Author Topic: Should I Listen to FutureAdvisor?  (Read 5841 times)

VioletVixen

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Should I Listen to FutureAdvisor?
« on: March 12, 2015, 10:50:54 PM »
I thought I was doing pretty good with my portfolio, being a newbie and all...then, FinancialAdvisor informed me that I'm failing.

F-Performance
C-Diversification
C+-Fee Efficiency
A+-Tax Efficiency (well, that's a relief)


This is what I have currently:

Fidelity 401a (Employer contributes 5%, not a match): $3,115.17

79.95%    SPTN 500 INDEX ADV
           $2,490.72          Stock Investments   Large Cap
                .05% ER

20.05%   SPTN EXT MKT IDX ADV
           $624.45      Stock Investments   Mid-Cap
                .07% ER

Fidelity 403b: $6,433.91 <--95% of this is in Roth 403b, 5% Traditional 403b

72.26%   SPTN TOT MKT IDX ADV
           $4,648.99       Stock Investments    Large Cap
                .05% ER

27.74%   SPTN LT TR IDX ADV
           $1,784.92   Bond Investments  Income
                .1% ER

Traditional IRA (My IRA): $4,104.91

VASGX    Vanguard LifeStrategy Growth Fund Investor Shares
           0.17% ER   

Husband's Traditional IRA: $3,000

VASGX    Vanguard LifeStrategy Growth Fund Investor Shares
           0.17% ER

HSA (HealthEquity): $442

VIGIX  VANGUARD GROWTH INDEX I  : $356

VBMPX VANGUARD TOTAL BOND MARKET IDX INSTLPLS:  $86


Is it really all that bad? Is FutureAdvisor worth my time?

humblefi

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Re: Should I Listen to FutureAdvisor?
« Reply #1 on: March 13, 2015, 01:18:39 AM »
Without knowing all the assumptions you put into Future Advisor w.r.t. your profile, it is hard to answer this question. If you can provide more details on that input (when you want to retire, current networth, etc etc), then we can help more. For example, if you want to retire in 2 years, then Future Advisor may complain if you have 100% in stocks.

If you cannot share the details, I would sign up for Personal Capital and see what your asset allocation is. Personal Capital takes all your investments and shows you the spread between large, mid, small and within each, it shows you value, blend and growth portions. You can even get a portfolio evaluation and an explanation on what Personal Capital thinks about your asset allocation and life goals. And, there is one free chat with a financial advisor, if you so intent to do.

You can also sign up for a Financial Check from Vanguard for $250. Once you get a solid financial plan in place, you can execute it and slowly learn along the way. But, it may be good to have a talk with a trusted financial advisor and get a basic plan in place.

Hope that helps.

GGNoob

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Re: Should I Listen to FutureAdvisor?
« Reply #2 on: March 13, 2015, 06:41:47 AM »
The only thing I see missing from your allocation is international stocks. Otherwise, everything seems to look pretty good.

Keep in mind that FutureAdvisor has a portfolio they recommend and most advice will show that their portfolio is better than yours. Personal Capital does the same thing. My allocation is not far off from their target allocation, but all of their charts and graphs say that their target allocation is better than my current allocation.

capitalninja

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Re: Should I Listen to FutureAdvisor?
« Reply #3 on: March 13, 2015, 07:05:22 AM »

Keep in mind that FutureAdvisor has a portfolio they recommend and most advice will show that their portfolio is better than yours. Personal Capital does the same thing. My allocation is not far off from their target allocation, but all of their charts and graphs say that their target allocation is better than my current allocation.

That's not always true. I have an account with FutureAdvisor and according to them, my current portfolio outperforms theirs by 80 basis points in an average market and 20 basis points in a down market; so overall it's a *better* portfolio than what they recommend.

I like most of their advice with the exception of their bond recommendations. As the other posters have stated, other than adding some international into the mix, your selections look pretty good.


Maxman

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Re: Should I Listen to FutureAdvisor?
« Reply #4 on: March 13, 2015, 09:38:41 AM »


Do you mind giving us your investments at Vanguard and percentages?

GGNoob

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Re: Should I Listen to FutureAdvisor?
« Reply #5 on: March 13, 2015, 09:55:53 AM »


Do you mind giving us your investments at Vanguard and percentages?

It's all listed there.

