Comment by dimva | Hacker News Reader

Comment by dimva | Hacker News Reader

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I did the same thing about 2 years ago, after I calculated how much in fees Wealthfront (or Betterment) would cost me. I also didn't agree with some of the investment choices they force you to make (Wealthfront invested 5% in commodities, Betterment is heavily biased towards foreign stocks), which turned out to be good calls on my part - at least for now.

Anyway, investing a portion of each paycheck turned out to be too much repetitive work, so I wrote a cron job to do it for me automatically (more work, but more interesting work!). Then, I added automatic tax-loss harvesting once Betterment added theirs. Then, some friends wanted to use it, so I built a UI.

I'm thinking about releasing it to the public. To do that, I would have to become a registered investment advisor, but that's not a big deal - just taking a test and filling out some paperwork. Would anyone be interested in paying $10/month for this service? I'm currently working on setting up a marketing site explaining what this thing does: https://zenve.st

TBH, I am hoping somebody pushes a decent implementation of this to github.

I am personally not willing to pay monthly, and definitely not willing to share brokerage credentials, with a SaaS version.

This is very cool. How do you allocate the money (i.e. into which Vanguard funds and what percentage each)? I understand that you do a risk tolerance test, but how do you diversify among asset classes? Also how are you going about tax loss harvesting?

Not the OP but I would definitely start here to get a handle on the Bogle approach: https://www.bogleheads.org/wiki/Getting_started

The Bogleheads forum is also often very useful for getting your personal finance questions answered, though of course the usual Internet stranger disclaimer applies.

Thanks for the kind words!

It basically follows the Bogleheads approach: https://www.bogleheads.org/wiki/Getting_started

You get roughly your age as the percentage invested in bonds, with some adjustments up or down for risk tolerance. For taxable accounts, the bonds will be VTEB (tax-free munis). For nontaxable accounts, the bonds will be VCIT/VWOB (corporate bonds / emerging market bonds). The stock ETFs are VTI (US), VEA (foreign developed), and VWO (emerging markets). Nontaxable accounts also get VNQ (real estate), based on how much real estate you already own.

For example, my taxable account is: 60% VTI, 18% VEA, 12% VWO, 10% VTEB

Tax-loss harvesting is a bit tricky. In order to tax-loss harvest, you have to sell one ETF and buy another correlated ETF. This is usually done by purchasing another company's ETFs (ex: Schwab). Unfortunately, while Vanguard charges no fees for its own ETFs, it does charge fees for others' ETFs.

The algorithm takes this into account though, so it only initiates a harvest if the tax refund you'd get is significantly larger than the cost of buying the non-vanguard ETF. In order to make this cheaper, VTI is paired with VOO - even though the index tracked is different, they are highly correlated with each other (>99%).

Be careful. Buying an ETF from another vendor that tracks the same index, like say an S&P 500 index ETF from Vanguard vs. Fidelity, can still trigger a wash sale. Granted, it's harder to find through simple transaction matching, but an audit might trip you up.

Yes, I agree. The pairs Zenvest uses for tax-loss harvesting all track different indexes (another reason why VTI is paired with VOO instead of SCHB - even though the indexes VTI and SCHB track are nominally different, they consist of the same stocks):

VTI (Total US Stock market) / VOO (S&P 500)

VEA (FTSE Developed All Cap ex US, 3735 stocks) / SCHF (FTSE Developed ex-US, 1471 stocks)

VWO (FTSE Emerging Markets All Cap China) / SCHE (FTSE Emerging Index)

What kind of gains do you see in practice with tax lots harvesting?

The maximum yearly gain is $3000 * your marginal income tax rate. So, if your marginal tax rate is 33%, it would be $1000/year. This is because you can write off a maximum of $3000 of losses on your taxes every year.

The information you may find about tax-loss harvesting gains on the internet is usually incorrect if it comes from people trying to sell you something. For example, Betterment / Wealthfront claim that it adds an extra 1% of returns (only if you have a $100,000 portfolio and your marginal tax rate is 33%, which are the assumptions they use to get that number). On the other hand, human investment advisors are generating FUD about tax-loss harvesting[1][2], because they want to discourage people from requesting that service.

[1] http://www.cnbc.com/2014/10/24/weighing-the-pros-and-cons-of...

[2] https://www.kitces.com/blog/is-capital-loss-harvesting-overv...

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