What's The End Goal for Wealthfront and Betterment? (2016) | Hacker News Reader

What's The End Goal for Wealthfront and Betterment? (2016)

larrysukernik.com

175 pointskloncks128 comments

Gurley's post [1] (from 2014) gives one possible end goal: "Learning about Yu’e Bao gave us an epiphany that Jack Ma likely had years ago. If you want to truly disrupt the financial services industry, perhaps you need to stop attacking the transactional experience and launch a competitive product on the asset gathering side. Once you have the assets, all the disruptive things that Silicon Valley types want to do will be easy. The hardest part has been getting access to the funds."

[1]: http://abovethecrowd.com/2014/06/18/disrupting-finance-from-...

why don't Silicon Valley firms partner with existing smaller banks looking to do more with their balance sheets? seems like if their ideas are truly disruptive it would be a win-win for both parties.

Banks are heavily regulated and the government forbids such investments.

> The FDIC permits insured state banks and their subsidiaries to undertake only safe and sound activities and to make investments that do not present a significant risk to the deposit insurance funds

https://www.fdic.gov/regulations/laws/bankdecisions/InvestAc...

There's still room for innovation and partnerships with startups, though, even if they can't do something wildly disruptive*. For example, I originally found out about CreditKarma because my bank had partnered with them in order to incorporate a credit monitoring widget into their online banking portal.

They don't have to make risky investments in these companies. They could collect the deposits and provide them to betterment/wealthfront, while they split the fees. The robo-advisors could cut their acquisition team and focus on the algorithms and the small banks could cut their advisor staff. It's basic synergy.

It's a risk free method for partnering small banks with innovative companies.

Individual investors are impatient and so only large institutions with a track record of being long term investors are the ones who get access to top quality VC funds. Because of the power law those are the only ones that make money. So you would need a big enough pool of capital first and then build a track record of being an LP.

we are starting to see that, A16Z made an investment last year into a smaller bank

https://techcrunch.com/2016/11/01/cross-river-bank-gets-unco...

Since this is a community of programmers, you might be interested in doings things like this yourself instead. There are a couple of options:

- Quantopian (http://quantopian.com/): Python based, kinda a little bit open source (backtesting only), live trades on Interactive Brokers or Robinhood. Has a big community for stocks.

- QuantConnect (http://quantconnect.com/): .NET based, more open source (includes live trading), live trades on Interactive Brokers, has a similarly sized community but the community's attention is spread to other asset types like Forex as well.

Both have numerous example algorithms you can clone and run without much trouble. An example vaguely suited to investing: https://www.quantopian.com/posts/modern-portfolio-theory-min...

I'd just like to quote an old comment here:

>One thing I see every once in a while on HN is people with the belief that they can spend a week or two knocking out an algorithmic trader and start raking it in. In order to break this illusion I would recommend: http://financial-math.org/ http://www.quantresearch.info/

Thank you for this. My thoughts exactly

Totally agree. I was aiming more for those who just want to rebalance their portfolios every month or something like that, though I acknowledge that the services I linked to do have communities interested in active trading.

This is terribly dangerous advice and I highly recommend against it for any sum of money you are not prepared to lose.

Gambling is not a replacement for investment, this is off topic to an article about consolidation of low cost funds.

I'm not sure where everyone got the idea that I was advocating for high-risk active trading. I proposed using these services for "things like [Betterment]" and posted a link to a Markowitz minimum-variance portfolio rebalancing algorithm based on low cost sector ETFs. There's nothing crazy going on here.

As others have pointed out, what this comment proposes is wildly different to what Wealthfront and Betterment do. Active trading, algorithmic or otherwise, is unlike buy and hold investing which Betterment and Wealthfront advise. Buy and hold is also simpler. The value-add of a robo-advisor for buy and hold is automating:

A) Keeping a portfolio balanced and

B) Taking advantage of a fairly specific set of tax loopholes in order to make those investments slightly more tax friendly. (where "slight" can become substantial over a 15+ year period of compound interest)

I know that some programmers have written code to automate their Vanguard accounts into something similar to a robo-advisor. This, to me, is much closer to programmers taking an interest in self-built robo than what the parents proposes.

