Author Topic: Going with Vanguard, no more Betterment  (Read 50832 times)

SenoritaStache

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Going with Vanguard, no more Betterment
« on: April 21, 2015, 04:50:12 PM »
Hello fellow Mustachians!

I have a question I need advise with.  A while ago I wanted to invest some money but really didn't know where to begin.  A lot of personal finance blogs I read were and still do recommend Betterment.  So I decided to give them a shot.  I opened an account, money was invested.  Everything was ok.  Everything is STILL ok.  However, since I opened the account I tried to learn and understand as best I could on the stock market, index funds and all the MMM investment style advise.  I am now happy to report that I feel pretty confident DYI with my own investments,  therefore I opened a Vanguard account and began investing there.

Today I have both Betterment and Vanguard.  Going foward I will only invest with Vanguard.  I want to avoid paying Betterment's management fee (.15%), now it seems pointless.  What should I do with my Betterment account? Should I just take the money out and get hit with the short gain tax.  Should I wait until they are long gain (one year, right??), and then take the money out? Should I just leave it alone and not contribute or invest any money money into Betterment?  What would you do?  Any help would be greatly appreciated.  Thank you.

Just FYI I'm not currently being charged by Betterment, since I have a 6 month free promotion I used.
« Last Edit: April 21, 2015, 04:55:01 PM by SenoritaStache »

milesdividendmd

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Re: Going with Vanguard, no more Betterment
« Reply #1 on: April 21, 2015, 05:02:57 PM »
It of course depends on your tax bracket and your prospective gains, but if you've been investing for less than 6 months, you probably don't have big gains and can just cash out and put the money in Vanguard without paying too much in extra taxes.

Keep it simple!

forummm

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Re: Going with Vanguard, no more Betterment
« Reply #2 on: April 21, 2015, 06:13:29 PM »
A lot of personal finance blogs I read were and still do recommend Betterment.

A lot of personal finance blogs you read were and still do receive money to recommend Betterment. Including MMM. I'm sure many of them believe everything they said. But the payments can encourage them to write about that topic.

What should I do with my Betterment account? Should I just take the money out and get hit with the short gain tax.  Should I wait until they are long gain (one year, right??), and then take the money out?

Depends on how much your gains are, etc. If the amount of extra tax you'd have to pay is more than the fees they charge you for the privilege of them investing your money in Vanguard for you, then you might wait until you've held the assets for 366 days before selling.
« Last Edit: April 21, 2015, 07:10:35 PM by forummm »

tj

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Re: Going with Vanguard, no more Betterment
« Reply #3 on: April 21, 2015, 06:18:32 PM »
You should be able to transfer the holdings to Vanguard Brokerage Service, or any other broker. If the tax exposure is minimal, just sell them.

Wolf359

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Re: Going with Vanguard, no more Betterment
« Reply #4 on: April 21, 2015, 06:22:57 PM »
From a legal perspective, they're a brokerage firm holding your assets as ETFs.  That means you can actually transfer the underlying securities to Vanguard without selling them. 

To do this, call Vanguard and explain what you're trying to do.  They will have you fill out a "Transfer Initiation Form" (or something similarly named.)  Send it back to Vanguard and they will start the process.  It will be free.  It should not involve you beyond that point (although when I did this with a different brokerage, I called both sides so they both knew it was going on.) 

The whole process should take about 10 working days, or about two weeks.  Keep checking the balance at Vanguard, and you will see when it's complete.

At that point, you can simply hang onto the assets at Vanguard without any capital gains.

milesdividendmd

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Re: Going with Vanguard, no more Betterment
« Reply #5 on: April 21, 2015, 06:28:01 PM »
A lot of personal finance blogs I read were and still do recommend Betterment.

A lot of personal finance blogs you read were and still do receive money to recommend Betterment. Including MMM.

What should I do with my Betterment account? Should I just take the money out and get hit with the short gain tax.  Should I wait until they are long gain (one year, right??), and then take the money out?

Depends on how much your gains are, etc. If the amount of extra tax you'd have to pay is more than the fees they charge you for the privilege of them investing your money in Vanguard for you, then you might wait until you've held the assets for 366 days before selling.

Thats true.  But the implication is not.  I have never been paid a cent by Betterment and I still recommend them because they offer a great product, at a fair price, particularly for taxable assets.

MMM has proven his integrity many times over, and I think it's a shame that you would imply that he is self servingly promoting products on a pay to play basis.

I disagree with him strongly about Lending club, but have never once suspected that his Lending club experiment was born of greed.
« Last Edit: April 21, 2015, 06:30:25 PM by milesdividendmd »

tj

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Re: Going with Vanguard, no more Betterment
« Reply #6 on: April 21, 2015, 06:29:10 PM »
You could also transfer to a brokerage that offers an incentive and charges no fees.


http://thefinancebuff.com/huge-bonus-offers-from-brokers-fidelity-schwab-td-ameritrade-etrade-merrill-edge.html

forummm

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Re: Going with Vanguard, no more Betterment
« Reply #7 on: April 21, 2015, 07:09:40 PM »
A lot of personal finance blogs I read were and still do recommend Betterment.

A lot of personal finance blogs you read were and still do receive money to recommend Betterment. Including MMM.

What should I do with my Betterment account? Should I just take the money out and get hit with the short gain tax.  Should I wait until they are long gain (one year, right??), and then take the money out?

Depends on how much your gains are, etc. If the amount of extra tax you'd have to pay is more than the fees they charge you for the privilege of them investing your money in Vanguard for you, then you might wait until you've held the assets for 366 days before selling.

Thats true.  But the implication is not.  I have never been paid a cent by Betterment and I still recommend them because they offer a great product, at a fair price, particularly for taxable assets.

MMM has proven his integrity many times over, and I think it's a shame that you would imply that he is self servingly promoting products on a pay to play basis.

I disagree with him strongly about Lending club, but have never once suspected that his Lending club experiment was born of greed.

I'm sure many of the sites believe every word they said. But being paid helps encourage people to write about it. I think MMM's post was pretty honest. Obviously I'm a huge fan of him and his site. I'll edit the previous post to make this more clear.

milesdividendmd

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Re: Going with Vanguard, no more Betterment
« Reply #8 on: April 21, 2015, 08:03:54 PM »
Fair enough.

dfletcher

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Re: Going with Vanguard, no more Betterment
« Reply #9 on: April 21, 2015, 08:41:45 PM »
The whole point of betterment or other robo advisers is consistent and reliable application of important investing principles, in particular regular re-balancing of one's portfolio.  The cost per year of using betterment to allocate $10,000 of capital would be $25 (0.25% x $10,000).  Even if I felt comfortable consistently re-balancing my portfolio, I'm not sure it would be worth my time to do so.

