Has anybody heard of the automated investing service called Betterment? I know a lot of us like to do this on our own. But they have a low fee of around .15 and they have a tax loss harvesting tool that does it for you. Pretty cool.
I am also interested in a company that provides tax loss harvesting. ......
It depends on the data used. Failure to rebalance means that the assets with the highest returns (usually the riskiest equities) will eventually come to dominate the portfolio, and so the portfolio will have a higher overall return. But with much higher variability (beta). An investor can get the same results just by investing in those assets to begin with, but the ride is very wild.I read somewhere recently that show re-balancing which everyone and their dog thinks is a good idea, actually over a long span returns 0.15% less than not re-balancing.
As for Schwab, I think folks figured out how they would make their money: It seems they would require a significant cash position in those portfolios. That cash would earne money market rates which we know are essentially zero. Of course, Schwab would make money by using that cash for themselves.
I read somewhere recently that show re-balancing which everyone and their dog thinks is a good idea, actually over a long span returns 0.15% less than not re-balancing. So this has made me less concerned over my poor re-balancing behaviour
AAAgh! I hope not! $100K x .15% = $150 per year! Whew!I think piece of mind is a very important thing and if you pay 1500/year to have it on 100k... that's fine...
Just be aware that tax loss harvesting doesn't eliminate taxes, it just pushes them down the road. Depending on your current and future tax brackets that can be a good thing, or not.
Good point. I've only done this with broad index funds, and I was pretty confident on a recovery.True IF the investment recovers in value, but that is somewhat presumptuous. It can be good if your tax bracket declines as is common when one retires or if one can use the losses to offset ordinary income.
Great points. Ironically, my situation is that I'm in the 25% tax bracket in retirement and I see this rising after RMDs. I probably will die, though.For many people, tax-loss harvesting does eliminate taxes. There are two reasons for this:
1. Later in life, one can be in the 15% marginal income tax bracket which means that Long-Term Capital Gains are taxed at 0%. This turns out to be most important. For instance, suppose one sells $200K of mutual fund shares in order to pay expenses for a year. If the basis is $100K and the long-term capital gains is $100K, and $26K of the LTCG is offset by previous carryover losses from tax-loss harvesting, then the income tax on your $200K is $0.00.
2. One can die. There is a step-up no-tax basis applied to the assets.
I don't think Betterment will be cheaper than a vanguard target date fund. Betterment charges 0.15% on amounts over $100K, and you'll still have to pay the ERs of the ETFs they buy. Vanguard target date funds have very low expenses of just .18%. I'd want to know a lot more about the ETFs they are going to use.
Hmm, a comparison would be interesting to see. Might do that next year with my 2015 Roth IRA contributions using $1,000 opening deposit and $50 biweekly contributions on each account. Will use Target 2045 on Vanguard and just set the target retirement age on Betterment. Granted, I think the fees are a heftier 0.35% for small accounts on Betterment so that's bound to eat into the returns.I'm thinking the best Roboadvisor solution is a simple Vanguard Target Retirement Index fund. Those things are pretty hard to beat on a risk-adjusted basis and fee basis. They have been around a while and are well-proven.
You can calculate the costs of both options without investing anything, and it will be a firm number. I don't think you'll get much useful data from a one year experiment in total returns--any differences (aside from costs) will be due to the asset allocation of each portfolio and the vagaries of market in that one year. Even 20 years wouldn't tell you which was "better", only which allocation happened to best match what the market did (e.g. foreign developed markets did great, EM got clobbered, US bonds performed better than expected, etc). That's something we can't know in advance.Hmm, a comparison would be interesting to see. Might do that next year with my 2015 Roth IRA contributions using $1,000 opening deposit and $50 biweekly contributions on each account. Will use Target 2045 on Vanguard and just set the target retirement age on Betterment. Granted, I think the fees are a heftier 0.35% for small accounts on Betterment so that's bound to eat into the returns.
Yeah, I already estimated the costs. Target 2045 has a 0.18 expense ratio, iirc. Betterment fees are 0.35 for accounts <10K, 0.25 for 10K to <100K and 0.15 for 100K or more. Add those to underlying ETFs' average 0.10 ER.You can calculate the costs of both options without investing anything, and it will be a firm number. I don't think you'll get much useful data from a one year experiment in total returns--any differences (aside from costs) will be due to the asset allocation of each portfolio and the vagaries of market in that one year. Even 20 years wouldn't tell you which was "better", only which allocation happened to best match what the market did (e.g. foreign developed markets did great, EM got clobbered, US bonds performed better than expected, etc). That's something we can't know in advance.
Costs matter, and you can control those.
Specifically, while Betterment will still maintain a 25bps advisory fee for its core digital business, the company announced that for accounts over $100,000, fees are being increased from 15bps to 25bps (a whopping 66% price increase for large accounts paying the “old” rates!), and large accounts will also have the opportunity to use Betterment Plus (offering an annual meeting with a CFP professional) for 40bps, or Betterment Premium (offering year-round access to a team of CFP professionals) for 50bps, or can be referred to the new Betterment Advisor Network (at whatever rate the outside advisor charges, plus the 25bps Betterment for Advisors platform fee).
It seems that Betterment is shifting gears and raising some fees:
https://www.kitces.com/blog/betterm...ail&utm_term=0_4c81298299-949a85c3d2-57089725
Hmm.... this is not where I thought so called Robo-advising would be going. I'll stick with my own advising and a relatively simple portfolio of USA stocks/Int stocks/USA Bonds/Cash.
Also, Betterment doesn't call me offering me ideas or bug me about anything. It just grows. I think a Vanguard Target Date fund is probably the same so it's possible I'm just being an idiot falling for clever marketing. So... I'm doing a bit of a comparison to see which type of thing I like more. I do like their fund selection process and I like their approach quite a bit.