Auto-rebalancing is fairly easy, you setup your account to put deposits and dividends into a money-market account then write a script which moves money from the money-market account into ETFs at the correct ratios. Tax-loss harvesting is slightly more complex but is doable.

I never proposed anything wildly different to what Wealthfront and Betterment do, the one example algorithm I gave is essentially buy and hold with rebalancing just like Betterment/Wealthfront, just using a different portfolio optimization strategy than they do.

I never advocated for active trading.

Could you elaborate more on the Vanguard scripting? How could one get started with that?

Also don't forget about Quantiacs (https://quantiacs.com/) -- Quantiacs supports both Python and Matlab, and is focused on managed futures -- not equities. It's open source, and unlike quantopian or quantconnect -- Quantiacs actually matches your algos with institutional investors and shares the profits with you....and you retain 100% of your own IP.

Also Quantiacs: https://www.quantiacs.com

This article didn't mention it specifically, but Betterment already put in a rate hike. You used to be able to get 10 basis points if you had over 100k and they just increased that to 25 in a really underhanded way. I had been using Betterment for about 2 years when they did this.

I had been happy with Betterment but it's clear that they want to get as many people in under the low rates and slowly increase it on you, knowing that you can't easily move it around to another provider (especially if you're dependent on their tax loss harvesting etc).

Yeah, that was really disappointing. I'd bought into the Betterment kool-aid, and shortly after funding my account, I saw their 'price increase buried in an unrelated product announcement' email.

I think these companies (Betterment, WealthFront, etc) are struggling with really high customer acquisition costs that take quite a while to break even on. I'm sure that not many people noticed/cared enough to transfer out (I'm doing it now, it isn't a small task), so they came out way ahead on it.

Unfortunately, I think it will be easy for them in a year or two, when they need more quick revenue, to look back and say "Hey, not many people said anything when we raised fees by 67%, what's another 10 bps or so?"

Yep, I agree. I signed up based on the rates at the time, thinking they wouldn't change THAT often. But it sounds like this is going to become more common.

I'm in the process of moving everything to Vanguard.

In the article, it states that Chase is offering 0% funds, yet Betterment claims that their "All-in Actual Cost" for a 100k fund is better than Chase's due to cash drag and a lower expense ratio. (Found here: https://www.betterment.com/comparison/schwab-intelligent-por...)

This is confusing and hard to fact check. Who do I believe?

For a different perspective, here's Schwab's response to critics on its decision to keep a mandatory cash component in its robo-advisor offering: https://www.aboutschwab.com/ceo-statement#anchor-copy-ceo-st...

I think their reasoning is sound in theory, but it strikes me as suspect that they would not allow even the option to stay fully invested for clients who would prefer to manage the cash component of their portfolio in a bank account where it can actually be spent at moments notice. And it does also strike me as a bit too convenient that their decision to remove this option from clients just happens to directly benefit Schwab's bottom line.

Their decision to compose more than half of the equity portion of their portfolio using dramatically higher-cost fundamentals ETFs from Schwab in place of using solely market cap ETFs also triggers similar warning bells for me, however sound the technical reasons for doing so might be: https://intelligent.schwab.com/public/intelligent/insights/w...

That said, I'm curious how Betterment came up with their numbers for their cash drag analysis. If cash drag on the highest end of the spectrum of a portfolio with 30% in cash is supposed to cost investors 0.56%, I'm not sure how they derived the lowest end of a portfolio with 6% in cash to be 0.38%. It seems to me Schwab might not be the only one here guilty of misleading potential clients.

Disclaimer: I am a Schwab client, but am not actively using their Intelligent Portfolios offering. I have done a bit of research into it back when it was announced though.