Additionally, Betterment offers a few other features that are best accomplished by algorithms, in particular, tax loss harvesting, which could potentially add a point or so to your overall return. 

In my mind, it seems worth the cost.

Also note that if you were only investing $10,000, you're probably better off using Wealthfront since they manage your first $10k for free.

tj

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Re: Going with Vanguard, no more Betterment
« Reply #10 on: April 21, 2015, 09:17:31 PM »
The whole point of betterment or other robo advisers is consistent and reliable application of important investing principles, in particular regular re-balancing of one's portfolio.  The cost per year of using betterment to allocate $10,000 of capital would be $25 (0.25% x $10,000).  Even if I felt comfortable consistently re-balancing my portfolio, I'm not sure it would be worth my time to do so.

Additionally, Betterment offers a few other features that are best accomplished by algorithms, in particular, tax loss harvesting, which could potentially add a point or so to your overall return. 

In my mind, it seems worth the cost.

Also note that if you were only investing $10,000, you're probably better off using Wealthfront since they manage your first $10k for free.

If they are paying a 0.15% fee, then that means they have more than $100k invested.. So....they can either pay Betterment $150/year OR they can transfer that balance to Merrill Edge, sell the ETFs for free, receive a $500 bonus and purchase a Vanguard LifeStrategy fund for a $19.95 transaction fee. Is this the perfect strategy? Who knows. Is it reasonable? Yes.

Dodge

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Re: Going with Vanguard, no more Betterment
« Reply #11 on: April 21, 2015, 09:53:31 PM »
The whole point of betterment or other robo advisers is consistent and reliable application of important investing principles, in particular regular re-balancing of one's portfolio.  The cost per year of using betterment to allocate $10,000 of capital would be $25 (0.25% x $10,000).  Even if I felt comfortable consistently re-balancing my portfolio, I'm not sure it would be worth my time to do so.

Additionally, Betterment offers a few other features that are best accomplished by algorithms, in particular, tax loss harvesting, which could potentially add a point or so to your overall return. 

In my mind, it seems worth the cost.

Also note that if you were only investing $10,000, you're probably better off using Wealthfront since they manage your first $10k for free.

  • The time to rebalance has been measured.  I think it's something like 10 minutes on average once every 3 years.
  • WiseBanyan rebalances without any extra fees (total 0.12% fee), and Vanguard's Lifestrategy funds which also rebalance, have a 0.16% total fee, compared to the around 0.31% total fee SenoritaStache is paying at Betterment.
  • The difference in fees will cost you hundreds of thousands of dollars over time:




SenoritaStache, I'm with Wolf359 on this one.  You can transfer the assets directly over to Vanguard, wait till your year is up, then sell for long-term capital gains (I presume you don't want to manage Betterment's 10-20 ETF portfolio forever), or you can just keep it simple, and sell out now, paying the short term capital gains.  It's hard to give a good recommendation without knowing how much capital gains have accrued, but since I personally believe Value investing/tilting with funds is utter crap, I'd want out of those funds as soon as possible.

Wolf359

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Re: Going with Vanguard, no more Betterment
« Reply #12 on: April 23, 2015, 07:20:35 AM »
I'm still with Betterment, but I've been doing advance planning on how to move the funds back to Vanguard.

There's no reason to get hit with capital gains at all.  If you incorporate the ETFs into your asset allocation, you could potentially just let them hang out and don't buy more.  If it comes time to rebalance, then sell them at that time.

The various TIPS, international bonds, total bond, and municipal bonds just get considered as part of your bond allocation. 

The stock market ETFs can just be considered as part of your international or US stock allocations.

If any of the extraneous ETFs ever show a loss, tax loss harvest them and re-invest the proceeds into your preferred funds. 

If they're profitable, there's no need to sell them unless you have a compelling reason.  It's about keeping your costs down, which includes minimizing taxes. 

The great thing about moving them to Vanguard is that most of the ETFs used by Betterment are Vanguard products.  Trading them is commission free at Vanguard. 

SenoritaStache

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Re: Going with Vanguard, no more Betterment
« Reply #13 on: April 23, 2015, 05:38:55 PM »
Thanks to all who replied, I greatly appreciate all your advise.  So yes there is more than 100k with Betterment and therefore I have their best pricing which means that their fee is .15% + the expense ratio of the underlying ETF so a total of around .31%.  I did a little more digging around... Here is what I found.  Yes you can transfer the ETF's from Betterment to Vanguard (called an in kind transfer).  Just need to either call them so they can walk you through it or you can do it on your own on Vanguards website.  They said it can take anywhere from a week to 2-3 weeks to complete the process.  They also said that the transfer may require a medallion stamp (kinda like a notary but for investment documents.  Also the medallion stamp should be offered at your bank free of charge, normally they require you to have an account.)  After that, the transfer should take place.  Some of those ETF's are not with Vanguard,  apparently those can come over to Vanguard also.  The difference between those (non-Vanguard ETF's) is that when selling them you will have to pay a trade fee.  There is no trade fee for the other Vanguard ETF's.  I'm glad I'm not the only one with this scenario, and I hope this helps someone else in the same position, if possible, Thanks!

Runge

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Re: Going with Vanguard, no more Betterment
« Reply #14 on: April 23, 2015, 05:40:47 PM »
I did an in kind transfer from betterment to vanguard and betterment required a medallion signature. This was about 5 months ago.

SenoritaStache

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Re: Going with Vanguard, no more Betterment
« Reply #15 on: April 23, 2015, 06:17:56 PM »
Runge how long did the whole process take? Beginning to end? Thanks.

Runge

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Re: Going with Vanguard, no more Betterment
« Reply #16 on: April 23, 2015, 10:59:57 PM »
Well the first time I sent in the paperwork, I didn't have the medallion signature. So that added more time than I originally thought. But after the month lost from that, it took about 3-4 weeks from submitting the paperwork to having my funds transferred. I transferred my Roth IRA, so it all went through as one check instead of individual assets.

Wolf359

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Re: Going with Vanguard, no more Betterment
« Reply #17 on: April 30, 2015, 10:46:21 AM »
I am now starting the process as well.  What is interesting about the whole process is that Betterment doesn't use traditional account numbers, which stymied me when filling out the online transfer forms at Vanguard.  I had to call in for assistance.  I have a traditional IRA, Roth IRA, and taxable account, so Vanguard will see them as three different accounts.

