Betterment?

[drcolleen]

So I'm not as financially savy as most here but I am working on it and its time to make some changes to my "non-retirement, non-emergency stash" funds.  A few  years ago I started some mutual funds to watch grow for fun but I need to 1. diversify then maintain the balance, 2. I am not TLHing, and 3. the fees for my MFs are higher than ETFs would be (or perhaps higher than other MFs, beginners mistake).  Does anyone have anything good/bad to say about Betterment?  I would like to be able to transfer funds then continue automatic transfers to grow this taxable savings which has no particular goal in life but to grow.

[TheGipper]

They're OK, but honestly you'd be better off just investing with a simple index fund portfolio with Vanguard and tax loss harvesting on your own. Not much too it with the help of websites like this and the Boglehead forum.

[VagabondMD]

I have a small Betterment account, and I contribute to it monthly. I think that if you want instant diversification, rebalancing, and TLHing, for a reasonable fee and no additional advice, hand holding, or frills. It is a fine option. I personally like the discipline it maintains and the value tilt. It is not for everyone, but you can do a LOT worse, IMO.

[jz]

I use Wealthfront and love it.  The responders at this site are biased toward do-it-yourself.  If you are truly a DIY, great. If not, robos that TLH and rebalance  at the granular level are a beautiful tool.

[PenguinMD]

Curious anyone try the Schwab version of their Intelligent Portfolio robo advisor? They boast there's no mgt fee. But a common criticism is that they favor their own funds and have a larger then normal cash position that some don't like.

For me the man thing was Tax Loss Harvesting feature for all these.

Thanks!

[The White Coat Investor]

My biggest issue with Betterment is that they don't do a 401(k). So you still have to do that. If you're competent to manage your 401(k), you're competent to manage your IRA and taxable account. If you're not competent, you're not competent to do any of it. If you have to hire somebody to manage your 401(k), they should do your IRA and taxable account too. The "automatic" tax loss harvesting is cool though and hard to complain about the fees.

[15hrsaday]

The White Coat Investor wrote:

My biggest issue with Betterment is that they don’t do a 401(k). So you still have to do that. If you’re competent to manage your 401(k), you’re competent to manage your IRA and taxable account. If you’re not competent, you’re not competent to do any of it. If you have to hire somebody to manage your 401(k), they should do your IRA and taxable account too. The “automatic” tax loss harvesting is cool though and hard to complain about the fees.

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You probably already know this Jim, but Betterment plans to start their 401(k) service 1Q 2016:

https://www.betterment.com/resources/inside-betterment/product-news/betterment-for-business-the-best-401k-for-employers-and-employees/

We are watching for it because we will be opening a new plan in the near future. For the OP: I like my Betterment acct and put my emergency fund into it since the money is still readily available. Caveat- I'm not a DIY'er.

[The White Coat Investor]

15hrsaday wrote:

The White Coat Investor wrote:

My biggest issue with Betterment is that they don’t do a 401(k). So you still have to do that. If you’re competent to manage your 401(k), you’re competent to manage your IRA and taxable account. If you’re not competent, you’re not competent to do any of it. If you have to hire somebody to manage your 401(k), they should do your IRA and taxable account too. The “automatic” tax loss harvesting is cool though and hard to complain about the fees.

Click to expand…

You probably already know this Jim, but Betterment plans to start their 401(k) service 1Q 2016:

https://www.betterment.com/resources/inside-betterment/product-news/betterment-for-business-the-best-401k-for-employers-and-employees/

We are watching for it because we will be opening a new plan in the near future. For the OP: I like my Betterment acct and put my emergency fund into it since the money is still readily available. Caveat- I’m not a DIY’er.

Click to expand...

I think their plan is to offer 401(k)s, not to manage your company's 401(k), which is a very different thing.

[PTM]

biggest thing I think people gloss over when they see that Betterment offers tax loss harvesting: you cant own any "substantially identical" funds in your 401k, or else its a wash sale when Betterment sells/buys some automatically for you.  I'd be willing to bet many folks hold a substantially identical fund to VTI or VOO in their 401k's.  Plus Betterment puts WAY too much in emerging markets/International markets for my taste (which is to say no taste for international at all).

 

 

[Zaphod]

PTM wrote:

biggest thing I think people gloss over when they see that Betterment offers tax loss harvesting: you cant own any “substantially identical” funds in your 401k, or else its a wash sale when Betterment sells/buys some automatically for you.  I’d be willing to bet many folks hold a substantially identical fund to VTI or VOO in their 401k’s.  Plus Betterment puts WAY too much in emerging markets/International markets for my taste (which is to say no taste for international at all).