I used to work with a lot of these custodians. They typically make ~40+% of their revenue from cash products.

They'll keep you in some fund paying 1 bps and turn around and invest it elsewhere. Yes, you want some cash (esp. to the extent it's part of your asset allocation), but no you don't want to use the awful sweep vehicles they default you to.

I use Schwab for checking and like their free ATMs feature. Thought about using their Intelligent portfolios but I didn't like the higher-cost ETFs and the mandatory cash component. Decided to go with Wealthfront. Keep my cash that's not invested in a 1% yield savings account with Ally bank.

Neither option is better than a Vanguard account with one of their target date funds (or funds targeted by level of aggressiveness).

Vanguard is a mutual company; they exist for the benefit of their users. Hard to compete against that.

Disclaimer: moved from Betterment to Vanguard

I am also moving from Betterment to Vanguard. I like Vanguard's selection of funds better than Betterment's one-size-fits-all option.

For example I am a cautious investor right now. At Betterment this means I have to lean more towards their Bonds option, which yielded a very low return over the past year. At Vanguard, I can invest in the Income fund which is a mix of high dividend paying stocks and bonds. Still cautious but much better returns.

You'll get more fine grained tax management, e.g., tax-loss harvesting if using something like Wealthfront. You can't pass along these individual losses (and net against other gains/carry over to future years) with a target date fund.

I actually use Vanguard target date for my tax-advantaged accounts, but I use Wealthfront for taxable account.

Tax loss harvesting only makes sense if you keep on buying and selling multiple funds/products.

Hold only one index fund, hold it long-term and the problem vanishes: all the gains are not taxed until you sell the fund and they are always net of losses.

Not to mention the massive benefit of deferring taxes in a compounding context.

Wealthfront buys the individual shares that track an index. When shares lose value, they'll sell those and buy other shares that are equivalent.

It worked pretty well for me in 2016. I was up ~11% total and about to deduct about 6% in losses.

However, that 6% is capped by the IRS at $3,000 per year.

No, it offsets my other capital gains that year. $3k per year after that can be applied to normal income. Or it can all be applied to future capital gains.

It's nice that the rest of the loss can be carried over to future years.

The one advantage with these robo advisors, or any broker for that matter, compared to a mutual fund is tax loss harvesting.

By having a separately managed account of ETFs or stocks, you can sell and exchange similar stocks when they lose value and harvest the tax losses to use at a later date.

Tax loss harvesting only works in an account that generates capital losses AND is taxed on capital gains.

IE: IRAs and Roth accounts instantly don't give a care, because they're not taxed. Soooo, no benefit to tax-loss harvesting.

IE#2: Any security that actually makes money will be unable to be tax loss harvested. (You need a LOSS to benefit from the tax loophole)

Huh? If you're buying a diverse portfolio of equities then you're guaranteed to have some losers and some winners. You let the winners ride, sell the loses/bank the loss, and replace them with companies that have as similar risk profile to the one you sold as possible.

to reiterate what dragontamer is saying, if all of your investments are in IRAs (where there are no taxes, at all!), then TLH is meaningless.

only if you're maxing out your tax advantaged accounts, and still have additional funds to invest is TLH even relevant.

TLH is oversold a bit these days: https://www.bogleheads.org/forum/viewtopic.php?t=206806 It's unclear how much of a difference it really makes for most people.

I thought Hedgeable's perspective on not doing tax loss harvesting was interesting[1] I have been looking at these robo advisers since the start of the year.

https://www.hedgeable.com/blog/2015/09/how-to-protect-your-p...

Could you explain a bit more? Are you making a better ROI? I currently have a Betterment account and would consider switching if there's a good reason.

If you moved your money to Vanguard and invested in the same funds Betterment currently invests in for you, and you rebalanced as often as necessary, you would get a slightly higher ROI at Vanguard because Vanguard has lower fees.