I like Betterment, and I would still recommend them to people.  The reason I'm leaving is to simplify my accounts and my holdings.  I think their approach works, but I want to have direct control.

bbrr10

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Re: Going with Vanguard, no more Betterment
« Reply #18 on: May 01, 2015, 10:19:15 PM »
I am in the exact same position as the OP. I opened my Betterment account on 1/1/15, educated myself over the last few months, and was planning to wait until January 2016 to transfer out of Betterment. But this thread may have convinced me to go the in-kind transfer route now.

An unmentioned downside of sticking out the full year with Betterment is that they continuously reinvest dividends. This means a small but increasing portion of my holdings won't qualify for a long-term capital gains rate come January 2016. So it's probably better to transfer everything in-kind to Vanguard now, then have any ETF dividends directed to VMMXX for re-investment in my simple, 3-fund portfolio.

Thanks for the thread!
« Last Edit: May 02, 2015, 03:07:57 AM by bbrr10 »

SenoritaStache

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Re: Going with Vanguard, no more Betterment
« Reply #19 on: May 07, 2015, 07:59:44 PM »
bbrr10 your welcome!! 😀

iguana

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Re: Going with Vanguard, no more Betterment
« Reply #20 on: May 07, 2016, 04:51:58 PM »
Hello, kind people! I am new to investing. After much nail biting, I finally pulled the trigger and put $20k into Betterment in January. Now I'm reading this thread about how much more Betterment's fee costs over time, and I am shocked! I want to do what you all are doing and transfer to Vanguard. Would you mind sharing what you're investing in with Vanguard?

I'm now at just over $25k with Betterment. I put $1100 in every month. I contribute enough each paycheck to my Vanguard Roth IRA to max it out as well as max out my work 401k.

Additionally, I've been doing some more reading about how much cash to keep on hand, and I think the $25k I have in cash is too much. So I want to invest $13k of that and was going to add it to Betterment until I stumbled on this thread today. Thank goodness!

Any advice you have for me is greatly appreciated!!!

GGNoob

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Re: Going with Vanguard, no more Betterment
« Reply #21 on: May 07, 2016, 06:58:42 PM »
Hello, kind people! I am new to investing. After much nail biting, I finally pulled the trigger and put $20k into Betterment in January. Now I'm reading this thread about how much more Betterment's fee costs over time, and I am shocked! I want to do what you all are doing and transfer to Vanguard. Would you mind sharing what you're investing in with Vanguard?

I'm now at just over $25k with Betterment. I put $1100 in every month. I contribute enough each paycheck to my Vanguard Roth IRA to max it out as well as max out my work 401k.

Additionally, I've been doing some more reading about how much cash to keep on hand, and I think the $25k I have in cash is too much. So I want to invest $13k of that and was going to add it to Betterment until I stumbled on this thread today. Thank goodness!

Any advice you have for me is greatly appreciated!!!

If you have a lot of money in a taxable account at Betterment, there's a chance the tax loss harvesting can more than cover the fees. Just an FYI as the fees MAY be worth it.

Most recommend the three fund portfolio. However, even a simple target retirement date fund would be less fees than Betterment.

Personally, I recommend Betterment to family and friends when they are new to investing as it's a real easy way to get started. I feel Vanguard can be complicated and I want to make sure they have a very good experience so they don't get frustrated and just give up.

Interest Compound

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Re: Going with Vanguard, no more Betterment
« Reply #22 on: May 07, 2016, 11:19:12 PM »
Hello, kind people! I am new to investing. After much nail biting, I finally pulled the trigger and put $20k into Betterment in January. Now I'm reading this thread about how much more Betterment's fee costs over time, and I am shocked! I want to do what you all are doing and transfer to Vanguard. Would you mind sharing what you're investing in with Vanguard?

I'm now at just over $25k with Betterment. I put $1100 in every month. I contribute enough each paycheck to my Vanguard Roth IRA to max it out as well as max out my work 401k.

Additionally, I've been doing some more reading about how much cash to keep on hand, and I think the $25k I have in cash is too much. So I want to invest $13k of that and was going to add it to Betterment until I stumbled on this thread today. Thank goodness!

Any advice you have for me is greatly appreciated!!!

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



You have two amazing options:

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



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



Then forget about it.

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

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

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

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

More discussion here:

http://forum.mrmoneymustache.com/investor-alley/the-true-cost-of-a-robo-advisor/msg860027/#msg860027
« Last Edit: January 31, 2017, 07:54:31 PM by Interest Compound »

josstache

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Re: Going with Vanguard, no more Betterment
« Reply #23 on: May 08, 2016, 12:33:33 AM »
Let's say I want an 85/15 portfolio for the next 30 years, which is what I have actually chosen for myself at Betterment.  The best option to duplicate this in an automatic portfolio at Vanguard would be the 80/20 LifeStrategy.

Here is the hypothetical growth of $100,000 over 30 years, assuming 7% growth of stocks and 3% growth of bonds, ignoring tax loss harvesting:

Vanguard, 0.15% ER: $630,351
Betterment, 0.27%* ER: $633,462

MMM's 90/10 portfolio has an even greater difference, because there are lower expenses and higher hypothetical returns on the equity allocation. The lesson, if any? One size doesn't fit all. Happy to reconsider if I've botched the math.

*This is the actual expense ratio of my account with Betterment's fee included, which I expect to drift slightly downward because TLH put some of my money into higher ER ETFs.  It used to be 0.25%.
« Last Edit: May 08, 2016, 12:46:04 AM by josstache »

Interest Compound

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Re: Going with Vanguard, no more Betterment
« Reply #24 on: May 08, 2016, 07:26:59 AM »
Let's say I want an 85/15 portfolio for the next 30 years, which is what I have actually chosen for myself at Betterment.  The best option to duplicate this in an automatic portfolio at Vanguard would be the 80/20 LifeStrategy.

Here is the hypothetical growth of $100,000 over 30 years, assuming 7% growth of stocks and 3% growth of bonds, ignoring tax loss harvesting:

Vanguard, 0.15% ER: $630,351
Betterment, 0.27%* ER: $633,462

Don't forget to calculate:
  • Betterment forces your bonds to be Municipal bonds. Is your household income more than $447,000 a year? If not, you're better off in a normal taxable bond fund. Better off meaning you will earn more money in a normal taxable bond fund. I'm sure this more than makes up for the $3k difference in your calculation. Why does Betterment give you Municipal Bonds anyway? Because it looks good in their marketing material. Again, Betterment's interests are not aligned with ours. Indeed, the structure of their company necessitates this. Vanguard is the only investment firm that's legally obligated to act in our best interests.
  • The risk of Betterment changing their portfolio radically. Did you know Wealthfront didn't always use index funds? It used to be an active management company, until they realized the current climate would bring them more customers with index funds. Are you willing to bet your life savings that Betterment won't make the opposite decision one day in the next 30 years?
  • The risk of Betterment, an internet startup with declining growth, going out of business during the next 30 years? The fact that this is a money-loosing startup pushing hard on marketing to gain exponential growth would keep me from putty money there.
  • The capital gains tax hit if Betterment goes out of business and you have to sell everything (or be faced with manually managing the 10-20 ETF portfolio they put you in).

