply #177 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/

dungoofed

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Re: Betterment?
« Reply #178 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.

milesdividendmd

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Re: Betterment?
« Reply #179 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?

Dodge

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Re: Betterment?
« Reply #180 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.

Dodge

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Re: Betterment?
« Reply #181 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.

milesdividendmd

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Re: Betterment?
« Reply #182 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.

dungoofed

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Re: Betterment?
« Reply #183 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.


milesdividendmd

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Re: Betterment?
« Reply #184 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.

milesdividendmd

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Re: Betterment?
« Reply #185 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.

dungoofed

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Re: Betterment?
« Reply #186 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.

milesdividendmd

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Re: Betterment?
« Reply #187 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.



Chuck

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Re: Betterment?
« Reply #188 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...

milesdividendmd

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Re: Betterment?
« Reply #189 on: November 11, 2014, 08:07:49 PM »
Throwing money down the drain, retrieving money from the drain...what's the difference?

dungoofed

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Re: Betterment?
« Reply #190 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."

brooklynguy

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Re: Betterment?
« Reply #191 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.

dungoofed

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Re: Betterment?
« Reply #192 on: November 11, 2014, 10:17:12 PM »
Betterment also have a fair-sized advertising budget, I hear.

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

Beric01

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Re: Betterment?
« Reply #193 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.

Dodge

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Re: Betterment?
« Reply #194 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.

Dodge

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Re: Betterment?
« Reply #195 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.

Beric01

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Re: Betterment?
« Reply #196 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.

brooklynguy

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Re: Betterment?
« Reply #197 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.)



dungoofed

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Re: Betterment?
« Reply #198 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.

Dodge

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Re: Betterment?
« Reply #199 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.