However, all of the things Betterment does for you now would be your responsibility, including asset selection, rebalancing, thinking about how to manage taxes, etc.

The bottom line is that you can do this yourself for less money, but you have to do it all yourself. Betterment offers more convenience for a higher fee.

> rebalancing

Vanguard Target Date funds rebalance automatically.

> including asset selection

Vanguard's asset selection is "literally buy everything on the market". Its a dumb strategy, but it seems to work. In particular, Vanguard's total market index will perform by definition the average (minus Vanguard's very low fees).

> how to manage taxes

Its no harder than Betterment. You get a 1099-DIV next year, and then fill out your taxes. Since Vanguard Target Date funds automatically rebalance and everything, its unlikely that you get any benefits from Betterment.

How much money do you have in Vanguard? I guarantee you will save from TLH if you have assets north of $1M. My annual tax burden has been reduced by 6 figures each year due to taking losses intelligently.

How? There's a $3000 cap on THL against regular income and capital gains is only taxed at 15%. $1M in realized capital gains is a pretty extraordinary circumstance.

The cap is on deductions from regular income if you have a capital loss for a year.

So if you have $50,000 in capital gains and $53,000 in capital losses, your gains are "free". And you can deduct the extra $3k from ordinary income.

You can also carry capital losses forward each year.

Yeah. If you have $50,000 in gains but $53000 in losses, then that's called a bad year.

You still aren't getting around the fact that you made a crappy investment somewhere to generate that loss.

Every portfolio has a mix of gains and losses if it's well diversified. I have gains that offset the losses elsewhere, but a reasonable chunk of those gains is offset by losses realized in parts of the portfolio that didn't do so well.

If you have a diversified portfolio that is all gains, I think you're probably not actually diversified.

Vanguard total market.

Diversified, but generally speaking it gains every year.

And no. Your portfolio is not as diverse as the entire market. Period.

Of course it isn't. But which market?

Anyway, we are talking past each other.

That's not really how tax loss harvesting works. You can have a portfolio that's up a total of $50k and _still_ have $50k in losses.

I know next to nothing about investing and this is exactly why I'm using Betterment. Even with the recent hikes in fees they're still cheaper than hiring a financial adviser. I really feel like I have very little choice but to stay put. However, how does one get started managing their investment account? I have more than 100K tied up in Betterment and trial-and-error type of learning could be pretty disastrous.

Read through the Bogleheads wiki, especially the pages about "lazy portfolios." There are some recommended books on that site as well.

I disagree with some of the Boglehead stuff, but the wiki is a good resource.

You don't need to do any trial and error. You just need to pick some funds and hold onto them for a long time. The funds Betterment has already picked for you are probably pretty good.

Agree with the sibling comment -- you can achieve a good portfolio allocation with 3-4 ETFs. What Wealthfront and Betterment do is pick these funds for you, then charge you 0.25% year over year for the privilege of maintaining them. It's not the best deal for the investor because the work is not particularly hard -- "managing" your investments as a Boglehead would ideally involve logging into Vanguard once a year to rebalance.

(In fairness, they do some other stuff which is more value-added like TLH, which is more work to do yourself, but again, it's hard to justify the 0.25%.)

"If You Can" by William Berstein is a good, short ebook on this subject.

Hiring an independent financial adviser was one of the best decisions I've ever made. It's an occasional check-in to support decisions I make around investments with Vanguard and my 401k. Finding an adviser is the hard part, so it's worth talking to a bunch of people so you can find someone that's comfortable with what you want to do.

I got the Wealthfront pitch when I started with my employer, but I feel much better with my current arrangement. Your comment "I have very little choice but to stay put" is never nice to hear in any context, so I hope you can move along from that place.

You must ensure that your financial planner or adviser is a fiduciary. Otherwise, they have no obligation to advise or act in your best interests.

http://www.cnbc.com/2015/06/16/is-your-advisor-a-fiduciary-c...