MMM's 90/10 portfolio has an even greater difference, because there are lower expenses and higher hypothetical returns on the equity allocation. The lesson, if any? One size doesn't fit all.

Yes, one size does fit all. There is no appreciable difference between 80/20, 85/15, and 90/10. Let me guess, you filled out a questionnaire at Betterment, and they chose 85/15 for you? Sorry, but this is completely arbitrary. Fill out that same questionnaire at Vanguard and they might put you in 80/20, or they might put you in 100/0. A difference of 5% is not something an investor would actually notice during their investing lifetime.

Note, the expense ratio for Vanguard's 100/0 automatic option is 0.14%:

https://personal.vanguard.com/us/funds/snapshot?FundId=3141&FundIntExt=INT
« Last Edit: May 08, 2016, 07:47:19 AM by Interest Compound »

josstache

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Re: Going with Vanguard, no more Betterment
« Reply #25 on: May 08, 2016, 11:41:36 AM »
To address various points in no particular order:

I ran these numbers because I am on the fence, and I am on the fence because the Vanguard vs. [X] decision isn't black and white for every single person. To be honest I am not that pleased with the municipal bonds allocation, but my income is high enough that it isn't a big deal right now. It is not clear that one needs to be in the highest tax bracket to justify owning municipal bonds (see, e.g., http://news.morningstar.com/articlenet/article.aspx?id=637082 )  Conversely, Vanguard's portfolios have a relatively lower international allocation, which I don't agree with.

I maintain the freedom to move my money from Betterment at any time, as other people in this thread have done.  I will not be leaving it there for 30 years without paying attention to what they're doing. The changed allocation risk you've identified applies to Vanguard's portfolios as well -- in fact they very recently changed their portfolios.  If they go out of business I'll simply be in the same situation as now -- looking at places to move the ETFs/money, though presumably with a more specific deadline.

I filled out a questionnaire at Betterment and they recommended something like 60/40, which I promptly ignored. 

80/20 and 90/10 are appreciably different.  80/20 and 85/15 are less so, but as I proved, even this small difference can overcome a significant difference in expense ratios. Although my post above ignored the effects of TLH, it's already reduced my taxes by over $1000, and will again this year due to carry forward.

VT does not employ rebalancing or target allocations (nor should it), so it is appreciably different from holding, say, 50% of VTI and 50% of VXUS.  With the latter you're also getting over 2000 additional companies versus the former (and a lower expense ratio to boot).

Interest Compound

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Re: Going with Vanguard, no more Betterment
« Reply #26 on: May 08, 2016, 01:41:30 PM »
To address various points in no particular order:

I ran these numbers because I am on the fence, and I am on the fence because the Vanguard vs. [X] decision isn't black and white for every single person. To be honest I am not that pleased with the municipal bonds allocation, but my income is high enough that it isn't a big deal right now. It is not clear that one needs to be in the highest tax bracket to justify owning municipal bonds (see, e.g., http://news.morningstar.com/articlenet/article.aspx?id=637082 )  Conversely, Vanguard's portfolios have a relatively lower international allocation, which I don't agree with.

Sure, if Betterment's bets are similar to the bets you personally would be taking anyway. The target market, however, (people who are looking for one-button-push investing and want someone to handle it for them) shouldn't be betting at all. The various tilts in Betterment's 10-20 ETF portfolio would make a financial newbie's head spin, and I'm sure that was their intent when choosing it.

The morningstar link supports my argument. It's simple math, and it doesn't make sense for 99% of Americans.

http://forum.mrmoneymustache.com/investor-alley/when-to-use-municipal-%28tax-exempt%29-bonds/

I maintain the freedom to move my money from Betterment at any time, as other people in this thread have done.  I will not be leaving it there for 30 years without paying attention to what they're doing. The changed allocation risk you've identified applies to Vanguard's portfolios as well -- in fact they very recently changed their portfolios.  If they go out of business I'll simply be in the same situation as now -- looking at places to move the ETFs/money, though presumably with a more specific deadline.

Yes you have the freedom to move, and when you do, you'll have two choices:

1. Take a possibly huge capital gains tax hit when selling all the 10-20 ETFs they put you in.
or
2. Manually manage their 10-20 ETF portfolio for the rest of your investment horizon. For the people on this forum, that could be 30-60 years.

This is huge, and the biggest thing most people don't realize. Does this sound like a good path for a financial newbie trying to simplify their life savings?

I filled out a questionnaire at Betterment and they recommended something like 60/40, which I promptly ignored. 

80/20 and 90/10 are appreciably different.  80/20 and 85/15 are less so, but as I proved, even this small difference can overcome a significant difference in expense ratios. Although my post above ignored the effects of TLH, it's already reduced my taxes by over $1000, and will again this year due to carry forward.

Never use different asset allocations as an excuse for higher fees. "Yes, the fees are higher, so to compensate I'll just take on more risk!" is a horrible lesson to impart on any financial newbie (the people currently considering Betterment). Tax Loss Harvesting will never be able to counteract the fees. Again, this is simple math. The fees will always beat it in the long-run. This is inevitable, for the simple reason that the fees are both percentage based (so they get higher as your account grows), and forever (each and every year, for the rest of your life), while the tax loss harvesting benefit is temporary.

Another thing to watch out for, they love advertising the tax benefits, when most people have no idea how to interpret them. Even the great MilesDividendMD, a prolific investor and blogger, didn't understand that a Tax Loss Harvest of $1000, will only put around $300 back in your pocket, depending on your tax bracket. It sounds like you understand it, but this was a pretty big embarrassment for him in one of the Betterment threads...what chance do you think the newbies have of understanding this stuff, when even the experts are misled?

VT does not employ rebalancing or target allocations (nor should it), so it is appreciably different from holding, say, 50% of VTI and 50% of VXUS.  With the latter you're also getting over 2000 additional companies versus the former (and a lower expense ratio to boot).

VT automatically rebalances, as does any market-weighted instrument. If you believe it doesn't rebalance, you have a fundamental misunderstanding of how market-weighted funds/ETFs work.

