Author Topic: Should I get out of Betterment and Move To Vanguard Roth IRA?  (Read 11147 times)

Faraday

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I'm in full-on crazy-monkey savings mode right now because I'm 53 and need to catch up on all the savings I didn't (or couldn't) make back when I was an ignorant, broke, consuma suckka.

After reading up over at Bogleheads, (http://www.bogleheads.org/forum/viewtopic.php?t=6211) I see that they advise the following priorities for retirement savings:

Quote
Investing Priority

The general rule of thumb for investing priority is:
1.   401k/403b up to the company match
2.   Max out Roth
3.   Max out 401k/403b
4.   Taxable Investing

Through luck, or maybe a little bit of good sense, I've accomplished all four of these priorities before ever having read Bogleheads. But...reading up there has given me a new realization: I'm not maxing out Roth - I'm taking money that I would otherwise have put toward the Roth, and saving it in a taxable investing account with Betterment.

I'm thinking that I should close out the Betterment account and move that money to my Vanguard Roth accounts for the following reasons:

A) (Vanguard) Roths are tax advantaged, Betterment is not.
B) I'm paying fees at both Betterment AND Vanguard, why not consolidate and save some cost basis?
C) My wife and I are only a few years from being able to draw against a Roth IRA account without penalty anyway. So finally, being "old" gives us an advantage! :-) :-) :-)

Am I wasting time and money by having the account in Betterment? Should I simply move that money to the Roth IRAs and be done with it?

There's nothing special about the Betterment investments - they are buying just about the same Vanguard funds I would be buying over at Vanguard anyway.

However, if I close the Betterment account, I'm closing a nicely liquid fund I can withdraw from anytime - and, I'm wiping out funds that are currently earmarked for the future purchase of a car.  (although I'd love to eliminate the need for that future purchase altogether...)

I've almost talked myself into doing the move anyway. But I seek your advice and thoughts....what say ye?

NOTE: MANY thanks to thedayisbrave for pointing me to the Bogleheads forums!
« Last Edit: June 21, 2015, 12:21:43 PM by mefla »

jstash

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #1 on: June 21, 2015, 02:47:51 AM »
Or you could open a Roth at Betterment.

forummm

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #2 on: June 21, 2015, 06:07:18 AM »
Just max out your Vanguard Roth. It's a no brainer.

Some people like Betterment for taxable because of tax loss harvesting. And then they get their fees waived by getting other people to sign up. But it's not something I see enough value in for me to ever open an account there.

My advice is to just always stick with Vanguard. They have liquid funds too. The money's in your account in 2 days. Betterment is just buying Vanguard funds anyway (plug charging you a fee on top).

TomTX

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #3 on: June 21, 2015, 06:14:45 AM »
Or you could open a Roth at Betterment.

Bleah. Why have some money directly with Vanguard and have other money you are paying a generic-advice intermediary to invest in... Vanguard?

Too much overhead cost. OP is obviously capable of investing himself. There is no reason to pay Betterment money to do it for him.

Too much time cost/complexity. Twice as many passwords, twice as many records to keep track of, twice as many places to update if you need to update beneficiaries, et cetera.

Faraday

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #4 on: June 21, 2015, 11:59:28 AM »
Just max out your Vanguard Roth. It's a no brainer.
....
My advice is to just always stick with Vanguard. They have liquid funds too. The money's in your account in 2 days. Betterment is just buying Vanguard funds anyway (plug charging you a fee on top).

BINGO: That's the thing I wasn't sure of - that Vanguard has liquid funds too. Thanks forummm for that realization!

Faraday

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #5 on: June 21, 2015, 12:02:09 PM »
Or you could open a Roth at Betterment.

Bleah. Why have some money directly with Vanguard and have other money you are paying a generic-advice intermediary to invest in... Vanguard?

Too much overhead cost. OP is obviously capable of investing himself. There is no reason to pay Betterment money to do it for him.

Too much time cost/complexity. Twice as many passwords, twice as many records to keep track of, twice as many places to update if you need to update beneficiaries, et cetera.