> If you moved your money to Vanguard and invested in the same funds Betterment currently invests in for you, and you rebalanced as often as necessary, you would get a slightly higher ROI at Vanguard because Vanguard has lower fees.

Just felt like pointing out that you'd have to rebalance the same way Betterment does, which isn't the way I believe normal people do it. Betterment uses portfolio optimization techniques that can be hard to implement yourself: https://www.betterment.com/resources/investment-strategy/por...

I would be very surprised if either wealth front or betterment has better ROI than Vanguard. One exists for the purpose of sucking you dry, the other is a mutually owned cooperative with a mission to drive down costs and a history of doing so. Unfortunately as far as I'm aware wealthfront and betterment don't provide aggregate performance information (although if it were in their favor I'm sure they would).

Betterment weights more heavily towards international allocations, so my returns have been lower than a fund more US-centric. That's not why I moved though; Betterment just raised their fees, which were somewhat acceptable before (0.15% of assets under management) but are now out of line with the value they provide (0.25%).

Those fees were on top of the ETF fees for the funds they assembled your portfolio with.

Fees are one of the main items you control in investing. Why pay Betterment when you can go to brokers like TD or Schwab and buy exactly the same funds commission free? You can then spend an hour each quarter rebalancing.

If you don't want to even rebalance, then go buy one of the target date funds from the likes of Vanguard.

TLH is extremely oversold. I don't need to repeat what is easily found in a google search though.

What are the fees on those?

Edit: looked it up, the 2050 is 0.16%, not bad. I usually see much higher fees on those target date funds.

if you're willing to handle the allocation yourself, you can just see what vanguard is putting into their 20xx fund, and buy the corresponding funds as ETFs (or their admiral shares funds if you've got enough money in there) and get even lower expense ratios.

as a general note, anyone interested in this should take a look at the bogleheads site, starting with their wiki: https://www.bogleheads.org/wiki/Main_Page

You can do even better by going directly through Vanguard and getting Admiral Shares of the corresponding mutual fund, which have much lower fees than the ETFs.

> You can do even better by going directly through Vanguard

yes, definitely go straight to vanguard for any of their products! i should've said as much, thanks for doing so.

they're so easy to deal with there's hardly any point in purchasing any of their products elsewhere.

> and getting Admiral Shares of the corresponding mutual fund, which have much lower fees than the ETFs.

once you've saved up enough to buy into the admiral shares, that's certainly the easiest thing to do. but their ETFs are just shares of the admiral-level funds. so their expense ratios are identical.

https://personal.vanguard.com/us/funds/snapshot?FundIntExt=I... https://personal.vanguard.com/us/funds/snapshot?FundId=0928&...

https://personal.vanguard.com/us/funds/snapshot?FundIntExt=I... https://personal.vanguard.com/us/funds/snapshot?FundId=0970&...

that's apparently some sort of magic that vanguard has patented.

Thanks for sharing that link! I've got some weekend reading material now :)

Index-based robo-advisors generally invest your money in vanguard, ishares, schwab broad-market etfs, which come with their own fees (industry-lowest). The expense ratio is the accumulation of all those fees. To check the accuracy of the claim, you would need to find the specific instruments each company invests in, at what proportions, and add up their fees.

Cash drag is the penalty you pay for the time and amount of your wealth that is spent in sub-productive, inflationary cash. The article states:

"Schwab allocates up to 30% of a portfolio to cash. In certain circumstances, keeping up to 30% in uninvested cash can result in up to a 0.56% annual return penalty"

This sounds like a worst case scenario. To roughly calculate cash drag, you can take the avg percentage of wealth that will be in cash throughout the year, then multiply by 5% rule of thumb avg returns. For example if you had to keep 10% in cash, that would be 0.1 * 0.05 = 0.5% in lost potential earnings due to cash.

Cash has some benefit too. I usually keep a reserve of cash that I float and use to rebalance based on market conditions due to trading restrictions that make dollar cost averaging harder.

