Author Topic: Replicating Betterment Strategy on Vanguard  (Read 2492 times)

Richie

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Replicating Betterment Strategy on Vanguard
« on: February 01, 2017, 03:56:15 PM »
In light of Betterment's recent price increase, I'm wondering if it would be best for me to learn how to handle these things on my own.  Take off the Betterment training wheels, maybe.  I am fully convinced of the soundness of Betterment's investment strategy, and am very fond of my current mix of ETFs.  My question is, how do I balance a portfolio on Vanguard?  I'm assuming there is some sort of calculation I will have to do manually, in order to have all of my ETFs balanced the way I want.  I've tried searching Google for the answer to this, but didn't come up with anything.  In addition, does Vanguard allow for partial shares to be purchased like Betterment does?

Sorry for the newbie questions!

Interest Compound

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Re: Replicating Betterment Strategy on Vanguard
« Reply #1 on: February 01, 2017, 04:52:10 PM »
In light of Betterment's recent price increase, I'm wondering if it would be best for me to learn how to handle these things on my own.  Take off the Betterment training wheels, maybe.  I am fully convinced of the soundness of Betterment's investment strategy, and am very fond of my current mix of ETFs.  My question is, how do I balance a portfolio on Vanguard?  I'm assuming there is some sort of calculation I will have to do manually, in order to have all of my ETFs balanced the way I want.  I've tried searching Google for the answer to this, but didn't come up with anything.  In addition, does Vanguard allow for partial shares to be purchased like Betterment does?

Sorry for the newbie questions!

In my opinion, Betterment put you in those 10-20 ETFs purposely to make things more difficult than they need to be. Giving you the incentive to stay with them, as it would be a pain to manage it on your own.

Personally, I don't think rebalancing is that bad. I wrote a detailed post on how often I think you need to rebalance in the other Betterment thread, but for your purposes I think you'd do well with:

Optimal lazy portfolio rebalancing calculator



Plug in the numbers once a year or so, and make the trades as indicated on the right. Good luck!

Richie

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Re: Replicating Betterment Strategy on Vanguard
« Reply #2 on: February 01, 2017, 04:54:26 PM »
Thank you for that calculator!  I will utilize it.  I'll also check out your post in the other thread.

Why do you believe that Betterment's ETF line-up is too complicated?  I really like the wide exposure it provides.

Interest Compound

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Re: Replicating Betterment Strategy on Vanguard
« Reply #3 on: February 01, 2017, 05:51:45 PM »
Thank you for that calculator!  I will utilize it.  I'll also check out your post in the other thread.

Why do you believe that Betterment's ETF line-up is too complicated?  I really like the wide exposure it provides.

It seems fine-tuned to perform well in backtesting during specific periods, so they can show off pretty charts about their portfolios (past) performance, leading people to believe they can expect similar (future) performance by giving them your money.

For example, they put all taxable bonds in Tax-Exempt ETF - MUB. If they were operating in our best interests, this would make no sense. Comparing it to an equivalent non-Tax-Exempt fund:

MUB is currently yielding 2.01%





Its equivalent non-Tax-Exempt fund is currently 2.77%





Putting 2.01% into the Tax Equivalent Yield Calculator, and moving the Income slider to the right until I beat 2.7%, shows that using a Tax-Exempt bond doesn't make sense unless I make $240,000 a year:





Do you earn over $240,000 a year? Do you think the majority of people investing with Betterment earn over $240,000 a year? Then this decision doesn't make sense. If I had to guess, I'd say it's good marketing.

Vanguard is legally obligated to act in our best interests. Betterment is not.

See the difference?

nolefan21

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Re: Replicating Betterment Strategy on Vanguard
« Reply #4 on: February 02, 2017, 05:36:18 PM »
So I have Betterment and am not affected yet by the price increase since I hold less than 100k with them. The discussion about the increase has made me rethink though whether I should move my taxable investing back to Vanguard. If it is really worth it and how to do it are what are holding me back. Here is my thinking and I would really like others' opinions:

-I do like Betterment's interface and growth prediction modeling. It may seem silly but it helps me stay motivated and see what my future balance could be.
- I also like their SmartDeposit future to sweep excess cash from my checking account in addition to auto-deposits. (I know I can easily sweep money to Vanguard myself).
-I like how I can split up my money at Betterment into different goals with different timelines and allocations.
- I turned on TLH with them. It does boost your return % right?
-If I go to Vanguard, I would lean towards a simple approach of investing in their VASGX Lifestrategy Growth Fund to keep it automatically rebalanced and easy to manage.
-I have my Roth IRA at Vanguard so I already have a relationship with them.

With Betterment investing in some Vanguard ETFs but also some different companies for TLH etc, how should I think about a transfer in kind? I don't want to have to incur a lot of capital gains now for the sake of moving. If I called Vanguard would they transfer in kind and then I might just have to sell the non-Vanguard ETFs. I still would have to incur gains I suppose if I wanted to move my money in to the Lifestrategy funds with VG. I don't want to have to pay trade/commission fees just to get out of Betterment at the end of the day.

Should I stick with Betterment because of the hassle of moving / capital gains now or is the process/cost to transfer to Vanguard not as complicated as I may be thinking?

Thanks

Metric Mouse

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Re: Replicating Betterment Strategy on Vanguard
« Reply #5 on: February 03, 2017, 01:26:53 AM »
In light of Betterment's recent price increase, I'm wondering if it would be best for me to learn how to handle these things on my own.  Take off the Betterment training wheels, maybe.  I am fully convinced of the soundness of Betterment's investment strategy, and am very fond of my current mix of ETFs.  My question is, how do I balance a portfolio on Vanguard?  I'm assuming there is some sort of calculation I will have to do manually, in order to have all of my ETFs balanced the way I want.  I've tried searching Google for the answer to this, but didn't come up with anything.  In addition, does Vanguard allow for partial shares to be purchased like Betterment does?

Sorry for the newbie questions!

In my opinion, Betterment put you in those 10-20 ETFs purposely to make things more difficult than they need to be. Giving you the incentive to stay with them, as it would be a pain to manage it on your own.

Personally, I don't think rebalancing is that bad. I wrote a detailed post on how often I think you need to rebalance in the other Betterment thread, but for your purposes I think you'd do well with:

Optimal lazy portfolio rebalancing calculator



Plug in the numbers once a year or so, and make the trades as indicated on the right. Good luck!
Wow, this is a great calculator. Thank you!