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Re: Going with Vanguard, no more Betterment
« Reply #27 on: May 08, 2016, 02:40:13 PM »
VT automatically rebalances, as does any market-weighted instrument. If you believe it doesn't rebalance, you have a fundamental misunderstanding of how market-weighted funds/ETFs work.

Depends on your defintiion of rebalance.

The standard definition of rebalancing applies to a portfolio of stocks and bonds. When stocks crash, you sell bonds to buy more stocks to get back to your fixed desired allocation. So if you want 90/10, and stocks crash 50%, then you sell some bonds to get back to 90/10.

VT is a stock ETF with the country allocations being market cap weighted. The holdings aren't allocated to different countries in a fixed ratio. So if British stocks were to crash while no other countries' stocks did, VT doesn't sell stocks of any other country to buy more European stocks. In fact, VT doesn't do a damn thing. The market weighting of the world stocks has changed, and by VT doing nothing, it's assets have changed by the correct amount to reflect that change.

I suppose you can call this self rebalancing if you want, but that still connotes that VT needs to change something to get back to its desired allocation, which it does not.

What VT does have to do is buy shares of the world's stocks in proportion to market weight whenever people buy more shares of VT, and vice versa. But that's not what most people, including myself, consider to be rebalancing.

VT does not employ rebalancing or target allocations (nor should it), so it is appreciably different from holding, say, 50% of VTI and 50% of VXUS.  With the latter you're also getting over 2000 additional companies versus the former (and a lower expense ratio to boot).

VT does have a target allocation. It just happens to be a dynamic one, as it's market cap weighted.
And yes, a combination of VTI and VXUS does hold more stocks. They're tracking different indices (as in, VT tracks FTSE global all cap, VXUS tracks FTSE global all cap ex US, but VTI doesn't track the US stocks in the FTSE global all cap index---it tracks the CRSP US Total market index

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Re: Going with Vanguard, no more Betterment
« Reply #28 on: May 08, 2016, 05:15:51 PM »
VT automatically rebalances, as does any market-weighted instrument. If you believe it doesn't rebalance, you have a fundamental misunderstanding of how market-weighted funds/ETFs work.

Depends on your defintiion of rebalance.

The standard definition of rebalancing applies to a portfolio of stocks and bonds. When stocks crash, you sell bonds to buy more stocks to get back to your fixed desired allocation. So if you want 90/10, and stocks crash 50%, then you sell some bonds to get back to 90/10.

VT is a stock ETF with the country allocations being market cap weighted. The holdings aren't allocated to different countries in a fixed ratio. So if British stocks were to crash while no other countries' stocks did, VT doesn't sell stocks of any other country to buy more European stocks. In fact, VT doesn't do a damn thing. The market weighting of the world stocks has changed, and by VT doing nothing, it's assets have changed by the correct amount to reflect that change.

I suppose you can call this self rebalancing if you want, but that still connotes that VT needs to change something to get back to its desired allocation, which it does not.

What VT does have to do is buy shares of the world's stocks in proportion to market weight whenever people buy more shares of VT, and vice versa. But that's not what most people, including myself, consider to be rebalancing.

VT does not employ rebalancing or target allocations (nor should it), so it is appreciably different from holding, say, 50% of VTI and 50% of VXUS.  With the latter you're also getting over 2000 additional companies versus the former (and a lower expense ratio to boot).

VT does have a target allocation. It just happens to be a dynamic one, as it's market cap weighted.
And yes, a combination of VTI and VXUS does hold more stocks. They're tracking different indices (as in, VT tracks FTSE global all cap, VXUS tracks FTSE global all cap ex US, but VTI doesn't track the US stocks in the FTSE global all cap index---it tracks the CRSP US Total market index

Sure, you can say it auto-rebalances, or you can say it is always inherently in balance and therefore doesn't need RE-balancing...etc. But you can't claim holding VT alone is worse than holding VTI + VXUS at market weight, because "rebalancing".

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Re: Going with Vanguard, no more Betterment
« Reply #29 on: May 08, 2016, 05:21:02 PM »
Sure, you can say it auto-rebalances, or you can say it is always inherently in balance and therefore doesn't need RE-balancing...etc. But you can't claim holding VT alone is worse than holding VTI + VXUS at market weight, because "rebalancing".

I never said VT is worse than VTI + VXUS.

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Re: Going with Vanguard, no more Betterment
« Reply #30 on: May 08, 2016, 05:24:02 PM »
Sure, you can say it auto-rebalances, or you can say it is always inherently in balance and therefore doesn't need RE-balancing...etc. But you can't claim holding VT alone is worse than holding VTI + VXUS at market weight, because "rebalancing".

I never said VT is worse than VTI + VXUS.

That seems to be Josstache's claim I was responding to:

VT does not employ rebalancing or target allocations (nor should it), so it is appreciably different from holding, say, 50% of VTI and 50% of VXUS.

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Re: Going with Vanguard, no more Betterment
« Reply #31 on: May 08, 2016, 05:31:27 PM »
Sure, you can say it auto-rebalances, or you can say it is always inherently in balance and therefore doesn't need RE-balancing...etc. But you can't claim holding VT alone is worse than holding VTI + VXUS at market weight, because "rebalancing".

I never said VT is worse than VTI + VXUS.

That seems to be Josstache's claim I was responding to:

VT does not employ rebalancing or target allocations (nor should it), so it is appreciably different from holding, say, 50% of VTI and 50% of VXUS.

You do realize josstache said appreciably different, not worse, right?

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Re: Going with Vanguard, no more Betterment
« Reply #32 on: May 09, 2016, 08:32:28 AM »
*head spinning*

:P

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Re: Going with Vanguard, no more Betterment
« Reply #33 on: May 11, 2016, 07:23:27 AM »
Thank you for all this excellent information!

The Vanguard LifeStrategy growth fund seems like the best fit for me of the Vanguard funds because my retirement is 10+ years away seeing as how I just started investing!

It seems MMM puts his money into Vanguard VTSAX--is the difference between that approach and a LifeStrategy growth fund that the latter has 20% in bonds? I'm not quite understanding the pros and cons of doing something like the LifeStrategy growth fund vs putting everything in VTSAX admiral shares (this one: https://personal.vanguard.com/us/funds/snapshot?FundId=0585&FundIntExt=INT). 

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Re: Going with Vanguard, no more Betterment
« Reply #34 on: May 11, 2016, 09:00:22 AM »
Thank you for all this excellent information!

The Vanguard LifeStrategy growth fund seems like the best fit for me of the Vanguard funds because my retirement is 10+ years away seeing as how I just started investing!