Well put, TomTX. You are correct - all the Betterment funds are just Vanguard. "Basic rebalancing", I'm capable of myself, and I'm nowhere near rich enough yet to worry about tax loss harvesting.

The passwords/records aren't a problem for me (not much to track with Betterment) but if I were hit by a bus, yes, it could potentially be a severe problem for the DW or my kids.

Faraday

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #6 on: June 21, 2015, 12:15:50 PM »
jstash, forummm, TomTx;

Thanks for your comments, much appreciate your attention to my question.

I've been meditating on this for 24 hours now (dunno if you noticed the timestamp, but I was researching the Bogleheads and MMM forums until about 4:45am US EDT last night - the question was bothering me THAT much)

I awoke today with a kind of new realization: that investing really IS very dependent on your personal situation, your goals, and who you are. I opened the Betterment account to save for a new car when I thought I was going to need one. Then I practiced Badassity and fixed the car that was broken (that I thought I would have to junk).

That Badassity had a profound effect on me personally and financially. I was unsure I could resurrect the old car, so the Badassity entailed risk. However, I took the risk, "invested" in the car and succeeded. Now, the short term objective I had for the Betterment account (an EV in 2 years from last November) no longer exists.

Once the pressure of a car purchase disappeared, I went back to the priority of investment optimization and realized, I should "collapse" the post-tax Betterment account into a tax sheltered account (Roth) because I was accepting some undesirable overhead (Betterment fees) in order to mindlessly accomplish the goal of saving for a car.

So now my mind is totally blown at how subtle this whole thing is. Fixing a car increased my own personal financial efficiency to the point that the Betterment fees became burdensome and now it's to my advantage to squish that into Vanguard.

Wow. To paraphrase Rick James: Badassity is a hell of a drug!

forummm

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #7 on: June 21, 2015, 12:55:34 PM »
Just max out your Vanguard Roth. It's a no brainer.
....
My advice is to just always stick with Vanguard. They have liquid funds too. The money's in your account in 2 days. Betterment is just buying Vanguard funds anyway (plug charging you a fee on top).

BINGO: That's the thing I wasn't sure of - that Vanguard has liquid funds too. Thanks forummm for that realization!

Even though the money is available quickly, don't confuse that with the appropriateness of the fund you're investing the money in.

If it's something where you *need* the money in 6 months because you're buying something for sure with cash, then you probably want to put it in something like a savings account. When interest rates are better, a money market fund or short term Treasuries would be fine too (right now they tend to lag savings accounts). If it's something you *want* in 6 months, but it would be just fine to wait on it for a few years, or could finance cheaply, then you could put it in a stock fund.

forummm

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #8 on: June 21, 2015, 12:58:11 PM »
The 'what to invest it in based on when you need it' question is common. Here's another answer similar to mine:

http://forum.mrmoneymustache.com/welcome-to-the-forum/how-and-where-to-invest-less-than-5k-for-college-student/msg703801/#msg703801

Faraday

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #9 on: June 21, 2015, 01:43:00 PM »

...(previous stuff was here)...

Even though the money is available quickly, don't confuse that with the appropriateness of the fund you're investing the money in.

If it's something where you *need* the money in 6 months because you're buying something for sure with cash, then you probably want to put it in something like a savings account. When interest rates are better, a money market fund or short term Treasuries would be fine too (right now they tend to lag savings accounts). If it's something you *want* in 6 months, but it would be just fine to wait on it for a few years, or could finance cheaply, then you could put it in a stock fund.

forummm, yes, you are right, and you are hitting the nail directly on the head.

In my case, the "practiced Badassity" has eliminated the *need* I envisioned 2-3 years down the road. Not just that, I MIGHT be able to drive the repaired Honda hybrid well past the point of FIRE. That's huge!

So that changed how I need to use the money. From keeping it at-hand in liquid savings, to FIRE investment at lower cost basis and higher tax efficiency. The money that used to be "car money" turned into "investment money" by fixing the old car before I was fully aware of what I had accomplished.