 

 

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I thought those services did direct indexing for certain sized accounts. If you did that tlh there would never interfere unless of course you had the same securities instead of funds in your other accounts.

[The White Coat Investor]

PTM wrote:

biggest thing I think people gloss over when they see that Betterment offers tax loss harvesting: you cant own any “substantially identical” funds in your 401k, or else its a wash sale when Betterment sells/buys some automatically for you.  I’d be willing to bet many folks hold a substantially identical fund to VTI or VOO in their 401k’s.  Plus Betterment puts WAY too much in emerging markets/International markets for my taste (which is to say no taste for international at all).

 

 

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Technically you're right, but just as people gloss over it, so does the IRS. Remember your 401(k) isn't reporting to the IRS what you own. There's no enforcement mechanism for this type of thing.

If you're at a point where you care about the percentage of your portfolio in international, a robo advisor is not for you.

 

[Noah]

I just started using Wealthfront. Actually had a chance to sit down with their co-founder for a bit recently and was really impressed with their tax loss harvesting and rebalancing algorithms, and I'm now starting to move some of my taxable account over to them. TLH for 100k+ seems to be a bit better than Betterment in its current iteration too. Wealthfront is a Silicon Valley, Stanford business school based group (better software algorithms) while Betterment is more of a Wall Street and Columbia Business school enterprise (better advertising and interface). Expected return benefits from tax loss harvesting, continual rebalancing seems to more than make up for the small fee involved. These robo advisors seem optimized for TLH and taxable accounts to gain their advantage and without TLH benefits you'd likely be better off with a DIY approach. I choose to manage my own pretax retirement funds with target date and other index funds but don't have the energy to do active TLH myself.

[Quan]

Noah wrote:

I just started using Wealthfront. Actually had a chance to sit down with their co-founder for a bit recently and was really impressed with their tax loss harvesting and rebalancing algorithms, and I’m now starting to move some of my taxable account over to them. TLH for 100k+ seems to be a bit better than Betterment in its current iteration too. Wealthfront is a Silicon Valley, Stanford business school based group (better software algorithms) while Betterment is more of a Wall Street and Columbia Business school enterprise (better advertising and interface). Expected return benefits from tax loss harvesting, continual rebalancing seems to more than make up for the small fee involved. These robo advisors seem optimized for TLH and taxable accounts to gain their advantage and without TLH benefits you’d likely be better off with a DIY approach. I choose to manage my own pretax retirement funds with target date and other index funds but don’t have the energy to do active TLH myself.

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Honestly I started using a roboadvisor out of pure laziness and I didn't want to shift and rebalance my funds.  Ease of use was a big factor for me.  I haven't had a chance to sit down with co-founders of either company, and I'm not sure if I would notice a significant difference between either rebalancing algorithm if they revealed them to me.  The reason I ended up going with Betterment over Wealthfront was purely based on fees.  Betterment was skimming less at >100k+.  In regards to the point you make about Stanford/silicon valley firm VS Columbia/Wall street firm, not sure how that applies.  Prior to going in on roboadvisors for the TLH I was looking at various target date funds also, but it seemed like most target date funds had higher expense ratios than basic vanguard ETFs or admiral shares.

[Noah]

Wealthfront claims that their improved TLH algorithm over 100k makes up for the extra fee, but I believe that calculation is based on the year 2000 to present with the big 2001 and 2008 meltdowns that allowed for large harvesting opportunities (aka major investment losses), and your benefit is greatest when you have a large marginal tax rate (ie live in California/NY with a high income). As with many things financial, you can run the numbers many ways to make your favorite point stick. As far as the Silicon Valley vs Wall Street tilt I don't think it matters much, I just find it interesting where some companies come from, who runs them and what their backgrounds are.

There is a slight total return advantage to rebalancing a portfolio which you can either do yourself or a target date fund will do for you. Most Target Date funds are too expensive (my age bracket with Schwab is about 0.65%) but Vanguard's is 0.13% which is totally reasonable. Going more manually with ETFs through a number of different brokerage options gets you into the 0.05-0.10% depending on your allocations. Depending on how disciplined you are it may be better to go with a cheap target date fund, but the ETF custom approach is my current choice for now though I have to resist the urge to tinker when I read something interesting such as another pitch for small cap value tilt vs Dual Momentum Investing etc.

[TheGipper]

In my mind the real/only value of using Betterment is TLH. I'm not sure why anyone would want to use them for 401k or IRA.

I get some have no investing experience, but if you're going to spend the time investigating Betterment or Wealthfront (which you should before handing over control of your investments), one could just as easily and quickly learn about target date funds and simple index fund portfolios. Rebalance once every year or two (or don't). Easy peasy.