But why keep any non trivial cash amount in this sort of account I keep my "cash" rainyday fund out side of my brokerage account

I think it depends. I use schwab and just keep part of my emergency fund in the cash reserves.

Wealthfront has raised ~$100M and Betterment has raised ~$200M. If they are only burning $4M/year to grow as fast as they are, they are doing fantastically well. I suspect though that the author's burn rates are off by an order of magnitude.

Agreed. I know the author was trying to be conservative, but I wouldn't be surprised if fully loaded employee costs were about double his estimates.

Yeah, he's taking salary, and a conservative salary at that, as cost to the business. The cost to the business is generally much higher, 1.5x to 2x depending on benefits. He should probably double the number he's using.

Also, both Betterment and Wealthfront have grown AUM since this article was written: https://news.ycombinator.com/item?id=13959061

While we're on the topic of robo-advisors, I'd love to see a robo-advisor that lets clients customize a portfolio allocation and just advises them on when and what to trade to keep their portfolio balanced on a regular schedule, for a fixed fee. That is, instead of these so-called robo-advisors that are actually robo-managers, in the sense that they manage your portfolio and trade on your behalf, and are compensated as such, for a percentage of the entire value of your portfolio.

I'm sure there is enough space in the market for both types of products, the robo-advisor and the robo-manager. Personally, I'd prefer the former.

Shameless plug, but I'm actually working on a product that does exactly that. It started as a personal tool that integrated with my brokerage account to take the hassle out of rebalancing and knowing which trades to make with my monthly contributions. It currently only works with Questrade, but I'm looking at adding support for more brokerages.

https://rebalancr.com/

Interesting.

Btw, suspect you'll have trouble getting people to sign-up using such a flight-by-night custodian. Maybe take a look at Interactive Brokers?

Also, would encourage Questrade to fix this: Mixed Content: The page at 'https://www.questrade.com/' was loaded over HTTPS, but requested an insecure image 'http://ads.yahoo.com/pixel?id=2459149&t=2'. This content should also be served over HTTPS. (index):1 Mixed Content: The page at 'https://www.questrade.com/' was loaded over HTTPS, but requested an insecure script 'http://www.questradeaffiliates.com/scripts/track.js'. This request has been blocked; the content must be served over HTTPS.

Thanks for the feedback! Yeah, I don't expect much mass appeal from supporting only Questrade, it's just the brokerage that I use myself. Good idea on getting them to fix those HTTPS issues, really no excuse for it these days.

Do you have a screenshot of what it actually looks like when using it?

Yeah, I just updated the landing page with a screenshot. It's pretty basic and unpolished at the moment, but I'm working on some improvements.

Another shameless plug: I made a service like this for myself and a few friends: https://zenve.st

It actually trades on your behalf, but only to keep your portfolio balanced and to allocate any cash you deposit into the account. It works on top of Vanguard, and you can customize it to invest in any Vanguard ETFs with whatever allocation you want.

Currently, you can only sign up for the waitlist, as I don't know if people would be interested in something like this.

My 457 plan has a Morningstar service that does this, but it won't tell you proactively.

You answer their questions or pick a portfolio and they update a report monthly that will tell you what to buy/sell to line up with your target.

that's a good insight. i also tend to think advice and sales should be done by separate parties. otherwise the advice won't be independent or bias-free.

The failure of articles like this is that they take a snapshot of a company at a point in time and assume that the company's business model and reach doesn't change. This is the same mistake that many analyst make on early stage companies.

Companies evolve over time and grow in terms of scale. Take a look at Facebook and Google as an example.

LOL! This is exactly why Wall St can't make early stage investments.

Clearly these are speculative bets on Wealthfront being as large as a mutual fund. The fact that the author doesn't see this means they're overvaluing a mutual fund manager and thinking that an algorithm can't come close to matching that performance. These startups have two major cost advantages over incumbents: 1) no researchers 2) no salespeople. They have higher profitability, so they'll be better equipped to spend on sales & marketing to achieve fast growth. This leads me to think that at least one of these companies is going to grow to the size of a large mutual fund and "WIN".