What I've learned here is far, far more than just "Yay, I fixed my car and don't need a new one!".  I fundamentally changed what I need from the money I had in Betterment from short-term to long-term, therefore rendering the Betterment functionality a useless cost overhead. And in the meantime, you and others gave me the realization that since Vanguard has liquid funds, I'm not investing as efficiently as I could be, anyway.

So you see: despite my own ability to be badass, I am still learning what to do with the avoided cost once I have navigated around it.
« Last Edit: June 21, 2015, 01:45:06 PM by mefla »

forummm

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #10 on: June 21, 2015, 02:29:25 PM »
Great! Glad you're excited about how things are turning out for you and your exercising your badassity muscle.

Faraday

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #11 on: June 21, 2015, 03:36:30 PM »
Great! Glad you're excited about how things are turning out for you and your exercising your badassity muscle.

Dude, thank you, thank you and everyone here. If this forum had only been around 30 years ago, I'd have been FIRE so freakin' fast....

See: in times past, I had two problems working against me:

1) I wouldn't have even had the money in Betterment to puzzle over what to do with it because I was a consuma sukka.
2) Even if I'd had the money, I would have had to spend it on something "unplanned", like, um, insurance or taxes. :-) :-) :-)

What I'm so excited about is coming to understand the other half of the Badassity equation: what to do with the saved money. It's amazing how powerful it is to put those little green employees to work.

forummm

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #12 on: June 21, 2015, 04:07:33 PM »
Yeah, it's pretty exciting. I like having my money make me more money than I can make for myself. The market doesn't go up every year, but it's been matching the amount we've been saving the past couple years. We get there 2x as fast.

Faraday

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #13 on: June 24, 2015, 07:08:10 AM »
Or you could open a Roth at Betterment.

Prior to moving money, I checked one last time what the fees are for Vanguard vs. Betterment. What I found surprised me:
Vanguard = 0.18%
Betterment = 0.12%

WTF? I thought Vanguard was 0.11%. Maybe it's due to the specific fund I picked for the Roth IRA?
(I had a choice of funds at Vanguard so I picked VTFIFX (sp?) and at Betterment, I had no choice, they do the investing for you.

I know I need to consolidate. Why?
-  I'm paying two fees when I should be paying one lower fee.
- I need to push everything to a Roth so yields are not taxed.

My thinking is that I still go to Vanguard, since I already have the Roth there - and to do a Roth at Betterment would require rollover. But I need to do more research: I need to be finding funds at Vanguard with good performance and slightly lower fees.

Anyone care to comment on whether or not I'm missing something here? I thought Vanguard was CHEAPER than Betterment....but now I'm not so sure...

GGNoob

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #14 on: June 24, 2015, 07:21:43 AM »
Anyone care to comment on whether or not I'm missing something here? I thought Vanguard was CHEAPER than Betterment....but now I'm not so sure...

The ER (expense ratio) of Betterments ETFs may be cheaper than Vanguards ER for its Target Retirement Funds. However, at Betterment, you'll pay the "advisor" fee of 0.25% (for accounts $10,000-$99,999) or 0.15% (for accounts $100k+). So overall, Betterment is more expensive.

Faraday

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #15 on: June 24, 2015, 07:42:07 AM »
Anyone care to comment on whether or not I'm missing something here? I thought Vanguard was CHEAPER than Betterment....but now I'm not so sure...

The ER (expense ratio) of Betterments ETFs may be cheaper than Vanguards ER for its Target Retirement Funds. However, at Betterment, you'll pay the "advisor" fee of 0.25% (for accounts $10,000-$99,999) or 0.15% (for accounts $100k+). So overall, Betterment is more expensive.

I'm confused: what is the 0.25% advisor fee? Is this something I'll incur when I hit $10k? (I'm about $4.7k right now....)

GGNoob

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #16 on: June 24, 2015, 08:19:54 AM »
Anyone care to comment on whether or not I'm missing something here? I thought Vanguard was CHEAPER than Betterment....but now I'm not so sure...

The ER (expense ratio) of Betterments ETFs may be cheaper than Vanguards ER for its Target Retirement Funds. However, at Betterment, you'll pay the "advisor" fee of 0.25% (for accounts $10,000-$99,999) or 0.15% (for accounts $100k+). So overall, Betterment is more expensive.

