Author Topic: Taxable Investing Question - Vanguard, Betterment, Simplicity.  (Read 4273 times)

SrPennyLip

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It seems I have read myself blind through the countless posts on investment locations, companies, techniques and strategies.  Despite my best effort to do otherwise, I find myself following others who read those same comments, became somewhat overwhelmed with choices, and end up posting their specific scenario in hopes of getting tailored advice.

Here is my situation -- likely more info than is needed:
  • No consumer debt
  • Mortgage-free in two months
  • Maxing contributions to traditional 401k (Fidelity Freedom 2040)
  • Maxing my Roth-IRA (Vanguard Target 2050)
  • Maxing wife's traditional IRA (Vanguard Target 2040)

Once the mortgage is done in two months we will have ~$1500/month to assign a home and I have been trying to decide between Betterment and Vanguard.

Betterment was/is attractive to me for the following reasons:
  • I love simplicity and am willing to pay a small fee for it
  • I assume auto-balancing is beneficial given my preference for simplicity
  • Technology is pretty -- I like graphs and buttons (not a deciding factor, but it's hard to deny my inner geek)

Questions:
  • Do I assume correctly I have a highly likelihood of triggering wash sales given active monthly contributions to the two IRAs already with Vanguard?
  • If wash sales are a factor, is Betterment still useful (for lack of better word) without the TLH+ enabled?

I am currently leaning towards dumping all $1500 into VTSMX every month and being done with it but have this nagging feeling I am overlooking something in pursuit of a super-simple, set-it-and-forget-it approach.

Many thanks for any input.

tj

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Re: Taxable Investing Question - Vanguard, Betterment, Simplicity.
« Reply #1 on: March 10, 2015, 12:19:42 PM »
It seems I have read myself blind through the countless posts on investment locations, companies, techniques and strategies.  Despite my best effort to do otherwise, I find myself following others who read those same comments, became somewhat overwhelmed with choices, and end up posting their specific scenario in hopes of getting tailored advice.

Here is my situation -- likely more info than is needed:
  • No consumer debt
  • Mortgage-free in two months
  • Maxing contributions to traditional 401k (Fidelity Freedom 2040)
  • Maxing my Roth-IRA (Vanguard Target 2050)
  • Maxing wife's traditional IRA (Vanguard Target 2040)

Once the mortgage is done in two months we will have ~$1500/month to assign a home and I have been trying to decide between Betterment and Vanguard.

Betterment was/is attractive to me for the following reasons:
  • I love simplicity and am willing to pay a small fee for it
  • I assume auto-balancing is beneficial given my preference for simplicity
  • Technology is pretty -- I like graphs and buttons (not a deciding factor, but it's hard to deny my inner geek)

Questions:
  • Do I assume correctly I have a highly likelihood of triggering wash sales given active monthly contributions to the two IRAs already with Vanguard?
  • If wash sales are a factor, is Betterment still useful (for lack of better word) without the TLH+ enabled?

I am currently leaning towards dumping all $1500 into VTSMX every month and being done with it but have this nagging feeling I am overlooking something in pursuit of a super-simple, set-it-and-forget-it approach.

Many thanks for any input.

There is zero chance of wash salesi f your IRA's are exlusively in balanced/target date funds and your taxable portfolio is in robo-advised ETFs.

SrPennyLip

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Re: Taxable Investing Question - Vanguard, Betterment, Simplicity.
« Reply #2 on: March 10, 2015, 12:35:42 PM »
There is zero chance of wash salesi f your IRA's are exlusively in balanced/target date funds and your taxable portfolio is in robo-advised ETFs.

I thought I would be at risk of a wash due the target funds including VTSMX and Betterment using VTI.  Is that not the case?  Does the abstraction into a target account negate that?

skyrefuge

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Re: Taxable Investing Question - Vanguard, Betterment, Simplicity.
« Reply #3 on: March 10, 2015, 12:51:03 PM »
I am currently leaning towards dumping all $1500 into VTSMX every month and being done with it but have this nagging feeling I am overlooking something in pursuit of a super-simple, set-it-and-forget-it approach.

Er, yeah...the super-simple, set-it-and-forget-it approach must be so close in front of your nose that it's blinding you: just keep investing the extra money in Vanguard Target Retirement funds like you're already doing.

Since you love simplicity so much (and that's awesome, and reflected in your current holdings), I'm not sure why you're even considering Betterment, which is far more complex of an operation than a Target Date fund, and costs more on top of that.

skyrefuge

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Re: Taxable Investing Question - Vanguard, Betterment, Simplicity.
« Reply #4 on: March 10, 2015, 12:55:03 PM »
I thought I would be at risk of a wash due the target funds including VTSMX and Betterment using VTI.  Is that not the case?  Does the abstraction into a target account negate that?

Yes, the abstraction of a mutual fund negates that. See http://forum.mrmoneymustache.com/investor-alley/betterment-or-vanguard-for-traditional-ira/msg584076/#msg584076 that I wrote last night if you want to grasp why.

