Author Topic: Shedding the training wheels  (Read 1459 times)

Aunt Petunia

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Shedding the training wheels
« on: February 18, 2017, 08:39:05 AM »
This is an optimization question. I have about 80k taxable and 18k in IRAs with Wealthfront. It was a PITA to roll over an old 401k and transfer a Roth IRA from a bank when I set up the account.  I chose Wealthfront in order to "break the analysis paralysis" and get my money earning something prior to discovering the MMM blog. My taxable accounts seem to be growing but a lot of the growth in my IRAs is being eaten up by fees. The money is still growing much faster than it was before I moved it to Wealthfront.

Anyone make the switch from Wealthfront to Vanguard?

How much PITA was involved?

How can I avoid capital gains taxes?

What do you save on fees?

Is Vanguard's $50,000 minimum for no fees for each account or for all of your accounts combined?

Can you automate your investments? (I.E. Set up a 3 fund portfolio and any new $ added gets invested automatically).

Should I leave some taxable money in Wealthfront for accessibility (I have heard that Vanguard can take a while to sell funds and transfer money to bank accounts)?

Richie

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Re: Shedding the training wheels
« Reply #1 on: February 18, 2017, 10:11:12 AM »
I'm in the process of shedding the training wheels as well.  Except, in my case, I'm going from Betterment to Vanguard.  I haven't personally dealt with Wealthfront, so I cannot speak to the ease of transferring accounts from them.  However, it's been relatively smooth (so far) transferring from Betterment.  I basically had to print a bunch of documents, get a medallion signature on a couple of them, and send them in via U.S. Mail.  I imagine it wouldn't be much different transferring from Wealthfront.

In your IRA, you do not have to worry about capital gains tax.  You can make any changes you want to that account.  Your taxable account, on the other hand, will be tricky.  If you stick with an ETF portfolio and keep most of the ETFs you held at Wealthfront, that would minimize your capital gains tax.  However, there are some downsides to using ETFs, especially if you are still new.  The first one is, you cannot purchase partial shares of ETFs through Vanguard.  Thus, you will have "dead money" sitting in your account until you can afford to make a trade which is compatible with your asset allocation.  Additionally, ETFs cannot be automated.  You will have to log in to your account several times a month to make the trades manually.  Mutual funds, on the other hand, can be both purchased in partial shares and automated.  You can automate the process even more by purchasing mutual funds such as Target Date (for your retirement) and Lifestrategy (for your taxable).  These funds automatically rebalance.  Thus, you have to decide whether paying capital gains tax selling your ETFs is worth the benefits you receive from utilizing mutual funds.  No matter which option you choose, you will save on fees through Vanguard.  Even the completely automated mutual funds are cheaper than Wealthfront's fees.
« Last Edit: February 18, 2017, 10:19:21 AM by Richie »

dandarc

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Re: Shedding the training wheels
« Reply #2 on: February 18, 2017, 10:26:27 AM »
Answering what I can answer:

How can I avoid capital gains taxes?
Transfer in-kind - unless you've got proprietary funds at Wealth Front that can't be transferred, you can do this.

What do you save on fees?
If you do a transfer in-kind, then you'd save whatever Wealth Front is charging, as you'd have the same underlying assets.

Is Vanguard's $50,000 minimum for no fees for each account or for all of your accounts combined?
Just sign up for electronic documents - pretty universal "get out of fees card" at Vanguard

Can you automate your investments? (I.E. Set up a 3 fund portfolio and any new $ added gets invested automatically).
Yes on the new investments.  You can't, at this time, automate rebalancing, but that takes all of 10 minutes once per year for me at most.

Richie

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Re: Shedding the training wheels
« Reply #3 on: February 18, 2017, 10:28:26 AM »
Can you automate your investments? (I.E. Set up a 3 fund portfolio and any new $ added gets invested automatically).
Yes on the new investments.  You can't, at this time, automate rebalancing, but that takes all of 10 minutes once per year for me at most.

Can you elaborate further on this?  (As I said, I'm a Vanguard newbie as well.)  I was under the impression that you could only automate mutual fund investments.  Can you do it for ETFs as well?

PhysicianOnFIRE

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Re: Shedding the training wheels
« Reply #4 on: February 18, 2017, 10:53:47 AM »
Call Vanguard and they should be able to handle it. You shouldn't have to deal with Wealthfront at all. Be sure to request "in-kind transfers" of the ETFs in the taxable account as others have mentioned.

Cheers!
-PoF

dandarc

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Re: Shedding the training wheels
« Reply #5 on: February 18, 2017, 01:11:58 PM »
Can you automate your investments? (I.E. Set up a 3 fund portfolio and any new $ added gets invested automatically).
Yes on the new investments.  You can't, at this time, automate rebalancing, but that takes all of 10 minutes once per year for me at most.

Can you elaborate further on this?  (As I said, I'm a Vanguard newbie as well.)  I was under the impression that you could only automate mutual fund investments.  Can you do it for ETFs as well?
Apparently not.  So new money goes into funds if automating the purchases is important.