This is what I have currently:

Fidelity 401a (Employer contributes 5%, not a match): $3,115.17

79.95%    SPTN 500 INDEX ADV
           $2,490.72          Stock Investments   Large Cap
                .05% ER

20.05%   SPTN EXT MKT IDX ADV
           $624.45      Stock Investments   Mid-Cap
                .07% ER

Fidelity 403b: $6,433.91 <--95% of this is in Roth 403b, 5% Traditional 403b

72.26%   SPTN TOT MKT IDX ADV
           $4,648.99       Stock Investments    Large Cap
                .05% ER

27.74%   SPTN LT TR IDX ADV
           $1,784.92   Bond Investments  Income
                .1% ER

Traditional IRA (My IRA): $4,104.91

VASGX    Vanguard LifeStrategy Growth Fund Investor Shares
           0.17% ER   

Husband's Traditional IRA: $3,000

VASGX    Vanguard LifeStrategy Growth Fund Investor Shares
           0.17% ER

HSA (HealthEquity): $442

VIGIX  VANGUARD GROWTH INDEX I  : $356

VBMPX VANGUARD TOTAL BOND MARKET IDX INSTLPLS:  $86

a1smith

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Re: Should I Listen to FutureAdvisor?
« Reply #6 on: March 13, 2015, 04:30:10 PM »
i get the same F for performance at FutureAdvisor but Personal Capital says I'm very close to their recommendation.  For me, it seems like FutureAdvisor gets confused because they can't figure out what many of the investments in my 401k are.  The funds with tickers work fine but many of the institutional grade SSgA funds, etc. confuse it.  So, it is only analyzing the ones it knows about and coming up with the wrong answer.

I see that you don't have tickers for your Fidelity Spartan funds so maybe they are an institutional class fund (usually lower fees) that FutureAdvisor doesn't know about.

I get a message that says I can contact the Future Advisor Premier team and they can figure out the unknown investments but I'm sure that means I would have to subscribe.  I just set it up to take a look at it.  For Personal Capital, I haven't signed up there either, I mainly use the site as an info aggregator.

tdogz

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Re: Should I Listen to FutureAdvisor?
« Reply #7 on: March 13, 2015, 06:20:18 PM »
...  For me, it seems like FutureAdvisor gets confused because they can't figure out what many of the investments in my 401k are.  The funds with tickers work fine but many of the institutional grade SSgA funds, etc. confuse it.  So, it is only analyzing the ones it knows about and coming up with the wrong answer. ...
Yeah, my analysis says that it is including my accounts at Vanguard, but not my 401k with American Funds. That's weird because FutureAdvisor knows my exact holdings and the ticker symbols for the account. My guess is that it doesn't know what options are available in my/your particular 401k, so it can't make an assessment of the choices.

Indexer

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Re: Should I Listen to FutureAdvisor?
« Reply #8 on: March 14, 2015, 10:20:13 AM »
As noted you are a bit low on international.  You are also very heavy in stocks.  If you have the risk tolerance for it that is fine.  Always keep in mind these pay for use services want to make themselves look better by stating what you have isn't very good.   I think your portfolio actually looks pretty good if you just had more international.

Are the IRAs at Vanguard?

If the IRAs are at Vanguard there is an option to link outside accounts so you can see them all in one place on the Vanguard site.  After you have done that you can use Vanguard's Portfolio Watch(sometimes it shows up as Portfolio Analyzer) tool to look at everything.  It will even analyze tax efficiency and fees, the amount of international exposure you have, if you have enough bonds, give you an idea of your risk level, etc.  They also even have a risk/goal questionnaire you can go through to determine your ideal asset allocation.  It doesn't have some of the more complicated stuff that Personal Capital has like their efficient frontier page(which is broken on purpose to make their recommendations look better, but thats another story*), but it will let you analyze your account in detail.  I use Portfolio Watch and I use Personal Capital.  IMO Personal Capital is better for doing projections into the future, but Portfolio Watch is better for analyzing the existing investments. 