I think their growth has slowed though. At least I remember them bragging about 3 billion under management a year ago.

This article is from January 2016, by the way.

Makes sense, is there any data from 2017?

Betterment has $8B as of March 16, 2017: SEC form ADV page 8, "Regulatory Assets under Management"

https://www.adviserinfo.sec.gov/IAPD/content/ViewForm/crd_ia...

edit: Wealthfront $5B https://adviserinfo.sec.gov/IAPD/content/ViewForm/crd_iapd_s...

Always great when someone is willing to go out and collect actual info -- this comment was worth more than the article. Thank you!

Thanks. That seems healthy but not enough based on this blog's conjecture. I'd guess they are eventually acquired if I were to bet on their future.

I think acquisition is a totally legitimate exit strategy, as long as they're aware of the direction they are heading.

I think that he's definitely right about consolidation and then acquisition.

I work in HNW wealth management and I think that there needs to be better education on what for example a young person's IRA should look like. An ideal robo-advisor would make buy recommendations, ask you to never sell, and use education along the way to help prevent you from making the same mistakes most people fall trap to. I also think that if any of these companies have a desire to stay around for a while they need to be targetting the IRAs of young, high-income programmers. With a good fee and good education and assistance they can probably retain these customers, encourage them to max out contributions into their IRA (you should!!) and slowly build up a long tail of decent-sized accounts from people that may have only been interested from a tech perspective initially.

Sorry for the naive question - but if you're contributing to a 401k, aren't you ineligible for tax-deductible contributions to an IRA?

If so, it would seem like an even better business would be getting into administering 401k plans cheaply with employers and then keeping people on the platform post-employment.

if you have an employer sponsored retirement plan available to you, then making over a certain amount means that your traditional ira contributions aren't tax deductible. at that point you should make roth ira contributions instead. (until you make so much you can't contribute to a roth at all, at which point you can go back to making non-deductible contributions to a traditional ira.)

https://www.irs.gov/retirement-plans/2017-ira-deduction-limi...

This, roth's are great. Also if you still have more money after the 401k and roth and you're thinking you may have children/grandchildren 529's are another good tax-advantaged vehicle.

I'm pretty sure that contributing to a 401k doesn't make you ineligible to contribute to an IRA, but making over a certain amount of money annually does.

Adding to this:

Not a lawyer etc but I don't think a 401k prevents you from making IRa contributions either. Never heard of that.

As for income limits, you can still contribute to your IRA if your income is above the limit (I think that's 125k or so) but the contributions will no longer be tax deductible.

Once you're past that limit, you may as well convert from regular to Roth IRA (this is called a backdoor conversion) so that your money grows tax free.

You can contribute, but you won't be able to deduct the contribution if you have a 401K.

This is for a traditional IRA. Roth IRAs aren't deductible, and also have income limitations.

I haven't switched to a roboadvisor product for a few reasons, but one of them is that saving for retirement is a decision you make on a 30+ year timeline. Most startups hardly last 3 years, much less 30. Why would I trust my money to an industry where the typical case is a flameout in only a few years?

It's a fair concern. Both Wealthfront and Betterment are Broker dealers and they have legal obligations in the event of going out of business.

Wealthfront spells it out as: "In the unlikely event Wealthfront were to cease doing business, your account would be held by our brokerage partner until you transferred your account to a new broker or chose to liquidate your account to receive a check."

https://support.wealthfront.com/hc/en-us/articles/211004083-...

If their companies go under, it shouldn't affect your assets- that's not part of their balance sheet. You can move then elsewhere after they flame out, and have paid only 25 bps for a few years in the meantime.

This is the same concern I had, though it's important to point out that if you had money in Betterment/Wealthfront and they went under, it would just be an inconvenience as you'd retain your investments.

buffet's advice will work for some 30 year horizon just fine.