I'm confused: what is the 0.25% advisor fee? Is this something I'll incur when I hit $10k? (I'm about $4.7k right now....)

Ahh. Then you are currently paying 0.35% (with a $100 a month auto deposit configured) or $3 per month. See this page: https://www.betterment.com/pricing/

Faraday

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #17 on: June 24, 2015, 08:41:50 AM »
Ahh. Then you are currently paying 0.35% (with a $100 a month auto deposit configured) or $3 per month. See this page: https://www.betterment.com/pricing/

Thanks for that link. Although it now seems obvious, I could not find that information yesterday. Today I also confirmed Vanguard's expense ratio on the phone with their customer support.

Personal Capital misreported the fees - it goes on what's been charged so far this calendar year, so it would be incomplete information. I've attached a screen clip of Betterment's current fees below.

So where we're at is:
Betterment is 0.35% up to $10,000 in deposits (I'm under $10k)
It drops to 0.25% over $10,000 and 0.15% over $100,000

So:
- Yes, I can cut fees by moving everything to Vanguard,
- Gains and dividends in the Betterment account are fully taxable, so it's to my advantage to kill it before it gains too much. :-)
- I already have a Roth IRA going at Vanguard, so no point to go Roth at Betterment

There's an important caveat here: Betterment is cheaper if you're investing over $100k with them into, say, a Roth. So I am not troubled by the fact that Pete (MMM) pushed $200k to them - it's cheaper than Vanguard at that point and you get all the good Betterment lovin.

So the suggestion: "Why not do a Roth at Betterment?" makes sense if I'm super-rich and have $100k post-tax to chunk into a Roth.


Now, I will admit that I LIKE Betterment, I am annoyed that I can't pick funds there, and that's kind-of a show stopper for me. It seems to make no sense to me that they buy Vanguard funds, but I can go to Vanguard and buy same-or-better for less expense ratio.

So, Crisis Averted.
It makes more sense, for me in my situation, to consolidate to Vanguard.
« Last Edit: June 24, 2015, 11:08:00 AM by mefla »

mumbojumbo

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #18 on: June 25, 2015, 06:20:10 PM »
What makes you think Betterment is cheaper than Vanguard at $100k+? Betterment's fees are on top of Vanguard's ETF fees. Buying the equivalent Vanguard funds yourself is cheaper.

Note: majority of my money is in Vanguard, but I do have some in Betterment.

Faraday

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #19 on: June 26, 2015, 03:05:07 AM »
What makes you think Betterment is cheaper than Vanguard at $100k+? Betterment's fees are on top of Vanguard's ETF fees. Buying the equivalent Vanguard funds yourself is cheaper.

Note: majority of my money is in Vanguard, but I do have some in Betterment.

Where do you get that? I am using Betterment's published information.  They don't say anything about adding Vanguard's expense ratio also.

thedayisbrave

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #20 on: June 26, 2015, 06:21:59 AM »
What makes you think Betterment is cheaper than Vanguard at $100k+? Betterment's fees are on top of Vanguard's ETF fees. Buying the equivalent Vanguard funds yourself is cheaper.

Note: majority of my money is in Vanguard, but I do have some in Betterment.

Where do you get that? I am using Betterment's published information.  They don't say anything about adding Vanguard's expense ratio also.

Vanguard's Expense Ratio is within the fund itself, and not an account charge - it is taken out of the fund's assets before money is returned to you.  So whether you buy those funds through the Vanguard platform or though Betterment or through a brokerage account with a different company (Schwab, Fidelity, etc), that underlying expense ratio will always be there (pays for operating costs of the fund).  What Betterment charges on top is an "advisory" fee based on assets for the technology that enables your account to be tax loss harvested and other more "active" techniques.  So it is true that by using Betterment to invest in Vanguard funds when you can just buy them directly, you are paying double... advisory fees AND the expense ratio.