* Personal Capital keeps recommending this rather complex portfolio for me, but the last time I logged in and looked at the efficient frontier graph I noticed something rather odd.  Their "Target Portfolio" was ON the efficient frontier, but my "Current Portfolio" was actually ABOVE the frontier.  The efficient frontier represents the best portfolio(and most returns) you can possibly have for a given level of risk.  You can't be above it.  Thats impossible.  So my portfolio being above the frontier actually means their frontier isn't efficient at all as my portfolio is clearly more efficient.  In other words they are purposely representing a less efficient frontier on their site to make their recommended portfolios look better than they really are.  My portfolio, which according to them exceeds the efficient frontier is actually just 65% Vanguard Total Stock Index, and 35% Vanguard Total International Stock Index.  Personal Capital can't recommend that... it looks to easy so you would never pay for their more advanced services where they manage it.  So they recommend a more complicated(and less efficient) portfolio, and then make it appear better than it really is.  Personal Capital rant over....   (I've only looked at Future Advisor a little, but I wouldn't be surprised if they don't pull the same stunts to make themselves look better compared to your current portfolio.)

FuturePM

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Re: Should I Listen to FutureAdvisor?
« Reply #9 on: March 24, 2015, 10:42:19 PM »
Hi All,

I work for FutureAdvisor and thought I could shed some light here. I'm going to geek out a bit for this audience, so I apologize if its too much inside baseball. The forum responses are on the right track and very fair (credit to the MMM community) but I'm able to get a little more specific and hope it's of use to everyone.

Obviously I think you should listen to us, but we're not a cult. We just want people to reach their goals and we are relatively confident that if you followed our strategy for decades, that's what would happen. Any and every strategy can do well in any random short term. Our plan is based on an investment strategy left in place for years to decades. The more full cycles it goes through, the better it has done in forward models and back-testing.

First, the performance grade is forward looking. It is based on long term expected performance according to a monte carlo of your current holdings as compared to the portfolio we recommend for you based on your inputs. You can be penalized for having too concentrated of a portfolio because in poor market conditions you have nothing to mitigate the poor returns and rebalance against. We also make some assumption about how often the average DIY investor rebalances and does portfolio maintenance like tax loss harvesting. In our premium service those are fully automated daily, so on top of our asset allocation compared to yours, we claim a slight additional performance improvement that is mostly associated with doing tasks that require you to monitor the portfolio at a granular level daily. You COULD do this with our free recommendations if you had the time, but we don't have any cost basis information on your holdings so you'd have to pay close attention to make sure you don't make mistakes realizing short term gains or creating wash sales, etc.

Our asset allocation (Diversification score) includes at least some bonds and real estate funds for every investor, and is global in nature. The equity allocation is tilted towards a GDP alignment when it comes to country/region breakdown. So even a market cap weighted global fund, such as ACWI, combined with some diversified bonds funds, wouldn't get an A in diversification necessarily.  We're very cognizant of avoiding a "home bias" which is the observation that most individual market participants have the highest equity allocation to their home country regardless of where they live.  It's not that we think you can't make money with another portfolio, this is just the one that we think works best in the very long run and will do well in the largest variety of circumstances. In other words, it'll get you there with a smoother ride. In getting specific, you appear to be missing international stocks, emerging market stocks, US real estate, foreign real estate, international bonds, and TIPS. But our recommendations are really intended for portfolios larger than $10K. Below that level, the transaction costs can be prohibitive so we recommend target date funds, or the Vanguard 3 fund approach: Total US Market Index, Total International Stock Index, Total Bond Index.

Fee efficiency is directly related to your fund expense ratios. Anything less than a weighted average of 0.20% should be getting an A- at worst, so I suspect that you have some other funds that aren't listed here? If you want to email us at help@futureadvisor.com someone can look into it for you. That's the only grade that doesn't seem right based on what I can see in this forum. Spartan funds and Vanguard Index funds are great options for anyone. We like ETFs for the slightly better tax treatment, but that doesn't matter at all in tax advantaged accounts like IRAs.

Finally, anyone that doesn't link up a taxable brokerage account will get an A+ in tax efficiency. The grade is very simply how many bonds and REITs do you have in a taxable account. The more you have in taxable, the lower the grade. No taxable account, no improper placement is possible so, bingo, A+.

I hope this helps. We try to be as transparent as possible and are always available via the email address above.

-Gary
« Last Edit: March 24, 2015, 11:05:30 PM by FuturePM »

skyrefuge

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Re: Should I Listen to FutureAdvisor?
« Reply #10 on: March 24, 2015, 11:31:45 PM »
First, the performance grade is forward looking. It is based on long term expected performance according to a monte carlo of your current holdings as compared to the portfolio we recommend for you based on your inputs.
...
Below that level, the transaction costs can be prohibitive so we recommend target date funds, or the Vanguard 3 fund approach: Total US Market Index, Total International Stock Index, Total Bond Index.