It seems MMM puts his money into Vanguard VTSAX--is the difference between that approach and a LifeStrategy growth fund that the latter has 20% in bonds? I'm not quite understanding the pros and cons of doing something like the LifeStrategy growth fund vs putting everything in VTSAX admiral shares (this one: https://personal.vanguard.com/us/funds/snapshot?FundId=0585&FundIntExt=INT).

A few things to note:

1. The LifeStrategy Growth Fund is currently 48% VTSAX



If you put 100% in VTSAX, you won't have any bonds, and you won't have any international holdings. You'll be less diversified, and your portfolio will have more volatility. You'll only advantage to this, if the USA wildly outperforms the rest of the world. This is a bet I wouldn't feel comfortable taking.

2. TargetRetirement can be used, even if your retirement is 10+ years off. This is actually what they were made for :) For someone retiring early, just choose based on your "Current Age". The marketing material is written up assuming you're retiring around 65, but the real determining factor in terms of risk is your current age, so you're fine going by that number:



For example, if you choose TargetRetirement for the ages of 29-33, you'll get something pretty similar to LifeStrategy Growth:



The difference being, the TargetRetirement fund will get less risky as you get older:



So when you turn 60, TargetRetirement will have slid down to 50/50 stocks/bonds, whereas the LifeStrategy fund will stay 80/20. Neither one is inherently better or worse, just different.

iguana

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Re: Going with Vanguard, no more Betterment
« Reply #35 on: May 11, 2016, 09:17:30 AM »
Ideally, I want to retire before I'm 50 but because I could work longer if needed, I feel I can take on more risk. Therefore, I wouldn't want a target date that is my actual age.

I'm looking at the most aggressive / longest to retirement fund (Target 2060), and it's roughly 90% stocks. The most aggressive lifestrategy (Growth) is 80% stocks. So if I want 90% stocks (what I currently have in Betterment), I would need to do the target 2060 because there isn't a more aggressive lifestrategy fund.

Ok, so other than the target date funds automatically adjusting, are there any differences between doing the two you mentioned below that have the same percentage of stocks? Are the fees higher for the target date fund because it automatically adjusts? It looks like Lifestrategy growth is .15% and 2060 is .16% if I'm reading that right. Seems like a negligible difference!

So if I'm doing an 80/20 mix, there seems to be no difference in the two other than for the lifestrategy I should check in a year from now and see how everything is going and adjust if necessary?

Thanks so much for the help!!!

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Re: Going with Vanguard, no more Betterment
« Reply #36 on: May 11, 2016, 09:38:26 AM »
Ideally, I want to retire before I'm 50 but because I could work longer if needed, I feel I can take on more risk. Therefore, I wouldn't want a target date that is my actual age.

I'm looking at the most aggressive / longest to retirement fund (Target 2060), and it's roughly 90% stocks. The most aggressive lifestrategy (Growth) is 80% stocks. So if I want 90% stocks (what I currently have in Betterment), I would need to do the target 2060 because there isn't a more aggressive lifestrategy fund.

Ok, so other than the target date funds automatically adjusting, are there any differences between doing the two you mentioned below that have the same percentage of stocks? Are the fees higher for the target date fund because it automatically adjusts? It looks like Lifestrategy growth is .15% and 2060 is .16% if I'm reading that right. Seems like a negligible difference!

So if I'm doing an 80/20 mix, there seems to be no difference in the two other than for the lifestrategy I should check in a year from now and see how everything is going and adjust if necessary?

Thanks so much for the help!!!

Correct, the only difference is that one automatically adjusts.

"I should check in a year from now and see how everything is going and adjust if necessary?"

This part is concerning. The only factor that should change your asset allocation, is if your life circumstances change your ability to take risk, your willingness to take risk, or your need to take risk. 

That said, there's no need to check back each year with LifeStrategy, if you want to stay 80/20 forever :) I'm in 100/0 stocks/bonds forever, so all my money is about half in VTSAX (USA stocks) and half in VTIAX (International stocks). Vanguard's automatic fund for 100/0 is here:

https://personal.vanguard.com/us/funds/snapshot?FundId=3141&FundIntExt=INT

I don't intend on this ever changing from 100/0, so I have no need to ever login and change anything. But if I do, it won't be because I logged in and checked how things were going. It will be because my ability/willingness/need to take risk has changed.

iguana

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Re: Going with Vanguard, no more Betterment
« Reply #37 on: May 11, 2016, 10:08:00 AM »
That makes perfect sense. You are wise!!!

It seems I've come full circle on this....I'm willing to go 100% stocks as well. The reason is that I'm young and I have some other things providing security in life--a rental property doing well, family money, etc.

So I started off wondering if I should put all my money in VTSAX, and that was just based on what I've heard other people doing and not out of any knowledge or analysis of the different kinds of all stock options.

What made you decide to do VTSAX + VTIAX? And why not the fund you linked to? Fees, I'm guessing? 

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Re: Going with Vanguard, no more Betterment
« Reply #38 on: May 11, 2016, 10:55:52 AM »
What made you decide to do VTSAX + VTIAX? And why not the fund you linked to? Fees, I'm guessing?

I'm 60/40 with VTSAX/VTIAX. A fee of 0.08%. The total stock ETF is 0.14.
Over 30 years a difference of about $5-6,000 ($5k/year addition). A difference, but not huge. I just went with the two funds so I can control the US-international ratio, although I probably shouldn't mess with that..

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Re: Going with Vanguard, no more Betterment
« Reply #39 on: May 11, 2016, 11:05:03 AM »
That makes perfect sense. You are wise!!!

It seems I've come full circle on this....I'm willing to go 100% stocks as well. The reason is that I'm young and I have some other things providing security in life--a rental property doing well, family money, etc.

So I started off wondering if I should put all my money in VTSAX, and that was just based on what I've heard other people doing and not out of any knowledge or analysis of the different kinds of all stock options.

What made you decide to do VTSAX + VTIAX? And why not the fund you linked to? Fees, I'm guessing?

Having a rental property and family money is a good foundation to support 100% stocks. But only if you personally can handle the volatility. I included these links at the bottom of my Revisiting the asset allocation question - The case for 100% stocks thread. I've been investing for 15 years, and am quite comfortable with staying the course during a crash. Please consider the following scary links before making a similar move, you'll end up much worse off if you panic sell during a crash:

What was the 2008 crash like in real time?
Judge Your Risk Tolerance and Choose an Asset Allocation
Scary Story 1
Scary Story 2

I went with VTSAX + VTIAX for a few reasons:
  • My 401k has a good equivalent for VTSAX, but nothing for VTIAX. Keeping them separate allows me to keep my total portfolio in balance considering my 401k
  • The fees are slightly lower, 0.085% compared to 0.14%.
  • They automatically rebalance by market weight. By that I mean, if the market weight is 50/50 USA/International today, and next year it changes to 40/60, I don't have to change anything. My portfolio will already be at 40/60. (Note, the 100/0 automatic fund does this too)

iguana

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Re: Going with Vanguard, no more Betterment
« Reply #40 on: May 11, 2016, 01:10:08 PM »
These links are extremely helpful. I'm re-evaluating my risk tolerance after reading them. It's very scary to think about going from $900k / almost retired to $250k in a short time. Eeeeek!!!!!