If you want a good robo advisor with no fees, check out Wise Banyan. I'm a client, but a happy one and that's my only relationship with them.

WiseBanyan seems to be employing strategy (3): "Have a relatively low amount of AUM, charge low fees, and employee very few people." According to LinkedIn, WiseBanyan only seems to have 20-30 employees compared with Betterment's 200-250 and Wealthfront's 150-200.

I use Wisebanyan as well and would recommend it

According to a link about performance from a comment above, Wise Banyan has done pretty well over the last three years.

https://senzu.io/investing/robo-advisors

But... you don't want to make long-term (or even short-term) investment decisions based on recent past performance.

Market is up many 10s of percent. Everyone has done well over the past few years.

If you guys want to see a comparison of historical performance and fees of the top robo-advisors check this out https://senzu.io/investing/robo-advisors

I don't use them, but I can tell their strategy is working. My broker (through work) is Fidelity and lately they've been throwing up pop-ups on login, and sending me emails, urging me to try their low-cost funds that they insist are cheaper and better than Vanguard. They're definitely feeling the heat; I don't think companies like this push their low-fee funds on you unless they're up against the wall.

Doesn't this mean that Vanguard's strategy is working, not Wealthfront/Betterment?

Charles Scwab does take fees in a way, their robo advisor requires a certain percentage of your account be cash. This cash in turn is invested for their own profits.

I looked into these companies but couldn't find a reason to invest through them. I don't understand what value these guys bring. If I am already paying a commission for each fund I don't know why I shypay these guys a cut again.

Eventually I think these guys will and must come up with their own funds. Else it does not make sense for them.

The article's scenarios top out at 16B AUM , but vanguard is at 4T with a T. Their problem is not lack of TAM.

Why can't I buy VTI and dividend reinvest? I compared that to Betterment since 2004 and it wins handily. What am I missing? Tax loss harvesting sounds fancy but what's the actual bottom line benefit after fees?

VTI is less diversified, you basically only have US stocks. I probably wouldn't mind being only invested VTI but some people want more diversification.

Yeah, I would consider VTI to be one of my portfolio pillars along with international, bonds, and REITs.

Betterment maintains a more diversified portfolio and optimizes it for a few things like downside risk, explained here: https://www.betterment.com/resources/investment-strategy/por...

I don't use a robo-advisor, but TLH saves me 6 figures in taxes every year. Sadly I'm not comfortable disclosing the size of my portfolio. It's big enough to have an account with most bankers, but not big enough to require dedicated staff. :)

> but TLH saves me 6 figures in taxes every year.

This is a bit misleading since the only way to save 6 figures on capital gains every year from TLH is to have realized > 6 figure loss at some point in the past.

The offset on regular income is also maxed at 3k/year.

The losses/gains must also be in a taxable account.

https://www.bogleheads.org/wiki/Tax_loss_harvesting#Using_a_...

TLH can be useful in certain situations (like yours), but I think generally it is oversold by the likes of Wealthfront and Betterment.

So you have big capital gains somewhere else in your portfolio that lets you take big deductions from TLH?

Yes, absolutely. I also have an AMT overhang, but I doubt that will be used up in my lifetime.

I tried out these services, and it just freaks me out too much having $50,000 sitting in an iPhone app. I get that they are insured and legit, but it's just too much money for me to hand over to a startup.

Every single one of my brokerage accounts and banking accounts has an iPhone app. You probably know this, but the money doesn't actually "[sit] in the app", whatever that would mean. It is invested in stocks, bonds, mutual funds, etc -- the app simply gives you a view into where it all is and the current value. :)

Don't you have a broker, or a 401k?

Yes, I have Vanguard but decided to give Betterment a try when they first launched.

I think twblalock is trying to say there's an app for that: Vanguard by The Vanguard Group, Inc. https://appsto.re/us/HKO-t.i

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