So then it seems like the dynamic range on your "Performance" grade is unhelpfully narrow. If this fairly-reasonable-though-lacking-international portfolio gets an "F" (for an investor who I assume would be recommended an equity-heavy portfolio), what the heck would she get if she'd had 100% of her money in a money market fund? A Z-minus?

FuturePM

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Re: Should I Listen to FutureAdvisor?
« Reply #11 on: March 25, 2015, 12:33:09 AM »
So then it seems like the dynamic range on your "Performance" grade is unhelpfully narrow. If this fairly-reasonable-though-lacking-international portfolio gets an "F" (for an investor who I assume would be recommended an equity-heavy portfolio), what the heck would she get if she'd had 100% of her money in a money market fund? A Z-minus?

I suppose you could make that argument in a vacuum if you ignored everything else both in my post and on our site. But either way, getting 50% on a test (which is what I'd equate a 100% US equity portfolio to here) is usually an F, as is a 0% on that same test (all money markets).  I'd argue it doesn't matter how far short of your retirement goals you end up, if you end up short its a catastrophe. In this case since we're talking about compound performance over a long period of time, a difference of 1-2% per year can mean the difference between living comfortably until death versus getting by surviving on only social security in the final years. I assume Mr. Money Moustache could make it work, but for most people I'd call the latter a pretty undesirable result worthy of a poor prospective performance grade. Beside that, we offer detailed recommendations transaction by transaction and fund by fund for how to convert the portfolio to our recommended target including the cheapest options specific to someones custodian bank and portfolio size, and we do that for free for every user. We even email someone when they need to rebalance. People can take it or leave it, but I'd hardly call that unhelpful.

MDM

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Re: Should I Listen to FutureAdvisor?
« Reply #12 on: March 25, 2015, 01:07:43 PM »
I suppose you could make that argument in a vacuum if you ignored everything else both in my post and on our site. But either way, getting 50% on a test (which is what I'd equate a 100% US equity portfolio to here) is usually an F, as is a 0% on that same test (all money markets). 
Fair enough.  Does FA share information on its grading scale?  I.e., if we assume the OP gets an F, and following FA's advice to the letter would be an A (correct?), what sort of portfolios would get a B, C, D or E?

FuturePM

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Re: Should I Listen to FutureAdvisor?
« Reply #13 on: March 25, 2015, 01:50:47 PM »
Fair enough.  Does FA share information on its grading scale?  I.e., if we assume the OP gets an F, and following FA's advice to the letter would be an A (correct?), what sort of portfolios would get a B, C, D or E?

We used to give a percentage grade but it leads to a false sense of precision in a world where the best you can hope for is to play the probabilities. But I'm happy to share a little more detail.

For the performance grade, we use a blend of the monte carlo results. For example, how does your portfolio do in the 35th percentile, the 50th percentile, and the 65th percentile of possible scenarios compared with our ideal portfolio. This is attempting to incorporate the concept of risk so that people don't just think higher performance is better no matter what. We set our portfolio as the benchmark, so 100%, but it is possible to get an A without our portfolio. Any number of diversified portfolios can end up in the same general place in the long term, and we try to be fair with that information. If the portfolio is expected to underperform in those various percentiles the grade gets proportionally lower. As I said above, the only "advantage" that we give ourselves is that we assume more regular rebalancing. Often what causes a poor grade is actually the expense ratios of a persons current portfolio of funds because the detract from expected performance directly.

The diversification grade is more nuanced but also combines several levels of analysis. If, for instance, you had exactly the right stock/bond/cash split you could probably still get a D+ or C-. Basically, you're on the right track but barely "passing". If you further had our recommended split between domestic stocks, foreign stocks, bonds and REITs, you could get all the way up to a C+/B-. And in order to get an A in diversification, we're looking for 12 asset classes at the exact weighting we recommend. On top of broad US and foreign developed funds, this would include small cap and value specific funds both in the US and foreign, emerging markets equities, tips, and both US and international real estate and bonds.
« Last Edit: March 25, 2015, 01:52:21 PM by FuturePM »