 

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #21 on: June 26, 2015, 06:32:16 AM »
What makes you think Betterment is cheaper than Vanguard at $100k+? Betterment's fees are on top of Vanguard's ETF fees. Buying the equivalent Vanguard funds yourself is cheaper.

Note: majority of my money is in Vanguard, but I do have some in Betterment.

Where do you get that? I am using Betterment's published information.  They don't say anything about adding Vanguard's expense ratio also.

Vanguard's Expense Ratio is within the fund itself, and not an account charge - it is taken out of the fund's assets before money is returned to you.  So whether you buy those funds through the Vanguard platform or though Betterment or through a brokerage account with a different company (Schwab, Fidelity, etc), that underlying expense ratio will always be there (pays for operating costs of the fund).  What Betterment charges on top is an "advisory" fee based on assets for the technology that enables your account to be tax loss harvested and other more "active" techniques.  So it is true that by using Betterment to invest in Vanguard funds when you can just buy them directly, you are paying double... advisory fees AND the expense ratio.

Even if that wasn't the case the ER for the vanguard ETFs are below 0.10%.
BND is 0.07%
VTI is 0.05%

If you go with mutual funds it'll be a bit higher, especially for bonds. I.e. 0.20% for investors shares.

With ETFs I don't see how this would be more than Betterment. Which as pointed out, charge their fee on top of the Vanguard fees anyway

Faraday

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #22 on: June 26, 2015, 07:25:46 AM »
What makes you think Betterment is cheaper than Vanguard at $100k+? Betterment's fees are on top of Vanguard's ETF fees. Buying the equivalent Vanguard funds yourself is cheaper.

Note: majority of my money is in Vanguard, but I do have some in Betterment.

Where do you get that? I am using Betterment's published information.  They don't say anything about adding Vanguard's expense ratio also.

Vanguard's Expense Ratio is within the fund itself, and not an account charge - it is taken out of the fund's assets before money is returned to you.  So whether you buy those funds through the Vanguard platform or though Betterment or through a brokerage account with a different company (Schwab, Fidelity, etc), that underlying expense ratio will always be there (pays for operating costs of the fund).  What Betterment charges on top is an "advisory" fee based on assets for the technology that enables your account to be tax loss harvested and other more "active" techniques.  So it is true that by using Betterment to invest in Vanguard funds when you can just buy them directly, you are paying double... advisory fees AND the expense ratio.

Wholly Krappe, THANKS thedayisbrave for pointing that out! Wow...looks like I'm leaving Betterment right after I post this... :-( :-( :-(

So, talk to me a little more about this: I've wobbled around Betterment's website (and been "investing" with them) for about 8 months now, and nowhere have I seen this information published or said this same way.

Is it possible they simply don't tell this and it's "hidden"? I don't see anything in my fund transactions list that corresponds to this information.

Scandium

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #23 on: June 26, 2015, 08:43:43 AM »

Faraday

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #24 on: June 26, 2015, 08:50:34 AM »
I'd never seen that before and it's not available at the page where I clipped the pricing structure. Here's the full text:

"Your money is invested in a fully diversified index-fund portfolio made up of 12 exchange traded funds or ETFs. Each of these ETFs has an expense ratio (they range from .09%-.17% depending on your allocation - this is about 15 cents for every $100 you invest), which you would pay no matter where you purchased these funds. The cost charged by the funds is a little harder to see because the fund companies get their money by slightly reducing the dividends they pay out. Rest assured that Betterment works hard to offer funds with some of the lowest fees."

Wow. Yeah.

Shylock

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #25 on: June 27, 2015, 11:09:09 AM »
Does Vanguard offer automated tax loss harvesting? How easy is tax loss harvesting through Vanguard?

It seems like the principal value of Betterment is automated tax loss harvesting, for those who do not want to do it themselves.

thedayisbrave

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #26 on: June 27, 2015, 11:45:55 AM »
Does Vanguard offer automated tax loss harvesting? How easy is tax loss harvesting through Vanguard?

It seems like the principal value of Betterment is automated tax loss harvesting, for those who do not want to do it themselves.