Will do some soul searching on this. Can't thank you enough for all this help!

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Re: Going with Vanguard, no more Betterment
« Reply #41 on: May 11, 2016, 02:09:02 PM »
These links are extremely helpful. I'm re-evaluating my risk tolerance after reading them. It's very scary to think about going from $900k / almost retired to $250k in a short time. Eeeeek!!!!!

Will do some soul searching on this. Can't thank you enough for all this help!

No problem! This is a difficult problem for everyone. If a 100/0 portfolio drops from 900k to 250k, here's how other portfolios would've handled it:

80/20 portfolio would drop from 900k to 400k
60/40 portfolio would drop from 900k to 500k
40/60 portfolio would drop from 900k to 650k

However, this doesn't take into account the fact that a 100/0 portfolio you've been investing in for years, would very likely have more money when it comes time for the drop. We can see this buffer in action here:



The human brain is more negatively impacted by losses than positively impacted by gains. Even in the scenario where the larger gains give you enough of a buffer that you'd end up with more money after a crash with 100/0, it's much harder to deal with the losses. Even if you never would've had the money to lose in the first place, if you didn't go 100/0.

I've been doing this long enough that I have no problem telling my brain to shut up and take the money :)

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Re: Going with Vanguard, no more Betterment
« Reply #42 on: May 13, 2016, 09:10:24 AM »
I went with VTSAX + VTIAX for a few reasons:
  • My 401k has a good equivalent for VTSAX, but nothing for VTIAX. Keeping them separate allows me to keep my total portfolio in balance considering my 401k
  • The fees are slightly lower, 0.085% compared to 0.14%.
  • They automatically rebalance by market weight. By that I mean, if the market weight is 50/50 USA/International today, and next year it changes to 40/60, I don't have to change anything. My portfolio will already be at 40/60. (Note, the 100/0 automatic fund does this too)

IC, did you go over the reasoning behind choosing only VTSAX and VTIAX anywhere? I'd be interested in your thinking, such as why no value or small cap tilt?

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Re: Going with Vanguard, no more Betterment
« Reply #43 on: May 16, 2016, 03:37:29 PM »
Thanks all for the great discussion in here.  I have been using a taxable Betterment for parts of the past year, aiming to increase my balance to get over $10k so that the fees drop from .35% to .25%  (plus of course the baseline ~.10% underlying ETF fees). 

However, I have not experienced any benefit of Tax Loss Harvesting.  I used Betterment last year for a short-term (6-month, roughly 50-50 allocation) savings option when saving for our wedding.  I started re-investing in Betterment this year and was fortunate enough to time the market well.  I have confirmed with Betterment support that TLH is activated for my account, but due to timing issues, the "Tax Losses Harvested" sits at $0.00. 

My rationale for using Betterment as my taxable investment account was in order to capture these losses.  But -- if there are no losses harvested, I've essentially been paying an extra .35% for no benefit.  For this reason, I found the discussion on switching the ETFs from Betterment to Vanguard without a sale very compelling.  What has been your experience with Betterment TLH -- e.g., how much have you captured annually (and how much as a percentage of your total holdings), and what allocation do you have?  Have they consistently beat the .25% or .35% fee rates?  I have been at 90/10 this year but as mentioned have $0 losses harvested (I understand that higher equity allocation should result in more TLHs).

ETA - regarding Betterment TLH as a percent of portfolio, this MadFientist article has a few datapoints: http://www.madfientist.com/moving-my-money-to-betterment/
But, it's not very clear and/or not all that great:
  • backwards looking, so not clear that it would approximate future results
  • only based on a two month window
  • Based on a 70/30 portfolio, and of course depends on tax bracket
  • Even so, the numbers suggest a $716 TLH on a portfolio of $150,000, so about .47%.  If you capture 30% of that due to tax bracket, it's reduced to a benefit of about .14%, which roughly offsets the best Betterment fee of .15%, and would not come close to the .25% fee for less than $100k accounts 

Two other somewhat related questions:

(1) Should high-yield savings accounts be treated as "bonds" for purposes of calculating your asset allocations across a variety of platforms? Both my Betterment taxable holdings and my Vanguard 401k are set at 90/10, but when I add in $10k held in two Netspend savings accounts at 5%, my revised allocation drops to roughly 75/25. 

(2) Should Lending Club investments be treated like equity for purposes of calculating asset allocations?  Assuming a fairly high-grade allocation (and maybe even with low-grade notes), it seems like sound reasoning based on risk, but LC is fixed income and therefore could count as diversification from equity.  (Consider a scenario where (i) the broader equity market has tanked into a recession and (ii) consumer debt defaults have risen to a point where interest on LC notes is completely offset by charge-offs, e.g., negative returns.  If things were to get this bad -- imagine how much equities would be down?  Of course this ignores a 'bankruptcy of LC' scenario which obviously would be very bad, also.) 
« Last Edit: May 16, 2016, 03:58:10 PM by zombiehunter »

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Re: Going with Vanguard, no more Betterment
« Reply #44 on: May 18, 2016, 07:33:51 AM »
Thanks all for the great discussion in here.  I have been using a taxable Betterment for parts of the past year, aiming to increase my balance to get over $10k so that the fees drop from .35% to .25%  (plus of course the baseline ~.10% underlying ETF fees). 

However, I have not experienced any benefit of Tax Loss Harvesting. 

I can't answer why you get zero TLH. But do you have other accounts with Vanguard index funds, like a 401k or Roth? If you buy these within the 30 day window of Betterment TLH (If it did occur), how would you avoid the wash sale rules? I'm curious to hear from people who use this and have Vanguard in the 401k (which it seems more and more do).

I don't see how this would work since I have automatic 401k deposits to VFIAX and VTIAX every two weeks, and also to VTSAX in taxable. Not to mention reinvesting dividends in all of these! All of these are in the ETFs Betterment use right? Would you deposit into other funds then move the money around when there is no TLH in Betterment? It just seems like a giant hassle to get automatic TLH to work, legally.