SrPennyLip

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Re: Taxable Investing Question - Vanguard, Betterment, Simplicity.
« Reply #5 on: March 10, 2015, 12:58:31 PM »
I'm not sure why you're even considering Betterment, which is far more complex of an operation than a Target Date fund, and costs more on top of that.

It's the fear I'm missing out on something "cool" Betterment is bringing to the table ....  the techy bells and whistles are luring me like a moth to a flame.

Is there any advantage of going straight VTSMX (VTSAX after clearing 10k) as I thought I saw in a couple older MMM posts?

tj

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Re: Taxable Investing Question - Vanguard, Betterment, Simplicity.
« Reply #6 on: March 10, 2015, 12:59:46 PM »
I don't like the target date funds because of the glide path. I prefer the static LifeStrategy Funds where you can change in and out of the funds (no capital gain exposure) or combine them to get the allocation that you want.

tj

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Re: Taxable Investing Question - Vanguard, Betterment, Simplicity.
« Reply #7 on: March 10, 2015, 01:00:19 PM »
I'm not sure why you're even considering Betterment, which is far more complex of an operation than a Target Date fund, and costs more on top of that.

It's the fear I'm missing out on something "cool" Betterment is bringing to the table ....  the techy bells and whistles are luring me like a moth to a flame.

Is there any advantage of going straight VTSMX (VTSAX after clearing 10k) as I thought I saw in a couple older MMM posts?

Absolutely nothing wrong with 100% VTSAX.

JasonS

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Re: Taxable Investing Question - Vanguard, Betterment, Simplicity.
« Reply #8 on: March 10, 2015, 01:15:34 PM »
you would only run into wash sale problems if you chose to do both Betterment and your own purchase of the Vanguard VTSMX/VTSAX or another fund similar to what Betterment uses.  Betterment will have you in VTI (the ETF equivalent of the above funds).  Betterment's TLH of the funds will cause problems if you're buying the equivalent fund on your own.
The target funds (life strategy, etc) will not give you problems because you are not buying the same fund that Betterment is using for TLH.  Yes, a percentage of the target fund may be VTSMX, but it's mixed with other funds making the target funds dissimilar enough to what Betterment is doing to keep you clear of wash sale trouble.

skyrefuge

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Re: Taxable Investing Question - Vanguard, Betterment, Simplicity.
« Reply #9 on: March 10, 2015, 01:16:27 PM »
It's the fear I'm missing out on something "cool" Betterment is bringing to the table ....  the techy bells and whistles are luring me like a moth to a flame.

Hmm, now I'm starting to question your "simplicity" bona fides, because that shit you're talking is the opposite of simplicity.

Betterment is a for-profit company that saw the tides were turning towards "boring", unprofitable index funds, and they developed a business model by which they could profit off that trend. To do so, they had to add complexity in order to differentiate themselves. As a for-profit investment company, they're probably one of the most-benevolent out there, and maybe they could even provide a net financial benefit in some very specific cases, but for the most part they'll just cost you money vs. going straight and simple to Vanguard.

Is there any advantage of going straight VTSMX (VTSAX after clearing 10k) as I thought I saw in a couple older MMM posts?

It depends what you want your asset allocation to be. VTSAX will increase your overall exposure to US stocks, and decrease your exposure to bonds and to international stocks. A Target Retirement fund will keep your overall allocation the same as it is now (though I agree with tj, a LifeStrategy fund is probably a slightly better choice if you're using an all-in-one fund). But now it sounds like you don't actually know what you want your asset allocation to be. Figure that out as you write your Investment Policy Statement, and then follow what it says.
« Last Edit: March 10, 2015, 01:18:35 PM by skyrefuge »

SrPennyLip

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Re: Taxable Investing Question - Vanguard, Betterment, Simplicity.
« Reply #10 on: March 10, 2015, 01:38:44 PM »
Quote
... sounds like you don't actually know what you want your asset allocation to be.

I believe my asset allocation to be best aligned with the 80/20 LifeStrategy fund (a 75/25 would seem nice, though).  My risk tolerance is high given I am still in my maximum earning years, my job is stable, I have reigned in all expenses, and have a sufficient cash reserve.  That would suffice for 5-10 years at which time I would likely back it down to a more conservative allocation.

Quote
Figure that out as you write your Investment Policy Statement, and then follow what it says.

Excellent advice; thank you.  That will be my next assignment.

tj

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Re: Taxable Investing Question - Vanguard, Betterment, Simplicity.
« Reply #11 on: March 10, 2015, 01:51:37 PM »
If you want 75/25 using Lifestrategy then do 80% LifeStrategy Growth and 20% Lifestrategy Moderate Growth. This gives you 76/24 which is close enough.

GGNoob

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Re: Taxable Investing Question - Vanguard, Betterment, Simplicity.
« Reply #12 on: March 10, 2015, 02:35:36 PM »
Considering you are using all Target Date Funds in your retirement accounts and have a 0% chance of causing wash sales, I would go with a taxable Betterment account. Once you hit $50,000, you can start TLHing.

But that's just me and I'm a fan of Betterment.