The last time I checked, they do not.  Tax loss harvesting in and of itself is not particularly difficult, if you understand capital gains taxation and the IRS rules surrounding it. 

Betterment's value proposition is that by using tax loss harvesting in your portfolio vs not at all, you will realize larger portfolio gains that will compensate for the advisory fee of 0.89%. 

But, again it's not that difficult to do on your own.  So it becomes a matter of convenience and education.

Shylock

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #27 on: June 27, 2015, 01:39:05 PM »
This is going far afield but... Will Vanguard ever offer that? It seems like there's little reason not to implement automated tax harvesting. Typically though, big companies are not eager to improve to contend with little upstarts I.e. Betterment compared to Vanguard.

Faraday

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #28 on: June 27, 2015, 05:42:49 PM »
I'm having to ask the question if tax loss harvesting is actually important to anyone who might be "young" in their portfolio. I only had about $5k with Betterment (I didn't even qualify for their lower rate you get at $10k) and I can assure you I don't have enough in income to worry about the yields $5k has produced (about $175 over eight months).

Seems to me you'd need in excess of $100k in Betterment to benefit from tax loss harvesting?!?!?

Please - someone weigh in on this, as I am not at all sure of my speculation....
« Last Edit: June 27, 2015, 09:06:40 PM by mefla »

forummm

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #29 on: June 27, 2015, 06:26:49 PM »
I'm having to ask the question if "tax loss harvesting" is actually important to anyone who might be "young" in their portfolio. I only had about $5k with Betterment (I didn't even qualify for their lower rate you get at $10k) and I can assure you I don't have enough in income to worry about the yields $5k has produced (about $175 over six months).

Seems to me you'd need in excess of $100k in Betterment to benefit from tax loss harvesting?!?!?

Please - someone weigh in on this, as I am not at all sure of my speculation....

The losses are going to be somewhat proportional to the amount of money you have invested. If you invest $100/week, your losses harvested (if any) would be a tenth of those available if you invest $1000/week.

Personally, I don't deal with loss harvesting, and just buy and hold Vanguard funds. I'm doing pretty well.

Your savings rate is far more important than gimmicks like TLH.

a1smith

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #30 on: June 27, 2015, 07:14:58 PM »
I'm having to ask the question if "tax loss harvesting" is actually important to anyone who might be "young" in their portfolio. I only had about $5k with Betterment (I didn't even qualify for their lower rate you get at $10k) and I can assure you I don't have enough in income to worry about the yields $5k has produced (about $175 over six months).

Seems to me you'd need in excess of $100k in Betterment to benefit from tax loss harvesting?!?!?

Please - someone weigh in on this, as I am not at all sure of my speculation....

Betterment says TLH can improve your return by 0.77%.  See their whitepaper.

However, they are only going to coordinate TLH in your Betterment account.  For example, if you purchase a "substantially identical" investment in another account (even in your spouse's name) within 30 days you will have a wash sale and the TLH won't work.  You will either change the cost basis of that purchase or have the loss permanently disallowed if the substantially identical investment was purchased in an IRA.

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #31 on: June 28, 2015, 07:18:44 AM »
I'm having to ask the question if tax loss harvesting is actually important to anyone who might be "young" in their portfolio. I only had about $5k with Betterment (I didn't even qualify for their lower rate you get at $10k) and I can assure you I don't have enough in income to worry about the yields $5k has produced (about $175 over eight months).

Seems to me you'd need in excess of $100k in Betterment to benefit from tax loss harvesting?!?!?

Please - someone weigh in on this, as I am not at all sure of my speculation....

If you only have ~$5k invested, it should be stashed in tax-advantaged accounts (ie Roth) anyway and so... no taxes. No tax lost harvesting. Simple.

johnny847

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #32 on: June 28, 2015, 07:37:20 AM »
I'm having to ask the question if tax loss harvesting is actually important to anyone who might be "young" in their portfolio. I only had about $5k with Betterment (I didn't even qualify for their lower rate you get at $10k) and I can assure you I don't have enough in income to worry about the yields $5k has produced (about $175 over eight months).

Seems to me you'd need in excess of $100k in Betterment to benefit from tax loss harvesting?!?!?