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Re: Going with Vanguard, no more Betterment
« Reply #45 on: May 18, 2016, 01:59:15 PM »
Thanks all for the great discussion in here.  I have been using a taxable Betterment for parts of the past year, aiming to increase my balance to get over $10k so that the fees drop from .35% to .25%  (plus of course the baseline ~.10% underlying ETF fees). 

However, I have not experienced any benefit of Tax Loss Harvesting. 

I can't answer why you get zero TLH. But do you have other accounts with Vanguard index funds, like a 401k or Roth? If you buy these within the 30 day window of Betterment TLH (If it did occur), how would you avoid the wash sale rules? I'm curious to hear from people who use this and have Vanguard in the 401k (which it seems more and more do).

I don't see how this would work since I have automatic 401k deposits to VFIAX and VTIAX every two weeks, and also to VTSAX in taxable. Not to mention reinvesting dividends in all of these! All of these are in the ETFs Betterment use right? Would you deposit into other funds then move the money around when there is no TLH in Betterment? It just seems like a giant hassle to get automatic TLH to work, legally.

I am wondering about this too. I am currently holding Roth IRA and taxable investment account in Wealthfront and just like the OP, I feel like I am ready to go with Vanguard in the future.

I think if you are talking about 401ks or Roth, you should be fine since there aren't any taxes. But in my case, If I were to open a Vanguard account and still allow TLH in Wealthfront, I feel like I would get wash sales pretty quickly, no?
The TLH on my wealthfront account has been working pretty well for me, claimed almost 1k in losses on a 7k balance. Ironically, I couldn't claim them because of my visa status (see below), so I have turned it off now.

edit: moved to create own thread
« Last Edit: May 18, 2016, 02:37:34 PM by gstache »

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Re: Going with Vanguard, no more Betterment
« Reply #46 on: May 18, 2016, 02:28:55 PM »
Thanks all for the great discussion in here.  I have been using a taxable Betterment for parts of the past year, aiming to increase my balance to get over $10k so that the fees drop from .35% to .25%  (plus of course the baseline ~.10% underlying ETF fees). 

However, I have not experienced any benefit of Tax Loss Harvesting. 

I can't answer why you get zero TLH. But do you have other accounts with Vanguard index funds, like a 401k or Roth? If you buy these within the 30 day window of Betterment TLH (If it did occur), how would you avoid the wash sale rules? I'm curious to hear from people who use this and have Vanguard in the 401k (which it seems more and more do).

I don't see how this would work since I have automatic 401k deposits to VFIAX and VTIAX every two weeks, and also to VTSAX in taxable. Not to mention reinvesting dividends in all of these! All of these are in the ETFs Betterment use right? Would you deposit into other funds then move the money around when there is no TLH in Betterment? It just seems like a giant hassle to get automatic TLH to work, legally.

I am wondering about this too. I am currently holding Roth IRA and taxable investment account in Wealthfront and just like the OP, I feel like I am ready to go with Vanguard in the future.

I think if you are talking about 401ks or Roth, you should be fine since there aren't any taxes.

You should probably make a new thread.

But FYI even if you have the "identical" funds in tax-advantaged accounts the wash sale rules apply. You can't sell in taxable, then buy the same fund in a 401k/Roth within 30 days (well you can, but then you can't claim the tax loss). Unless Betterment has all your accounts you have to keep track of this.

gstache

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Re: Going with Vanguard, no more Betterment
« Reply #47 on: May 18, 2016, 02:36:46 PM »
Thanks, I thought tax-advantaged accounts where treated separately.

Will edit my post and create own thread

zombiehunter

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Re: Going with Vanguard, no more Betterment
« Reply #48 on: May 18, 2016, 03:07:59 PM »
Thanks all for the great discussion in here.  I have been using a taxable Betterment for parts of the past year, aiming to increase my balance to get over $10k so that the fees drop from .35% to .25%  (plus of course the baseline ~.10% underlying ETF fees). 

However, I have not experienced any benefit of Tax Loss Harvesting. 

I can't answer why you get zero TLH. But do you have other accounts with Vanguard index funds, like a 401k or Roth? If you buy these within the 30 day window of Betterment TLH (If it did occur), how would you avoid the wash sale rules? I'm curious to hear from people who use this and have Vanguard in the 401k (which it seems more and more do).

I don't see how this would work since I have automatic 401k deposits to VFIAX and VTIAX every two weeks, and also to VTSAX in taxable. Not to mention reinvesting dividends in all of these! All of these are in the ETFs Betterment use right? Would you deposit into other funds then move the money around when there is no TLH in Betterment? It just seems like a giant hassle to get automatic TLH to work, legally.

Betterment has a feature where you can add "external accounts" such as your other taxable accounts and retirement accounts.  You select the firm and provide your login/pw (similarly to e.g. Mint or Personal Capital), in that way they supposedly know your other holdings to prevent issues with TLHs. 
« Last Edit: May 18, 2016, 03:09:42 PM by zombiehunter »

cafebueno

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Re: Going with Vanguard, no more Betterment
« Reply #49 on: October 12, 2016, 03:44:53 AM »
Thanks to all who replied, I greatly appreciate all your advise.  So yes there is more than 100k with Betterment and therefore I have their best pricing which means that their fee is .15% + the expense ratio of the underlying ETF so a total of around .31%.  I did a little more digging around... Here is what I found.  Yes you can transfer the ETF's from Betterment to Vanguard (called an in kind transfer).  Just need to either call them so they can walk you through it or you can do it on your own on Vanguards website.  They said it can take anywhere from a week to 2-3 weeks to complete the process.  They also said that the transfer may require a medallion stamp (kinda like a notary but for investment documents.  Also the medallion stamp should be offered at your bank free of charge, normally they require you to have an account.)  After that, the transfer should take place.  Some of those ETF's are not with Vanguard,  apparently those can come over to Vanguard also.  The difference between those (non-Vanguard ETF's) is that when selling them you will have to pay a trade fee.  There is no trade fee for the other Vanguard ETF's.  I'm glad I'm not the only one with this scenario, and I hope this helps someone else in the same position, if possible, Thanks!

Hi SenoritaStache!  I know this is an old-ish post but wanted to follow up and see how things went in the end?  I'm looking to do the same as you: an in-kind transfer from Betterment to Vanguard.  Did you end up selling the various funds once at Vanguard?  I'd like to do so but now sure of the best way.  As you mentioned, there would be a trade fee for selling the non-Vanguard funds at Vanguard.   Maybe I could change Betterment to a 100% bond or 100% stock goal, but I need to ask them what that would actually do fund-wise on their end, and maybe that's not worth the hassle.