If you feel it's worth the trouble, you could manage two accounts:
1. Your betterment account where you make new purchases. Recent purchases can be tax loss harvested as you say.
2. After a number of years, transfer stocks over to Vanguard when their cost basis becomes high enough that tax loss harvesting is unlikely. (I'm not sure if Vanguard will have your cost basis of the original purchase - you might need to track it yourself)
Technically yes new purchases can be tax loss harvested. But while the bulk of your account grows beyond where tax loss harvesting is likely, it also grows larger than your annual contributions. If you're worried about each detail and optimizing, why are you paying 0.25% just to have Betterment manage details?
Vanguard's S&P 500 and Total Stock Market both have 0.05% expense ratios, compared to Betterment's 0.25% annual expense. Come to think of it, I don't believe Betterment "absorbs" the expense ratio - that makes no sense. An expense ratio is charged to the assets of a fund internally, without approval of any kind. Nobody outside the fund can stop the expense ratio or pay it themselves. So at Betterment, you're looking at 0.25% plus the expense ratio.
On $1 million, the 0.25% expense ratio means an extra $2,500 / year in fees. How many hours would it take you to do tax loss harvesting yourself? Let's say you check twice a year, and you sell S&P 500 and buy Total Stock Market to realize losses. Takes a few minutes, but let's say it takes 2 hours. So for about 4 hours work a year you save $2500 in fees, or roughly $600 / hour of effort. And if you get used to it, it would take less time, so $800 / hour or $1200 / hour could be achievable. I think you can save a lot by doing the Betterment work yourself.
But if you go with Betterment anyways, it's extremely unlikely they are absorbing the expense ratio for your funds. You are paying an additional 0.25%, in addition to the fund quietly having it's own expenses.
I think we are talking about two different things. Betterment doesn't offer direct indexing so it's the management fees PLUS the vanguard expense ratio. Wealthfront offers direct indexing, meaning you literally own hundreds of stocks..basically as if you are buying the index fund individually. Advantages to this using Wealthfront is
1. You don't have to pay per trade fee..imagine the amount of money that will require for 100-500-1000 trades
2. You can tax loss harvest individual stocks vs the entire index..which has very high opportunity for harvest.
3. Harvesting individual stocks will reset the "losers" into a lower basis point so higher potential for growth
I don't think betterment's robo auto balancing and the tax loss harvesting is worth the cost when you only have like 7 assets. That's very easy to harvest. But when it comes to hundreds of stocks..then it's not so easy to me anyways.
So a couple things I have to consider as cyclone points out.
At investing 200k/year of new stocks, I am 100% sure I can harvest 3k worth of losses every year. 3k worth of losses is worth about 1300 to me. At 0.25 fees, minus what vanguard would of charged me at 0.05%..I'll end up with 0.2% fees..meaning if my account is bigger than 650k, I'll end up paying for extra vs the vanguard account.
Eventually I feel that even if I stop putting in 200k/year ...the dividend reinvestment in itself can get me my 3k worth of tax harvest.
That being said..I also shouldn't overlook what that 1300 worth of savings can bring if I reinvest that.
But here's the thing..if it only takes me 2.5 years to hit 650k..which means I would have saved perhaps 2k worth in taxes(with fees already subtracted). And then afterwards, I'll end up paying more than a vanguard admiral account.
So is resetting the individual stocks in a direct index fund to a lower basis point due to tax harvesting worth the fees? I feel like this is worth something too..in which it's not something I can do with Vanguard index funds. Based on my tax bracket, I feel like the more I earn from my investment the better since capital gains tax is way less than my income tax bracket.