Please - someone weigh in on this, as I am not at all sure of my speculation....

If you only have ~$5k invested, it should be stashed in tax-advantaged accounts (ie Roth) anyway and so... no taxes. No tax lost harvesting. Simple.
Assuming you have earned income, yes.

johnny847

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #33 on: June 28, 2015, 07:41:32 AM »
Betterment's value proposition is that by using tax loss harvesting in your portfolio vs not at all, you will realize larger portfolio gains that will compensate for the advisory fee of 0.89%. 

Betterment says TLH can improve your return by 0.77%.  See their whitepaper.

I didn't fact check either of you guys but I think betterment just showed you it's a losing proposition to invest with them

terran

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #34 on: June 28, 2015, 09:28:10 AM »
My wife and I are only a few years from being able to draw against a Roth IRA account without penalty anyway. So finally, being "old" gives us an advantage! :-) :-) :-)

Unrelated, but related just to make sure you know about another advantage of your age: You get increased contribution limits to both IRA (6500 each instead of 5500) and 401k (24k instead of 18k)

a1smith

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #35 on: June 28, 2015, 12:08:33 PM »
Betterment's value proposition is that by using tax loss harvesting in your portfolio vs not at all, you will realize larger portfolio gains that will compensate for the advisory fee of 0.89%. 

Betterment says TLH can improve your return by 0.77%.  See their whitepaper.

I didn't fact check either of you guys but I think betterment just showed you it's a losing proposition to invest with them

The advisory fee is incorrect.  Here is Betterment's pricing; the rate varies from 0.35% to 0.15% (>$100K).

You can verify the 0.77% in the link I provided to their whitepaper.  It is Betterment's estimate; YMMV.

Faraday

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #36 on: June 28, 2015, 04:36:49 PM »
My wife and I are only a few years from being able to draw against a Roth IRA account without penalty anyway. So finally, being "old" gives us an advantage! :-) :-) :-)

Unrelated, but related just to make sure you know about another advantage of your age: You get increased contribution limits to both IRA (6500 each instead of 5500) and 401k (24k instead of 18k)

Absolutely. I've had the catchup contribs in place for many months now and Roth IRA is going on.  thedayisbrave advised me to check into the Bogleheads forums over a month ago. I heeded that advice and increased my contribs per their recommendations in their "sticky" forum postings.

(BTW: I find I'm getting more concrete, "intermediate to advanced" investment information over at Bogleheads, since there's a lot of the MMM forums dedicated to ramp-up and simply shedding light on frugality. Once you've drank the kool-aid, you need to go to Bogleheads to get the stronger stuff. :-) )

Betterment is just the FU Fund - which, by the way, is kinda ironic. I've still gotten way better yields from Betterment than I EVER got from my credit union's "shares" savings account - by about 10x!

So, while I plan to extract my Betterment holdings, I won't close the account - I'll push money that direction after I've got the Roth IRA at Vanguard filled for the year.
« Last Edit: June 30, 2015, 11:06:09 AM by mefla »

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #37 on: June 29, 2015, 06:59:16 AM »
I'm having to ask the question if "tax loss harvesting" is actually important to anyone who might be "young" in their portfolio. I only had about $5k with Betterment (I didn't even qualify for their lower rate you get at $10k) and I can assure you I don't have enough in income to worry about the yields $5k has produced (about $175 over six months).

Seems to me you'd need in excess of $100k in Betterment to benefit from tax loss harvesting?!?!?

Please - someone weigh in on this, as I am not at all sure of my speculation....


Betterment says TLH can improve your return by 0.77%.  See their whitepaper.

However, they are only going to coordinate TLH in your Betterment account.  For example, if you purchase a "substantially identical" investment in another account (even in your spouse's name) within 30 days you will have a wash sale and the TLH won't work.  You will either change the cost basis of that purchase or have the loss permanently disallowed if the substantially identical investment was purchased in an IRA.


Is that the whitepaper where they assume the highest possible tax bracket? >40% and 25% on capital gains, or whatever it is? Great for those people, but unfortunately I'm much lower than that. And as noted before the effects of TLH will decrease in the future.

And you're really only deferring taxes. Each TLH event drive down your cost basis, so when you ultimately sell you get a higher capital gains. Now if you're in the 15% LTCG bracket now, and 0% in retirement that's great. But if you pay 15% tax now, and will pay 15% when you use your taxable portfolio then TLH will give you less. Not zero effect, as you get slightly more growth as you can invest what you save now. You borrowing from your future self to invest now.

Maybe this is a great deal and will give you much higher growth, but I personally struggle to see how it's worth the extra fees, being stuck in a mess of 12+ different ETFs, and with a startup company that may or may not be around in 30 years. Oh yeah; and the wash sale rules. I autoinvest in vanguard every month, which would be a hassle to coordinate with loss sales in a betterment account.

a1smith

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #38 on: June 29, 2015, 06:45:47 PM »
I'm having to ask the question if "tax loss harvesting" is actually important to anyone who might be "young" in their portfolio. I only had about $5k with Betterment (I didn't even qualify for their lower rate you get at $10k) and I can assure you I don't have enough in income to worry about the yields $5k has produced (about $175 over six months).

Seems to me you'd need in excess of $100k in Betterment to benefit from tax loss harvesting?!?!?

Please - someone weigh in on this, as I am not at all sure of my speculation....


Betterment says TLH can improve your return by 0.77%.  See their whitepaper.

However, they are only going to coordinate TLH in your Betterment account.  For example, if you purchase a "substantially identical" investment in another account (even in your spouse's name) within 30 days you will have a wash sale and the TLH won't work.  You will either change the cost basis of that purchase or have the loss permanently disallowed if the substantially identical investment was purchased in an IRA.


Is that the whitepaper where they assume the highest possible tax bracket? >40% and 25% on capital gains, or whatever it is? Great for those people, but unfortunately I'm much lower than that. And as noted before the effects of TLH will decrease in the future.

And you're really only deferring taxes. Each TLH event drive down your cost basis, so when you ultimately sell you get a higher capital gains. Now if you're in the 15% LTCG bracket now, and 0% in retirement that's great. But if you pay 15% tax now, and will pay 15% when you use your taxable portfolio then TLH will give you less. Not zero effect, as you get slightly more growth as you can invest what you save now. You borrowing from your future self to invest now.

Maybe this is a great deal and will give you much higher growth, but I personally struggle to see how it's worth the extra fees, being stuck in a mess of 12+ different ETFs, and with a startup company that may or may not be around in 30 years. Oh yeah; and the wash sale rules. I autoinvest in vanguard every month, which would be a hassle to coordinate with loss sales in a betterment account.

I zoomed in on the fine print under the growth plot and found this (28% federal income tax, 15% LT cap gains rate, 9.3% state tax).  They assume someone in CA with $100K income.

Even if you are in the same tax bracket when you retire future dollars are worth less than current dollars due to inflation.  For example, using 2.5%/year for inflation, if you retire 15 years later the same tax bill is worth 69% what it is in current dollars.

If the startup company fails you shouldn't lose you investment; you'll just have to do it yourself or find another advisor.  If the account is tax-deferred you can change the investments with no tax implications.  If it is an after-tax account you would have to pay cap gains taxes (hopefully) to switch investments.

I'm not advocating Betterment or TLH+, just commenting on your points.  You and I both have mentioned coordinating TLH+ with other accounts to avoid wash sales.  The IRS may come out with more restrictive interpretations of what constitutes a "substantially identical" investment.  Also, their estimate is only a 13-year backtest with a nice period (2008) to do TLH; the advantage may be much less during more normal market conditions.

a1smith

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Re: Should I get out of Betterment and Move To Vanguard Roth IRA?
« Reply #39 on: August 21, 2015, 07:22:50 PM »
Yeah, it's pretty exciting. I like having my money make me more money than I can make for myself. The market doesn't go up every year, but it's been matching the amount we've been saving the past couple years. We get there 2x as fast.

It's even more exciting when your accounts earn more than your salary!  ;-)